<PAGE>

===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, 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 MARCH 31, 2004

                                       OR

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

     FOR THE TRANSITION PERIOD FROM _________  TO __________

                        COMMISSION FILE NUMBER: 000-50516

                          ---------------------------

                          EYETECH PHARMACEUTICALS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                    13-4104684
   (STATE OR OTHER JURISDICTION OF                   (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                   IDENTIFICATION NO.)

                           3 TIMES SQUARE, 12TH FLOOR
                            NEW YORK, NEW YORK 10036
           (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

                                 (212) 824-3100
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                    NO CHANGE
         (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
                               SINCE LAST REPORT)

                          ---------------------------

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

      The number of shares of registrant's common stock outstanding on May 10,
2004 was 40,374,610.

===============================================================================
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE NO.
                                                                                                            --------
<S>                                                                                                         <C>
                                     PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements..............................................................................    1

Condensed Consolidated Balance Sheets as of December 31, 2003 and March 31, 2004 (unaudited)...............    1

         Condensed Consolidated Statements of Operations for the three months
             ended March 31, 2003 and March 31, 2004 (unaudited)...........................................    2

         Condensed Consolidated Statements of Cash Flows for the three months
             ended March 31, 2003 and March 31, 2004 (unaudited)...........................................    3

         Notes to Condensed Unaudited Consolidated Financial Statements....................................    4

Item 2.  Management's Discussion and Analysis of
             Financial Condition and Results of Operations.................................................   10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk........................................   32

Item 4.  Controls and Procedures...........................................................................   32

                                       PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.................................................................................   33

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..................   33

Item 3.  Defaults Upon Senior Securities...................................................................   34

Item 4.  Submission of Matters to a Vote of Security Holders...............................................   34

Item 5.  Other Information.................................................................................   34

Item 6.  Exhibits and Reports on Form 8-K..................................................................   34

Signatures.................................................................................................   36
</TABLE>

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          EYETECH PHARMACEUTICALS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,        MARCH 31,
                                                                       -------------      ------------
                                                                           2003               2004
                                                                       -------------      ------------
                                                                                          (unaudited)
<S>                                                                    <C>               <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents........................................    $  25,013,756     $ 128,648,696
  Marketable securities............................................      106,360,073       138,266,452
  Collaboration receivable.........................................        2,562,000         4,502,000
  Prepaid expenses and other current assets........................        1,301,027         3,017,675
                                                                       -------------     -------------
Total current assets...............................................      135,236,856       274,434,823
Property and equipment, net........................................        5,867,582         7,331,813
Restricted cash....................................................        5,623,865         5,623,865
Other assets.......................................................        2,751,375         1,087,688
                                                                       -------------     -------------
Total assets.......................................................    $ 149,479,678     $ 288,478,189
                                                                       =============     =============
                          LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Accounts payable and accrued expenses............................    $  14,308,103     $   9,606,981
  Deferred revenue, current portion................................        5,000,000         5,214,871
  Capital lease obligations, current portion.......................          618,350           633,826
  Deferred rent liability, current portion.........................          171,856           171,857
                                                                       -------------     -------------
Total current liabilities..........................................       20,098,309        15,627,535
Deferred revenue, net of current portion...........................       65,416,663        65,457,791
Capital lease obligations, net of current portion..................        1,038,279           873,900
Other liabilities, net of current portion..........................          425,761           949,234
Redeemable convertible preferred stock -- $.01
  par value; 29,093,695 shares authorized;
  25,062,278 and none issued and outstanding at
  December 31, 2003 and March 31, 2004,
  respectively, liquidation preference of
  $252,053,310 as of December 31, 2003.............................      185,506,532                --
Stockholders' (deficit) equity:
  Convertible preferred stock -- $.01 par
   value; 120,000 and none authorized, issued
   and outstanding at December 31, 2003 and
   March 31, 2004, respectively; liquidation
   preference of $225,000 as of December 31, 2003..................          150,000                --
  Preferred stock -- $.01 par value; 5,000,000
   shares authorized, none issued and
   outstanding at December 31, 2003 and March
   31, 2004........................................................               --                --
  Common stock -- $.01 par value; 60,000,000
   and 125,000,000 shares authorized;
   4,527,736 issued and 4,102,736 outstanding
   at December 31, 2003; 40,762,109 issued and
   40,337,109 outstanding at March 31, 2004........................           45,277           407,621
  Additional paid-in capital.......................................       28,804,713       373,844,810
  Loans to stockholders............................................         (430,666)         (430,666)
  Deferred compensation............................................      (13,956,265)      (14,840,850)
  Treasury stock, at cost..........................................         (255,000)         (255,000)
  Accumulated other comprehensive income...........................          130,831           166,327
  Accumulated deficit..............................................     (137,494,756)     (153,322,513)
                                                                       -------------     -------------
Total stockholders' (deficit) equity...............................     (123,005,866)      205,569,729
                                                                       -------------     -------------
Total liabilities and stockholders' (deficit) equity...............    $ 149,479,678     $ 288,478,189
                                                                       =============     =============
</TABLE>

        See accompanying notes to these unaudited financial statements.

                                       1

<PAGE>

                          EYETECH PHARMACEUTICALS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED MARCH 31,
                                                ------------------------------
                                                    2003             2004
                                                ------------      ------------
                                                 (UNAUDITED)       (UNAUDITED)
<S>                                             <C>               <C>
Collaboration revenue:
  License fees.............................     $    833,334      $  1,250,000
  Reimbursement of development
  costs....................................        6,475,830        10,462,600
                                                ------------      ------------
Total collaboration revenue................        7,309,164        11,712,600
Operating expenses:
  Research and development.................       11,616,643        21,930,892
  Sales and marketing......................          568,443         3,799,229
  General and administrative...............        1,103,146         1,642,661
                                                ------------      ------------
Total operating expenses...................       13,288,232        27,372,782
                                                ------------      ------------
Loss from operations.......................       (5,979,068)      (15,660,182)
Interest income............................          618,476           694,708
Interest expense...........................          (61,580)          (46,271)
                                                ------------      ------------
Net loss...................................       (5,422,172)      (15,011,745)
Preferred stock accretion..................       (2,258,963)         (816,012)
                                                ------------      ------------
Net loss attributable to common
  stockholders.............................     $ (7,681,135)     $(15,827,757)
                                                ============      ============
Basic and diluted net loss  attributable to
  common stockholders per share                 $      (2.04)     $      (0.57)
                                                ============      ============
Weighted average shares outstanding --
  basic and diluted                                3,760,796        27,529,863
                                                ============      ============
Pro forma basic and diluted net
  loss attributable to common
  stockholders per share...................     $      (0.29)     $      (0.44)
                                                ============      ============
Weighted average shares outstanding --
  pro forma basic and diluted                     26,863,202        35,782,390
                                                ============      ============
</TABLE>

      See accompanying notes to these unaudited financial statements.

                                       2

<PAGE>


                          EYETECH PHARMACEUTICALS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED MARCH 31,
                                                          -------------------------------
                                                              2003             2004
                                                          ------------    ---------------
                                                           (unaudited)      (unaudited)
<S>                                                       <C>             <C>
OPERATING ACTIVITIES
Net loss...........................................       $ (5,422,172)   $   (15,011,745)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
   Depreciation and amortization...................            181,191            551,726
   Noncash stock-based compensation................                 --          1,945,605
   (Gain) loss on sale of marketable securities....                 --              6,937
   Changes in operating assets and liabilities:
    Collaboration receivable.......................         (5,945,954)          (434,000)
    Prepaid expenses and other current assets......            301,009         (1,379,572)
    Other assets...................................           (144,980)           (37,537)
    Accounts payable and accrued expenses..........         (1,422,261)        (4,200,158)
    Deferred revenue...............................         74,166,666         (1,250,000)
    Other liabilities..............................           (105,974)           523,473
                                                          ------------    ---------------
Net cash provided by (used in) operating activities         61,607,525        (19,285,271)
INVESTING ACTIVITIES
Purchases of property and equipment................           (907,763)        (2,015,957)
Purchase of marketable securities..................        (52,639,104)    (1,822,600,498)
Proceeds from sale of marketable securities........         22,956,901      1,790,722,677
Repayment of loan to stockholders..................                750                 --
Increase in prepaid expenses and other current
  assets...........................................            (24,108)          (337,076)
Net cash (used in) investing activities............        (30,613,324)       (34,230,854)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net........             39,333        154,659,541
Proceeds from issuance of redeemable convertible
  preferred stock and warrants, net................         24,994,988          2,640,427
Repayment of capital lease obligations.............           (135,191)          (148,903)
                                                          ------------    ---------------
Net cash provided by financing activities..........         24,899,130        157,151,065
                                                          ------------    ---------------
Net increase in cash and cash equivalents..........         55,893,331        103,634,940
Cash and cash equivalents at beginning of period...          5,791,845         25,013,756
                                                          ------------    ---------------
Cash and cash equivalents at end of period.........       $ 61,685,176       $128,648,696
                                                          ============    ===============
NONCASH FINANCING AND INVESTING ACTIVITIES
  Loans to stockholders in connection with exercise
   of stock options and stock purchase.............       $     34,416    $            --
                                                          ============    ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
Cash paid during the period for:
  Interest.........................................       $     61,580    $        46,271
                                                          ============    ===============
  Issuance of redeemable preferred stock on
       conditional exercise of warrants                   $         --    $       500,964
                                                          ============    ===============
  Conversion of redeemable and convertible
       preferred stock to common stock                    $         --    $   189,613,935
                                                          ============    ===============
  Expenses in connection with initial public
       offering of common stock reclassified to
       additional paid in capital                         $         --    $     1,701,223
                                                          ============    ===============
</TABLE>

       See accompanying notes to these unaudited financial statements.

                                       3

<PAGE>

                          EYETECH PHARMACEUTICALS, INC.
         NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Eyetech Pharmaceuticals, Inc., together with its wholly owned subsidiary
("Eyetech" or the "Company"), is a biopharmaceutical company that specializes in
the development and commercialization of novel therapeutics to treat diseases of
the eye. The Company's initial focus is on diseases affecting the back of the
eye, particularly the retina. The Company's most advanced product candidate is
Macugen(TM) (pegaptanib sodium injection), which it is developing in a
collaboration with Pfizer Inc. ("Pfizer") for the treatment of both the wet form
of age-related macular degeneration, known as AMD, and for the treatment of
diabetic macular edema, known as DME, which is a complication of diabetic
retinopathy. In the second half of 2001, the Company initiated two phase 2/3
pivotal clinical trials of Macugen for the treatment of wet AMD. Based on the
results from the first year of these trials, the Company plans to prepare and
file in 2004 a new drug application with the United States Food and Drug
Administration seeking marketing approval of Macugen for the treatment of wet
AMD. The Company is also currently conducting a phase 2 clinical trial for the
use of Macugen in the treatment of DME and recently announced preliminary data
from this ongoing study.

The Company formed a wholly owned subsidiary in Ireland in 2002. There has been
no activity in this company since inception in 2002. The Company operates in a
single business segment.

Prior to February 2003, the Company operated as a development-stage company and
did not generate any revenue. Effective February 2003, the Company exited the
development stage when its several concurrent agreements with Pfizer became
effective.

On February 4, 2004, the Company successfully completed an initial public
offering of its common stock. The initial public offering consisted of the sale
of 6,500,000 shares of common stock at a price of $21.00 per share. As part of
the offering, the Company granted to the underwriters an option to purchase an
additional 975,000 shares within 30 days of the initial public offering to cover
over-allotments. This option was exercised in full in February 2004. Net
proceeds from the initial public offering after deducting underwriters'
discounts and expenses were $142.9 million. In addition, 476,190 shares of
common stock were purchased concurrently with the initial public offering by
Pfizer for $10 million as part of its commitment under Pfizer's collaboration
with the Company.

We issued 5,073,435 warrants in connection with original issuances of preferred
stock from April 2000 to August 2002 and the in-licensing of Macugen in April
2000. Prior to the closing of our initial public offering, 1,511,381 shares of
preferred stock were issued in connection with warrant exercises providing $10.4
million in aggregate proceeds through March 31, 2004. Included in this amount
were 73,581 shares issued pursuant to conditional exercises received during the
quarter ended December 31, 2003 for proceeds of $0.5 million. An additional
1,867,124 shares of preferred stock were issued on a cashless basis to the
holders of 2,728,721 preferred stock warrants, who surrendered 861,597 preferred
stock warrants as payment for those shares. All outstanding shares of preferred
stock, including those shares issued in connection with warrant exercises, were
automatically converted to an equivalent number of shares of common stock upon
the closing of our initial public offering. Additionally, warrants to purchase
833,333 shares of Series B preferred stock converted to an equal number of
warrants to purchase an equal number of shares of common stock upon the closing
of the initial public offering. These warrants were exercised during the quarter
ended March 31, 2004 on a cashless basis, resulting in the issuance of 680,509
shares of common stock in exchange for the surrender of warrants to purchase
152,824 shares of common stock. No warrants remain outstanding at March 31,
2004.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting only of normal recurring
accruals, considered necessary for a fair presentation of the Company's
financial position, results of operations, and cash flows for the periods
presented.

The results of operations for the three-month period ended March 31, 2004 are
not necessarily indicative of the

                                       4

<PAGE>

results that may be expected for the entire fiscal year ending December 31,
2004. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission.

USE OF ESTIMATES

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

RECLASSIFICATION

Certain reclassifications have been made to the prior year's information to
conform to the 2004 presentation.

CASH EQUIVALENTS

The Company considers all highly-liquid investments with an original maturity of
three months or less to be cash equivalents. At March 31, 2004, the Company had
substantially all of its cash and cash equivalents deposited with one financial
institution.

MARKETABLE SECURITIES

Marketable securities are classified as "available-for-sale" and are carried at
market value with unrealized gains and losses reported as other comprehensive
income or loss, which is a separate component of stockholders' deficit.

RESTRICTED CASH

Restricted cash of $5.6 million at March 31, 2004 collateralizes $5.6 million of
outstanding letters of credit associated with the leases of the Company's office
and laboratory facilities. The funds are invested in certificates of deposit.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash equivalents and marketable securities. The Company
has established guidelines relating to diversification and maturities that allow
the Company to manage risk.

REVENUE RECOGNITION

Revenues associated with the Company's collaboration with Pfizer consist of
non-refundable, up-front license fees, reimbursement of development expenses and
costs associated with the validation of the manufacturing process. The Company
expects to record revenues and expenses in future periods related to equipment
purchased which, under the terms of our agreement, Pfizer will reimburse to the
Company a portion of the total cost of the equipment which will be recognized
over the life of the equipment.

The Company uses revenue recognition criteria outlined in Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" and Emerging
Issues Task Force ("EITF") Issue 00-21, "Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). Accordingly, revenues from licensing agreements
are recognized based on the performance requirements of the agreement.
Non-refundable up-front fees, where the Company has an ongoing involvement or
performance obligation, are generally recorded as deferred revenue in the
balance sheet and amortized into license fees in the statement of operations
over the term of the performance obligation.

Revenues derived from reimbursements of costs associated with the development of
Macugen are recorded in compliance with EITF Issue 99-19, "Reporting Revenue
Gross as a Principal Versus Net as an Agent" ("EITF 99-

                                       5

<PAGE>

19"), and EITF Issue 01-14, "Income Statement Characterization of Reimbursements
Received For "Out-of-Pocket" Expenses Incurred" ("EITF 01-14"). According to the
criteria established by these EITF Issues, in transactions where the Company
acts as a principal, with discretion to choose suppliers, bears credit risk and
performs part of the services required in the transaction, the Company has met
the criteria to record revenue for the gross amount of the reimbursements.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement No.
123" ("SFAS 148"). SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation from the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). In addition, SFAS 148 amends the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). The Company adopted the disclosure requirements of SFAS 148 effective
December 31, 2002. As allowed by SFAS 123, the Company has elected to continue
to apply the intrinsic value-based method of accounting prescribed in APB 25
and, accordingly, does not recognize compensation expense for stock option
grants made at an exercise price equal to or in excess of the fair market value
of the stock at the date of grant.

Had compensation cost for the Company's outstanding employee stock options been
determined based on the fair value at the grant dates for those options
consistent with SFAS 123, the Company's net loss and basic and diluted net loss
per share, would have been changed to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED MARCH 31,
                                              --------------------------------
                                                  2003               2004
                                              ------------        ------------
<S>                                           <C>                 <C>
Net loss attributable to common
  stockholders, as reported............       $ (7,681,135)       $(15,827,757)
Add: Non-cash employee
  compensation as reported.............                 --           1,141,528
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method for all
  awards...............................           (166,477)         (1,777,981)
                                              ------------        ------------
SFAS 123 pro forma net loss............       $ (7,847,612)       $(16,464,210)
                                              ============        ============
Basic and diluted loss attributable to
  common stockholders per share, as
  reported.............................       $      (2.04)       $      (0.57)
                                              ============        ============
Basic and diluted loss attributable to
  common stockholders per share,
  SFAS 123 pro forma...................       $      (2.09)       $      (0.60)
                                              ============        ============
</TABLE>

SFAS 123 pro forma information regarding net loss is required by SFAS 123, and
has been determined as if the Company had accounted for its stock-based employee
compensation under the fair value method prescribed in SFAS 123. The fair value
of the options prior to completion of the Company's initial public offering was
estimated at the date of grant using the minimum value pricing model. Upon
completion of the initial public offering in February, 2004, the Company began
using the Black-Scholes model to estimate fair value. The following assumptions
were utilized for the calculations during each period:

                                       6

<PAGE>

<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED
                              -------------------------
                                      MARCH 31,
                              -------------------------
                               2003              2004
                              -------           -------
<S>                           <C>               <C>
Risk-free interest rate        2.8%             3.86%
Dividend yield ........          0%                0%
Expected life .........       7 years           5 years
Volatility ............         N/A               76%
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. Pro forma compensation related to stock option grants is
expensed over their respective vesting periods.

The Company accounts for options issued to nonemployees under SFAS 123 and EITF
Issue 96-18 "Accounting for Equity Investments that are Issued to Other than
Employees for Acquiring or in Conjunction with Selling Goods or Services" ("EITF
96-18"). As such, the value of such unvested options is periodically remeasured
and income or expense is recognized during their vesting terms.

INCOME TAXES

The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred
tax asset will not be realized.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS No. 146"). This standard addresses
financial accounting and reporting for costs associated with an exit or disposal
activities and requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. This standard nullifies EITF Issue 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring." This
Standard is effective for exit or disposal activities initiated after December
31, 2002. The adoption of this statement did not have a material effect on the
Company's results of operations, cash flows or financial position during the
quarter ended March 31, 2004.

During 2003, the FASB issued various accounting standards and interpretations,
including SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("SFAS 150"), Interpretation No.
46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation
of ARB 51" and Interpretation No. 46-R "Consolidation of Variable Interest
Entities" ("FIN 46-R"). Adoption of these standards and interpretations has not
had a material effect on the Company's financial condition, results of
operations or liquidity. There have been no other accounting pronouncements made
through March 31, 2004 that the Company expects will have a material effect on
its results of operations, cash flows or financial position.

3. NET LOSS PER SHARE

The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards 128, "Earnings per Share" ("SFAS No. 128"). Under
the provisions of SFAS 128, basic net loss per common share ("Basic EPS") is
computed by dividing net loss by the weighted-average number of common shares
outstanding. Diluted net loss per common share ("Diluted EPS") is computed by
dividing net loss by the weighted-average number of common shares and dilutive
common share equivalents then outstanding. Common equivalent shares consist of
the incremental common shares issuable upon the conversion of preferred stock,
shares issuable upon the exercise of stock options and the conversion of
preferred stock upon the exercise of warrants. Diluted EPS is identical to Basic
EPS since common equivalent shares are excluded from the calculation, as their
effect is anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per
share for the three-month period

                                       7

<PAGE>

ended March 31, 2003 and 2004:

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,
                                            --------------------------------
                                                2003                2004
                                            ------------        ------------
<S>                                         <C>                 <C>
Numerator:
  Net Loss...........................       $ (5,422,172)       $(15,011,745)
  Preferred stock accretion..........         (2,258,963)           (816,012)
                                            ------------        ------------
Numerator for basic and diluted
  net loss attributable to common
  stockholders per share--
  net loss attributable to common
  stockholders.......................       $ (7,681,135)       $(15,827,757)
                                            ============        ============
Denominator:
  Denominator for basic and
   dilutive net loss  attributable to
   common  stockholders per
   share--weighted-average
   shares............................          3,760,796          27,529,863
                                            ============        ============
  Basic and diluted net
   loss attributable to
   common stockholders per
   share.............................       $      (2.04)       $      (0.57)
                                            ============        ============
Denominator for unaudited pro
  forma basic and diluted net loss
  attributable to common
  stockholders per share--
  weighted average shares............         26,863,202          35,782,390
                                            ============        ============
Unaudited pro forma basic and
  diluted net loss attributable to
  common stockholders per share......       $      (0.29)       $      (0.44)
                                            ============        ============
</TABLE>

Pro forma basic and diluted net loss per share is computed using the weighted
average number of common shares outstanding, including the pro forma effects of
the automatic conversion of all outstanding convertible preferred stock into
shares of the Company's common stock effective upon the closing of the Company's
initial public offering, as if such conversion had occurred at the date of the
original issuance. Accordingly, pro forma basic and diluted net loss per common
share has been calculated assuming the preferred stock was converted as of the
original date of issuance of the preferred stock

The following table shows dilutive common share equivalents outstanding on a
weighted average basis, which are not included in the above historical
calculations, as the effect of their inclusion is anti-dilutive during each
period:

<TABLE>
<CAPTION>
                    THREE MONTHS ENDED MARCH 31,
                    ----------------------------
                       2003              2004
                    ----------        ----------
<S>                 <C>               <C>
Preferred stock     23,102,406         8,252,526
Options.......       3,553,000         5,717,164
Warrants......       5,073,435         1,845,521
                    ----------        ----------
                    31,728,841        15,815,211
                    ==========        ==========
</TABLE>

4. COMPREHENSIVE LOSS

Comprehensive losses are primarily comprised of net losses, unrealized gains and
losses on available for sales securities and currency translation adjustments.
Comprehensive losses for the three months ended March 31, 2003 and 2004 were
$5.4 million and $15.0 million, respectively.

5. STOCKHOLDERS' EQUITY

On February 4, 2004, the Company successfully completed an initial public
offering of its common stock. The initial

                                       8

<PAGE>

public offering consisted of the sale of 6,500,000 shares of common stock at a
price of $21.00 per share. As part of the offering, the Company granted to the
underwriters an option to purchase an additional 975,000 shares within 30 days
of the initial public offering to cover over-allotments. This option was
exercised in February 2004. Net proceeds from our initial public offering after
deducting underwriter's discounts and expenses were $142.9 million. In addition,
476,190 shares of common stock were purchased concurrently with the initial
public offering by Pfizer for $10 million as part of its commitment under our
collaboration with Pfizer.

Prior to the closing of the Company's initial public offering, 469,360 shares of
preferred stock were issued in connection with warrant exercises providing $2.6
million in proceeds during the quarter ended March 31, 2004. Included in this
amount were 73,581 shares issued pursuant to conditional exercises received
during the quarter ended December 31, 2003 for proceeds of $0.5 million. An
additional 1,867,124 shares of preferred stock were issued on a cashless basis
to the holders of 2,728,721 preferred stock warrants, who surrendered 861,597
preferred stock warrants as payment for those shares. All outstanding shares of
preferred stock, including those shares issued in connection with warrant
exercises, were automatically converted to an equivalent number of shares of
common stock upon the closing of our initial public offering. Additionally,
warrants to purchase 833,333 shares of Series B preferred stock converted to an
equal number of warrants to purchase an equal number of shares of common stock
upon the closing of the initial public offering. These warrants were exercised
during the quarter ended March 31, 2004 on a cashless basis, resulting in the
issuance of 680,509 shares of common stock in exchange for the surrender of
warrants to purchase 152,824 shares of common stock. No warrants remain
outstanding at March 31, 2004.

6. PFIZER COLLABORATION

In December 2002, Pfizer and the Company entered into several concurrent
agreements to jointly develop and commercialize Macugen. Under the terms of the
agreement, which became effective February 3, 2003 when government approval was
obtained, Pfizer made initial payments of $100 million which included the
purchase of 2,747,253 shares of the Company's Series D preferred stock for $24.7
million, net of issuance costs and a $75 million initial license fee which is
being amortized over the expected term of the agreement (estimated at 15 years).
In addition, the Company has agreed to sell to Pfizer and Pfizer has agreed to
purchase from the Company, up to an additional $25 million of the Company's
capital stock at the then current market price upon the completion of certain
events. Pursuant to this agreement, concurrent with the initial public offering,
Pfizer purchased 476,190 shares of common stock at $21.00 per share resulting in
gross proceeds to the Company of approximately $10 million.

Under the terms of the agreement, both parties will expend funds related to the
co-promotion and development of Macugen. Pfizer will generally fund a majority
of the ongoing development costs incurred pursuant to an agreed upon development
plan covering the development of Macugen for AMD, DME, retinal vein occlusion
and other agreed upon ophthalmic indications. In certain instances, the Company
will reimburse Pfizer for the Company's share of costs that Pfizer incurs. This
funding resulted in the recognition by the Company of $6.5 million in revenue
during the three month period ended March 31, 2003 and $10.5 million in revenue
and $0.7 million in research and development and marketing expenses during the
three month period ended March 31, 2004. At March 31, 2004, the Company has
recorded a collaboration receivable in the amount of $4.5 million. In addition,
the Company recognized $0.8 million and $1.3 million in connection with the
amortization of the $75 million initial license fee paid by Pfizer for the three
month periods ending March 31, 2003 and 2004, respectively.

                                       9

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      You should read the following discussion and analysis of our financial
condition and results of operations together with our condensed consolidated
financial statements and the related notes appearing elsewhere in this report.
Some of the information contained in this discussion and analysis or set forth
elsewhere in this report, including information with respect to our plans and
strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should review the "Risk
Factors that May Affect Results" section of this report for a discussion of
important factors that could cause actual results to differ materially from the
results described in or implied by the forward-looking statements contained in
the following discussion and analysis.

OVERVIEW

      We are a biotechnology company with our first product candidate, Macugen,
currently in two Phase 2/3 pivotal clinical trials for use in the treatment of
the wet form of age-related macular degeneration, known as AMD. Macugen is also
in a Phase 2 clinical trial for use in the treatment of diabetic macular edema,
known as DME. Our revenue for the quarter ended March 31, 2004 was $11.7
million, consisting of amortization of the initial non-refundable, up-front,
license payment that we received from Pfizer under our collaboration with Pfizer
and reimbursement to us by Pfizer of a portion of the ongoing development costs
for Macugen. As a result of our collaboration with Pfizer, we ceased to be a
development-stage company in February 2003. We have had no other income since
inception other than interest on short-term investments.

      We commenced operations in April 2000. Since our inception, we have
generated significant losses. As of March 31, 2004, we had an accumulated
deficit of $153.3 million. We expect to continue to spend significant amounts on
the development of Macugen and our other programs. We expect to incur
significantly greater commercialization costs as we are beginning to recruit a
domestic ophthalmic sales force. We expect to begin to participate in selling
activities, or detailing, of Pfizer's product, Xalatan(R), for the treatment of
glaucoma together with Pfizer three to six months prior to our planned
commercial launch of Macugen. We also plan to continue to invest in research for
additional applications of Macugen and to develop new drugs and drug delivery
technologies and to build the appropriate infrastructure to support our
business. Additionally, we plan to continue to evaluate possible acquisitions or
licenses of rights to potential new drugs, drug targets and drug delivery
technologies that would fit within our growth strategy. Accordingly, we will
need to generate significant revenues to achieve and then maintain
profitability.

      Most of our expenditures to date have been for research and development
activities and general and administrative expenses. Research and development
expenses represent costs incurred for product acquisition, clinical trials and
activities relating to regulatory filings and manufacturing development efforts.
We outsource our foreign clinical trials and our global manufacturing
development activities to third parties to maximize efficiency and minimize our
internal overhead. We expense our research and development costs as they are
incurred.

      Our research and development expenses incurred through March 31, 2004 were
expenses related primarily to the development of Macugen. We expect to incur
additional research and development expenses of approximately $17 million to $27
million relating to Macugen prior to its commercial launch in the United States
for use in the treatment of wet AMD. These additional expenses are subject to
the risks and uncertainties associated with clinical trials and the United
States Food and Drug Administration, or FDA, and foreign regulatory review and
approval process. As a result, these additional expenses could exceed our
estimated amounts, possibly materially. Under our agreements with Pfizer, Pfizer
is obligated to fund specified percentages of the ongoing development costs
incurred pursuant to an agreed development plan.

      Sales and marketing and general and administrative expenses consist
primarily of salaries and related expenses, general corporate activities and
costs associated with building a commercial infrastructure to market and sell
Macugen and to detail Xalatan. We anticipate that general and administrative
expenses will increase as a result of the expected expansion of our operations,
facilities and other activities associated with the planned expansion of our

                                       10

<PAGE>

business, together with the additional costs associated with operating as a
public company. In particular, we have recently entered into a lease for new
corporate headquarters space that will increase our facilities expenses, which
we allocate among general and administrative, research and development and sales
and marketing expenses, by $3.2 million per year. We expect sales and marketing
expenses to increase as we build our sales force and marketing capabilities to
support detailing Xalatan and to prepare to sell Macugen, which is subject to
receiving required regulatory approvals prior to sale.

      For the year ended December 31, 2003, license fees paid to us by Pfizer
resulted in current taxable income to us. Net operating losses available to
offset future taxable income for federal income tax purposes were approximately
$43.3 million as of December 31, 2003. If not utilized, federal net operating
loss carry-forwards will begin to expire in 2020. To date, we have not
recognized the potential tax benefit of our net operating losses on our balance
sheets or statements of operations. The future utilization of our net operating
loss carryforwards may be limited based upon changes in ownership pursuant to
regulations promulgated under the Internal Revenue Code.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

      Our management's discussion and analysis of our financial condition and
results of operations are based on our condensed 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 us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported revenues and expenses during the reporting periods. On an ongoing
basis, we evaluate our estimates and judgments related to revenue recognition.
We base our estimates on historical experience and on various other factors that
we believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

      While our significant accounting policies are more fully described in Note
2 to our consolidated financial statements appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission, we believe that the following accounting
policies relating to revenue recognition and stock-based compensation charges
are most critical to aid you in fully understanding and evaluating our reported
financial results.

         REVENUE RECOGNITION

      In connection with our collaboration with Pfizer, we recognize revenue
from non-refundable, up-front, license and milestone payments not specifically
tied to a separate earnings process ratably over the term of the collaboration,
license and related agreements. When the period of deferral cannot be
specifically identified from the agreement, our management estimates the period
based upon other critical factors contained within the agreement. We continually
review these estimates which could result in a change in the deferral period and
which might impact the timing and the amount of revenue recognized. When
payments are specifically tied to a separate earnings process, we will recognize
revenue when the specific performance obligation associated with the payment is
completed. Performance obligations typically consist of significant milestones
in the development life cycle of the related technology, such as initiation of
clinical trials, filing for approval with regulatory agencies and receipt of
approvals by regulatory agencies. To date, we have received $75 million as an
initial license fee from Pfizer. We will amortize this initial license fee over
15 years, the effective life of the agreement. In addition, under the terms of
our agreement with Pfizer, Pfizer has agreed to pay a portion of the costs
associated with the purchase of certain equipment. At March 31, 2004, we have
recorded a receivable for equipment that we have purchased for which Pfizer will
reimburse us. We have also recorded deferred revenue in connection with this
equipment. We will amortize the deferred revenue related to this equipment over
its expected life. During the quarters ended March 31, 2003 and 2004,
respectively, we recognized $0.8 million and $1.3 million of license fee
revenue. At March 31, 2004, we had $5.2 million of deferred revenue related to
licenses and equipment as current and the balance of $65.5 million as long-term
on our balance sheet.

      We report our revenues on a gross reporting basis, which includes
reimbursement to us from Pfizer of Pfizer's

                                       11

<PAGE>

share of our cost of development of Macugen for the period. We have determined
that our responsibilities under our contracts with Pfizer to manage and assume
responsibilities for obtaining FDA approvals for Macugen, including our separate
contractual relationships and responsibilities to our clinical development
contractors and our interaction with monitors and patients qualify us as
principal under the criteria set forth in Emerging Issues Task Force, or EITF,
Issue 99-19, "Reporting Gross Revenue as a Principal vs. Net as an Agent."
Additionally, under EITF Issue 01-14, "Income Statement Characterization of
Reimbursements Received for "Out-of-Pocket" Expenses Incurred," in those cases
where we have a primary obligation to conduct clinical studies and bear risk for
selection of and payment to vendors, among other conditions, we recognize
reimbursements of those costs to us by Pfizer as revenue, instead of as an
offset to the expense incurred. We record as expenses costs incurred by Pfizer
for which we are contractually liable. In future periods we may be liable for
costs incurred where we do not meet the criteria to be considered as the
principal. We would record these costs as expenses, and we may be required to
reimburse Pfizer.

         STOCK-BASED COMPENSATION CHARGES

      Stock-based compensation charges represent the difference between the
exercise price of options and restricted stock granted to employees and
directors and the fair value of our common stock on the date of grant for
financial statement purposes in accordance with Accounting Principles Board
Opinion No. 25 and its related interpretations. We recognize this compensation
charge over the vesting periods of the shares purchasable upon exercise of
options or the lapsing of restrictions on restricted shares granted.

      We recorded deferred stock-based compensation related to stock options and
restricted stock granted to employees and directors through March 31, 2004 of
$14.8 million, net of related amortization expense of $1.1 million for the
quarter ended March 31, 2004. We expect to amortize deferred stock-based
compensation with respect to stock options and restricted stock awards granted
through March 31, 2004 in future periods, including $3.5 million during the
remainder of 2004, $4.6 million during 2005, $4.4 million during 2006, $2.2
million during 2007 and $0.1 million during 2008.

ACCOUNTING PRONOUNCEMENTS

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard addresses financial
accounting and reporting for costs associated with an exit or disposal
activities and requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. This standard nullifies EITF Issue 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring." This
Standard is effective for exit or disposal activities initiated after December
31, 2002. Our adoption of this statement did not have a material effect on our
results of operations, cash flows or financial position during the quarter ended
March 31, 2004, but may result in losses in future periods.

      During the year ended December 31, 2003, the Financial Accounting
Standards Board ("FASB") issued various accounting standards and
interpretations, including FASB Statement No 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity" ("SFAS
150"), Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities, an interpretation of ARB 51" and Interpretation No. 46-R
"Consolidation of Variable Interest Entities" ("FIN 46-R"). We believe that our
adoption of these standards and interpretations has not had a material effect on
our financial condition, results of operations or liquidity. There have been no
other accounting pronouncements made through March 31, 2004 that we expect will
have a material effect on our results of operations, cash flows or financial
position.

RESULTS OF OPERATIONS

         QUARTER ENDED MARCH 31, 2003 AND 2004

     Revenue. Collaboration revenue increased 60% from $7.3 million for the
quarter ended March 31, 2003 to $11.7 million for the quarter ended March 31,
2004. Revenue from the amortization of license fees increased by $0.4

                                       12

<PAGE>

million and revenue from reimbursement of development costs increased by $4.0
million. The increase in license fee amortization represents an additional month
of amortization in 2004 versus 2003. Increases in development costs resulted
primarily from increases in reimbursable costs related to manufacturing
activities.

      Research and Development Expenses. Research and development expenses
increased 88% from $11.6 million for the quarter ended March 31, 2003 to $21.9
million for the quarter ended March 31, 2004. The increase in research and
development expenses of $10.3 million was attributable to a $2.3 million
increase in ongoing expenditures during 2004 in connection with our Phase 2/3
pivotal clinical trials for the use of Macugen in the treatment of wet AMD and
related costs, an increase of $7.1 million relating to the continued development
of manufacturing capabilities and related costs and an increase of $1.6 million
relating to additional hiring of research and development staff. These increases
in cost were offset by a $0.7 million decrease associated with the development
of drug delivery technologies and related costs. We anticipate that research and
development expenses will continue to increase as we further advance Macugen to
commercialization and begin to devote additional resources to other research and
development projects.

      Sales and Marketing Expenses. Sales and marketing expenses increased 575%
from $0.6 million for the quarter ended March 31, 2003 to $3.8 million for the
quarter ended March 31, 2004. The increase in sales and marketing expenses of
$3.2 million was primarily related to $1.9 million in higher personnel expenses,
relating to the hiring and training of sales and sales management personnel, and
$1.3 million of costs related to the development of the Macugen brand and the
infrastructure necessary to prepare for the commercial launch of Macugen and the
detailing of Xalatan as part of the Pfizer agreement.

      General and Administrative Expenses. General and administrative expenses
increased 49% from $1.1 million for the quarter ended March 31, 2003 to $1.6
million for the quarter ended March 31, 2004. The increase of $0.5 million
resulted from a $0.7 million increase in expenses related to facilities and
infrastructure needed to support our growth and our Pfizer collaboration, which
was offset by a $0.2 million decrease in professional fees and related costs.

      Interest Income. Interest income increased from $0.6 million in the
quarter ended March 31, 2003 to $0.7 million in the quarter ended March 31, 2004
as a result of higher levels of cash and marketable securities available for
investment during 2004 compared to 2003, which was partially offset by lower
interest rates.

LIQUIDITY AND CAPITAL RESOURCES

      SOURCES OF LIQUIDITY

      Since our inception, we have financed our operations through public sales
and private placements of our capital stock, the initial up-front license fee
that we received from Pfizer as part of our Macugen collaboration, reimbursement
of development costs from Pfizer and the receipt of interest income. Through
March 31, 2004, we have received net proceeds of $332.4 million from the
issuance of shares of common stock, convertible preferred stock and warrants. We
have also received net proceeds from capital equipment financing of $2.4
million. The table below summarizes our initial issuances of convertible
preferred stock and warrants.

<TABLE>
<CAPTION>
                                  NUMBER OF          NUMBER OF SHARES         APPROXIMATE
 SERIES          DATE              SHARES          UNDERLYING WARRANTS       GROSS PROCEEDS
---------  ----------------       ---------        -------------------       --------------
                                                                             (IN THOUSANDS)
<S>        <C>                    <C>              <C>                       <C>
      A    March 2000               120,000                    --               $   150
      B    April 2000             5,766,332             1,142,902                34,600
      B    January 2001              20,666                    --                   124
    C-1    July-August 2001       7,964,229             1,592,846                54,200
    C-2    August 2002            7,521,777             1,504,354                54,200
      D    February 2003          2,747,253                    --                25,000
</TABLE>

      On February 4, 2004, we successfully completed an initial public offering
of our common stock. Our initial public offering consisted of the sale of
6,500,000 shares of common stock at a price of $21.00 per share. As part of

                                       13

<PAGE>

the offering, we granted to the underwriters an option to purchase an additional
975,000 shares within 30 days of the initial public offering to cover
over-allotments. This option was exercised in February 2004. Net proceeds from
our initial public offering after deducting underwriter's discounts and expenses
were $142.9 million. In addition, 476,190 shares of common stock were purchased
concurrently with the initial public offering by Pfizer for $10 million as part
of its commitment under our collaboration with Pfizer.

      We issued 5,073,435 warrants in connection with original issuances of
preferred stock from April 2000 to August 2002 and the in-licensing of Macugen
in April 2000. Prior to the closing of our initial public offering, 1,511,381
shares of preferred stock were issued in connection with warrant exercises
providing $10.4 million in aggregate proceeds. An additional 1,867,124 shares of
preferred stock were issued on a cashless basis to the holders of 2,728,721
preferred stock warrants, who surrendered 861,597 preferred stock warrants as
payment for those shares. All outstanding shares of preferred stock, including
those shares issued in connection with warrant exercises, were automatically
converted to an equivalent number of shares of common stock upon the closing of
our initial public offering. Additionally, warrants to purchase 833,333 shares
of Series B preferred stock converted to an equal number of warrants to purchase
an equal number of shares of common stock upon the closing of the initial public
offering. These warrants were exercised during the quarter ended March 31, 2004
on a cashless basis, resulting in the issuance of 680,509 shares of common stock
in exchange for the surrender of warrants to purchase 152,824 shares of common
stock. No warrants remain outstanding at March 31, 2004.

      In connection with our collaboration with Pfizer, we received a $25.0
million investment in our series D preferred stock and a $75.0 million up-front
license fee and Pfizer has agreed generally to fund a majority of the ongoing
development costs incurred pursuant to an agreed development plan covering the
development of Macugen for AMD, DME, retinal vein occlusion and other agreed
upon ophthalmic indications. Pfizer purchased an additional $10 million of our
common stock at the closing of our initial public offering in February 2004 and
is obligated to purchase up to an additional $15 million of our common stock in
specified circumstances. These obligations of Pfizer are contingent upon the
achievement of milestones are currently our only committed external source of
funds.

      As of March 31, 2004, we had $266.9 million in cash, cash equivalents and
marketable securities. Also as of that date, we had pledged $5.6 million of
restricted cash as collateral for letters of credit for certain of our leased
facilities. We believe that our available cash, cash equivalents and marketable
securities, together with expected milestone payments and reimbursements from
Pfizer under our collaboration and interest income will be sufficient to fund
anticipated levels of operations through at least the end of 2005. We had no
material capital expenditures during the quarter ended March 31, 2004 and expect
to have no material capital expenditures during the remainder of 2004.

      INCOME TAXES

      As of December 31, 2003, we had net operating loss carryforwards for
federal income taxes of $43.3 million. Our utilization of the net operating loss
and tax credit carryforwards may be subject to annual limitations pursuant to
Section 382 of the Internal Revenue Code, and similar state provisions, as a
result of changes in our ownership structure. The annual limitations may result
in the expiration of net operating losses and credits prior to utilization.

      At December 31, 2003 we had deferred tax assets representing the benefit
of net operating loss carryforwards and certain start up costs capitalized for
tax purposes. We did not record a benefit for the deferred tax asset because
realization of the benefit was uncertain and, accordingly, a valuation allowance
is provided to offset the deferred tax asset.

      During the year ended December 31, 2003, the $75 million license fee paid
by Pfizer resulted in current taxable income to us. Although we have generated
net operating losses in prior years, we may be liable for payment of alternative
minimum tax in 2003. Accordingly, we provided $1.7 million for federal
alternative minimum tax and state income taxes for the year ended December 31,
2003. We have not recorded any provision for taxes during the quarter ended
March 31, 2004.

                                       14

<PAGE>

      CASH FLOWS

      For the quarter ended March 31, 2004, we used net cash of $19.3 million in
operating activities. This consisted primarily of a net loss for the period of
$15.0 million, and a reduction in accounts payable and accrued expenses of $4.2
million. We used $32.5 million for investing activities for the quarter ended
March 31, 2004, which consisted primarily of net purchases of marketable
securities. We received net cash of $155.5 million from financing activities
during the quarter ended March 31, 2004, principally relating to the issuance of
common stock in our initial public offering and other issuances of common stock
resulting in net proceeds, after transaction costs, of $153 million and the
issuance of convertible preferred stock upon the exercise of warrants for net
proceeds of $2.6 million, offset by the repayment of capital leases of $0.1
million.

       FUNDING REQUIREMENTS

      We expect to devote substantial resources to continue our research and
development efforts and to expand our sales, marketing and manufacturing
programs associated with the commercialization and launch of Macugen and other
future products. Our funding requirements will depend on numerous factors,
including:

      -     the success of our collaborative arrangement with Pfizer for the
            development and commercialization of Macugen;

      -     the scope and results of our clinical trials;

      -     advancement of other product candidates into development;

      -     potential acquisition or in-licensing of other products or
            technologies;

      -     the timing of, and the costs involved in, obtaining regulatory
            approvals;

      -     the cost of manufacturing activities;

      -     the cost of commercialization activities, including product
            marketing, sales and distribution;

      -     the costs involved in preparing, filing, prosecuting, maintaining
            and enforcing patent claims and other patent-related costs,
            including litigation costs and the results of such litigation; and

      -     our ability to establish and maintain additional collaborative
            arrangements.

      We do not expect to generate significant additional funds, other than
payments that we receive from our collaboration with Pfizer, until we
successfully obtain marketing approval for, and begin selling, Macugen. We
believe that the key factors that will affect our internal and external sources
of cash are:

      -     our ability to successfully obtain marketing approval for and to
            commercially launch Macugen;

      -     the success of our other preclinical and clinical development
            programs;

      -     the receptivity of the capital markets to financings by
            biotechnology companies; and

                                       15

<PAGE>

      -     our ability to enter into additional strategic collaborations with
            corporate and academic collaborators and the success of such
            collaborations.

      If our existing resources, including the proceeds from our initial public
offering, are insufficient to satisfy our liquidity requirements or if we
acquire or license rights to additional product candidates, we may need to raise
additional external funds through the sale of additional equity or debt
securities. The sale of additional equity securities may result in additional
dilution to our stockholders. Additional financing may not be available in
amounts or on terms acceptable to us or at all. If we are unable to obtain
additional financing, we may be required to reduce the scope of, delay or
eliminate some or all of our planned research, development and commercialization
activities, which could harm our financial condition and operating results.

CONTRACTUAL OBLIGATIONS

      Our major outstanding contractual obligations relate to our capital leases
from equipment financings, facilities leases and obligations under a number of
our collaboration and alliance agreements to pay milestone payments and
royalties to the other parties to these agreements.

      We have summarized in the table below our fixed contractual cash
obligations as of March 31, 2004.

<TABLE>
<CAPTION>
                                                                    PAYMENTS DUE BY PERIOD
                                    --------------------------------------------------------------------------------------
                                                        LESS THAN          ONE TO            FOUR TO             AFTER
   CONTRACTUAL OBLIGATIONS             TOTAL            ONE YEAR         THREE YEARS        FIVE YEARS         FIVE YEARS
----------------------------------  -----------         ----------       -----------       -----------         -----------
<S>                                 <C>                 <C>              <C>                <C>                <C>
Capital lease obligations,
including interest                  $ 1,507,726         $  633,826       $   873,900        $       --         $        --
Operating leases                     63,296,576          1,221,837         9,761,847         6,896,171          45,416,721
                                    -----------         ----------       -----------       -----------         -----------
Total contractual cash obligations  $64,804,302         $1,855,663       $10,635,747        $6,896,171         $45,416,721
                                    -----------         ----------       -----------       -----------         -----------
</TABLE>

      Under our agreements with Gilead Sciences, Inc., Nektar Therapeutics, and
Isis Pharmaceuticals, Inc., we are obligated to make payments aggregating up to
$36.3 million upon achieving specified milestones relating to the development
and regulatory approval of Macugen and to pay royalties based on net sales of
Macugen. The events that trigger the milestone payments include filing of a new
drug application, or NDA, with the FDA, making similar filings with foreign
regulatory authorities, receiving marketing approval for Macugen by the FDA or
similar foreign regulatory authorities and the first commercial sale of Macugen
in various countries. These contingent milestone and royalty payment obligations
are not included in the above table. The above table also excludes minimum
monthly payments of approximately $0.6 million that we are required to pay to
one of our contract manufacturers pending the validation of the manufacturing
process for Macugen.

      In January 2004, we entered into a sub-sublease arrangement for new
corporate headquarters, clinical, safety and regulatory space in New York City.
Our rent under the lease is expected to be $3.2 million for financial statement
purposes in 2004. However, due to rent abatements, we expect cash expenditures
for this property in 2004 to be $0.1 million. As security for the sublease, we
have named the sub-landlord as beneficiary under a secured bank letter of credit
in the amount of $3.0 million.

      If we are not successful in locating a tenant to assume our sub-lease at
500 Seventh Avenue, New York, New York, we will be required under generally
accepted accounting principles to assess the recoverability of the carrying
value of our lease. If it is determined that the amounts due under the lease
will not be recoverable, we will record a loss in connection with this lease.
The loss could be up to approximately $2.4 million and will be recorded in the
second quarter of 2004. In connection with our cessation of use of this
facility, we have accelerated the recognition of amortization and depreciation
expenses in connection with certain leasehold improvements and furniture and
fixtures used at this facility. This resulted in an increase of $0.3 million to
amortization and

                                       16

<PAGE>

depreciation expense during the quarter ended March 31, 2004.

                                       17

<PAGE>
                      RISK FACTORS THAT MAY AFFECT RESULTS

RISKS RELATING TO OUR BUSINESS

WE DEPEND HEAVILY ON THE SUCCESS OF OUR LEAD PRODUCT CANDIDATE, MACUGEN, WHICH
IS STILL UNDER DEVELOPMENT AND WITH RESPECT TO WHICH PIVOTAL CLINICAL TRIAL DATA
BECAME AVAILABLE ONLY RECENTLY. IF WE ARE UNABLE TO COMMERCIALIZE MACUGEN, OR
EXPERIENCE SIGNIFICANT DELAYS IN DOING SO, OUR BUSINESS WILL BE MATERIALLY
HARMED.

         We have invested a significant portion of our time and financial
resources since our inception in the development of Macugen. We anticipate that
in the near term our ability to generate revenues will depend solely on the
successful development and commercialization of Macugen. The commercial success
of Macugen will depend on several factors, including the following:

         -        successful completion of clinical trials;

         -        producing batches of the active pharmaceutical ingredient used
                  in Macugen as well as finished drug product in sufficient
                  commercial quantities through a validated process;

         -        receipt of marketing approvals from the FDA and similar
                  foreign regulatory authorities;

         -        launching commercial sales of the product in collaboration
                  with Pfizer;

         -        successfully building and sustaining manufacturing capacity to
                  meet anticipated future market demand; and

         -        acceptance of the product in the medical community and with
                  third party payors.

         Based on the results from the first year of our ongoing Phase 2/3
pivotal clinical trials for the use of Macugen in the treatment of wet AMD, we
and Pfizer are filing a new drug application with the FDA as a rolling
submission to seek marketing approval for the 0.3 mg dose of Macugen for the
treatment of all subtypes of wet AMD. The FDA has accepted for review the
preclinical and clinical study report sections of our NDA. However, new
information may arise from our continuing analysis of the data that may be less
favorable than currently anticipated. Clinical data often is susceptible to
varying interpretations and many companies that have believed that their
products performed satisfactorily in clinical trials have nonetheless failed to
obtain FDA approval for their products. We may not complete the filing of our
NDA for the use of Macugen in the treatment of wet AMD in the third quarter of
2004, our anticipated time frame. Furthermore, even after we complete the
filing, the FDA may not accept our submission as complete, may request
additional information from us, including data from additional clinical trials,
and, ultimately, may not grant marketing approval for Macugen. If we are not
successful in commercializing Macugen, or are significantly delayed in doing so,
our business will be materially harmed and we may need to curtail or cease
operations.

THE SUCCESS OF MACUGEN DEPENDS HEAVILY ON OUR COLLABORATION WITH PFIZER, WHICH
WAS ESTABLISHED IN DECEMBER 2002 AND INVOLVES A COMPLEX SHARING OF CONTROL OVER
DECISIONS, RESPONSIBILITIES AND COSTS AND BENEFITS. ANY LOSS OF PFIZER AS A
COLLABORATOR, OR ADVERSE DEVELOPMENT IN THE COLLABORATION, WOULD MATERIALLY HARM
OUR BUSINESS.

         In December 2002, we entered into our collaboration with Pfizer to
develop and commercialize Macugen for the prevention and treatment of diseases
of the eye. The collaboration involves a complex sharing of control over
decisions, responsibilities and costs and benefits. For example, with respect to
the sharing of costs and benefits, Pfizer will co-promote Macugen with us in the
United States and will share with us in profits and losses. Outside the United
States, Pfizer will commercialize Macugen pursuant to an exclusive license and
pay us a royalty on net sales. In addition, Pfizer generally is required to fund
a majority of ongoing development costs incurred pursuant to an agreed upon
development plan. With respect to control over decisions and responsibilities,
the collaboration is governed by a joint operating committee, consisting of an
equal number of representatives of Pfizer and us. There are also subcommittees
with equal representation from both parties that have responsibility over
development, regulatory, manufacturing and commercialization matters.

         Ultimate decision-making authority is vested in us as to some matters
and in Pfizer as to other matters. A third category of decisions requires the
approval of both Pfizer and us. Outside the United States, ultimate
decision-

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<PAGE>

making authority as to most matters is vested in Pfizer. Pfizer may terminate
the collaboration relationship without cause upon six to twelve months' prior
notice, depending on when such notice is given. Any loss of Pfizer as a
collaborator in the development or commercialization of Macugen, dispute over
the terms of, or decisions regarding, the collaboration or other adverse
development in our relationship with Pfizer would materially harm our business
and might accelerate our need for additional capital.

IF OUR CLINICAL TRIALS ARE UNSUCCESSFUL, OR IF WE EXPERIENCE SIGNIFICANT DELAYS
IN THESE TRIALS, OUR ABILITY TO COMMERCIALIZE MACUGEN AND OUR FUTURE PRODUCT
CANDIDATES WILL BE IMPAIRED.

         We must provide the FDA and similar foreign regulatory authorities with
preclinical and clinical data that demonstrate that our product candidates are
safe and effective for each target indication before they can be approved for
commercial distribution. The preclinical testing and clinical trials of any
product candidates that we develop must comply with regulations by numerous
federal, state and local government authorities in the United States,
principally the FDA, and by similar agencies in other countries. Clinical
development is a long, expensive and uncertain process and is subject to delays.
We may encounter delays or rejections based on our inability to enroll enough
patients to complete our clinical trials. Patient enrollment depends on many
factors, including the size of the patient population, the nature of the trial
protocol, the proximity of patients to clinical sites and the eligibility
criteria for the study.

         Our ongoing Phase 2/3 pivotal clinical trial for the use of Macugen in
the treatment of wet AMD and Phase 2 clinical trial for use of Macugen in the
treatment of DME are currently fully enrolled. We expect to commence a Phase 2
clinical trial for the use of Macugen in the treatment of retinal vein occlusion
in the second quarter of 2004. We also may commence additional clinical trials
in the future. Although we have not to date experienced any significant delays
in enrolling clinical trial patients for our ongoing clinical trials, delays in
patient enrollment for future trials may result in increased costs and delays,
which could have a harmful effect on our ability to develop products.

         It may take several years to complete the testing of a product, and
failure can occur at any stage of testing. For example:

         -        interim results of preclinical or clinical studies do not
                  necessarily predict their final results, and acceptable
                  results in early studies might not be seen in later studies,
                  in large part because earlier phases of studies are often
                  conducted on smaller groups of patients than later studies,
                  and without the same trial design features, such as randomized
                  controls and long-term patient follow-up and analysis;

         -        potential products that appear promising at early stages of
                  development may ultimately fail for a number of reasons,
                  including the possibility that the products may be
                  ineffective, less effective than products of our competitors
                  or cause harmful side effects;

         -        any preclinical or clinical test may fail to produce results
                  satisfactory to the FDA or foreign regulatory authorities;

         -        preclinical and clinical data can be interpreted in different
                  ways, which could delay, limit or prevent regulatory approval;

         -        negative or inconclusive results from a preclinical study or
                  clinical trial or adverse medical events during a clinical
                  trial could cause a preclinical study or clinical trial to be
                  repeated or a program to be terminated, even if other studies
                  or trials relating to the program are successful;

         -        the FDA can place a hold on a clinical trial if, among other
                  reasons, it finds that patients enrolled in the trial are or
                  would be exposed to an unreasonable and significant risk of
                  illness or injury;

         -        we may encounter delays or rejections based on changes in
                  regulatory agency policies during the period in which we
                  develop a drug or the period required for review of any
                  application for regulatory agency approval; and

                                       19
<PAGE>

         -        our clinical trials may not demonstrate the safety and
                  efficacy needed for our products to receive regulatory
                  approval.

         We have completed the first year of our Phase 2/3 pivotal clinical
trials for the use of Macugen in the treatment of wet AMD. Based on results from
the first year of these trials, we and Pfizer are filing sections of our NDA
with the FDA for the use of Macugen in the treatment of all subtypes of wet AMD
as a rolling submission. The FDA has accepted for review the preclinical and
clinical study report sections of our NDA filing. We plan to complete our NDA
filing in the third quarter of 2004. We are currently conducting a second year
of these trials. We have also fully enrolled a Phase 2 clinical trial for the
use of Macugen in the treatment of DME. To obtain marketing approval, we may
decide to, or the FDA or other regulatory authorities may require us to, pursue
additional clinical trials or other studies of Macugen. For example, in addition
to our Phase 2 clinical trial for the use of Macugen in the treatment of DME, we
anticipate that we need to conduct Phase 3 clinical trials for DME before filing
a new drug application or supplemental new drug application, as the case may be,
for this second indication.

         In addition, as part of the drug approval process, we must conduct a
comprehensive assessment of the carcinogenic, or cancer causing, potential of
our product candidates. Our testing of Macugen to date indicates that the
product's carcinogenic potential is low. In one test for carcinogenicity risk,
two potential Macugen metabolites showed, in one out of five bacterial strains
tested, a small increase in the number of altered bacteria, a potential
indicator of carcinogenicity risk. However, because this elevated proportion of
altered bacteria did not increase further as we increased the dose of the
metabolites, we do not believe the results from these tests indicate
carcinogenicity potential. Furthermore, no other test, including animal studies,
of Macugen and its metabolites showed carcinogenic potential. We have requested
that the FDA grant us a waiver from the requirement to perform full animal
carcinogenicity studies for the treatment of wet AMD based primarily on the
unmet medical need presented by wet AMD, low overall systemic exposure to
Macugen and the fact that this disease generally affects older populations.
However, the FDA may require us to conduct additional carcinogenicity testing of
Macugen. Based on our discussions with the FDA to date, if we are required to
conduct further carcinogenicity testing of Macugen in connection with its use in
the treatment of wet AMD, we believe that the FDA will allow us to conduct any
such testing as a post-NDA approval study. However, we will not be certain of
this until the NDA review process of Macugen for this indication is completed.
We expect that the FDA may require us to complete satisfactory carcinogenicity
testing of Macugen prior to any approval of the use of Macugen in the treatment
of DME.

         If we are required to conduct additional clinical trials or other
studies of Macugen beyond those that we currently contemplate, if we are unable
to successfully complete our clinical trials or other studies or if the results
of these trials or studies are not positive or are only modestly positive, we
may be delayed in obtaining marketing approval for Macugen, we may not be able
to obtain marketing approval or we may obtain approval for indications that are
not as broad as intended. Our product development costs will also increase if we
experience delays in testing or approvals. Significant clinical trial delays
could allow our competitors to bring products to market before we do and impair
our ability to commercialize our products or potential products. If any of this
occurs, our business will be materially harmed.

WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO.

         The development and commercialization of new drugs is highly
competitive. We will face competition with respect to Macugen and any products
we may develop or commercialize in the future from major pharmaceutical
companies, specialty pharmaceutical companies and biotechnology companies
worldwide. Our competitors may develop products or other novel technologies that
are more effective, safer or less costly than any that we are developing. Our
competitors may also obtain FDA or other regulatory approval for their products
more rapidly than we may obtain approval for ours.

         The two therapies currently available for the treatment of wet AMD are
photodynamic therapy, which was developed by QLT, Inc. and is marketed by
Novartis AG, and thermal laser treatment. In the United States, photodynamic
therapy is FDA-approved only for the predominantly classic subtype of wet AMD.
In the European Union, there is an approved therapy only for the predominantly
classic and occult subtypes.

                                       20
<PAGE>
In the United States, however, the Centers for Medicare & Medicaid Services
implemented a decision in April 2004 to provide coverage for photodynamic
therapy to patients with wet AMD who have occult and minimally classic
lesions that are four disc areas or less in size and show evidence of recent
disease progression even though the FDA has not approved photodynamic therapy
for such treatment.

         The current therapies for the treatment of DME are thermal laser
treatment and steroid treatment administered by physicians on an off-label
basis. Unless additional therapies are approved, these existing therapies will
represent the principal competition for Macugen if Macugen is approved for
marketing.

         Additional treatments for AMD and DME are in various stages of
preclinical or clinical testing. If approved, these treatments would also
compete with Macugen. Potential treatments in late stage clinical trials include
drugs sponsored by a collaboration of Genentech, Inc. and Novartis, Alcon, Inc.,
Allergan, Inc. through its recent acquisition of Oculex Pharmaceuticals, Inc.,
Eli Lilly and Co., Bausch & Lomb Incorporated, a collaboration of Regeneron
Pharmaceuticals, Inc. and Aventis S.A., Miravant Medical Technologies, and
Genaera Corporation. Some of the sponsors of these potential products have
recently announced favorable results from Phase 1 or Phase 2 clinical trials.
The Genentech/Novartis collaboration is developing an anti-VEGF humanized
antibody fragment for intravitreal injection. This product candidate may be
viewed as particularly competitive with Macugen because of the similarity of its
mechanism of action. In addition, Alcon expects to announce results of its Phase
3 clinical trial of anecortave acetate, an angiostatic steroid, for the
treatment of wet AMD patients, that features a less invasive injectable delivery
that requires less frequent administration (every six months), in the fourth
quarter of 2004 and to file an NDA thereafter for the predominantly classic
subtype of wet AMD. Further, Alcon is enrolling patients in two Phase 3 clinical
trials, one in South America and one in Europe, comparing the safety and
efficacy of Alcon's steroid against placebo in patients with all subtypes of wet
AMD. Other laser, surgical or pharmaceutical treatments for AMD and DME may also
compete against Macugen. These competitive therapies may result in pricing
pressure if we receive marketing approval for Macugen even if Macugen is
otherwise viewed as a preferable therapy.

         Many of our competitors have substantially greater financial, technical
and human resources than we have. Additional mergers and acquisitions in the
pharmaceutical and biotechnology industries may result in even more resources
being concentrated by our competitors. Competition may increase further as a
result of advances made in the commercial applicability of technologies and
greater availability of capital for investment in these fields.

WE MAY NOT BE SUCCESSFUL IN OUR EFFORTS TO EXPAND OUR PORTFOLIO OF PRODUCTS.

         A key element of our strategy is to commercialize a portfolio of new
ophthalmic drugs in addition to Macugen. We are seeking to do so through our
internal research programs and through licensing or otherwise acquiring the
rights to potential new drugs and drug targets for the treatment of ophthalmic
disease.

         A significant portion of the research that we are conducting involves
new and unproven technologies. Research programs to identify new disease targets
and product candidates require substantial technical, financial and human
resources whether or not we ultimately identify any candidates. Our research
programs may initially show promise in identifying potential product candidates,
yet fail to yield product candidates for clinical development for a number of
reasons, including:

         -        the research methodology used may not be successful in
                  identifying potential product candidates; or

         -        potential product candidates may on further study be shown to
                  have harmful side effects or other characteristics that
                  indicate they are unlikely to be effective drugs.

         We may be unable to license or acquire suitable product candidates or
products from third parties for a number of reasons. In particular, the
licensing and acquisition of pharmaceutical products is a competitive area. A
number of more established companies are also pursuing strategies to license or
acquire products in the ophthalmic field. These established companies may have a
competitive advantage over us due to their size, cash resources and greater
clinical development and commercialization capabilities. Other factors that may
prevent us from licensing or otherwise acquiring suitable product candidates
include the following:

                                       21
<PAGE>

         -        we may be unable to license or acquire the relevant technology
                  on terms that would allow us to make an appropriate return
                  from the product;

         -        companies that perceive us to be their competitors may be
                  unwilling to assign or license their product rights to us; or

         -        we may be unable to identify suitable products or product
                  candidates within our areas of expertise.

If we are unable to develop suitable potential product candidates through
internal research programs or by obtaining rights to novel therapeutics from
third parties, our business will suffer.

MARKET ACCEPTANCE OF MACUGEN AND OTHER PRODUCTS WE DEVELOP IN THE FUTURE THAT
ARE BASED ON NEW TECHNOLOGIES MAY BE LIMITED.

         The commercial success of the products for which we may obtain
marketing approval from the FDA or other regulatory authorities will depend upon
the acceptance of these products by the medical community and third party payors
as clinically useful, cost-effective and safe. Even if a potential product
displays a favorable efficacy and safety profile in clinical trials, market
acceptance of the product will not be known until after it is commercially
launched. We expect that many of the products that we develop will be based upon
new technologies. For example, Macugen is an aptamer, which is a type of nucleic
acid. To date, no aptamer has been approved as a pharmaceutical by the FDA. As a
result, it may be more difficult for us to achieve market acceptance of our
products, particularly the first products that we introduce to the market based
on new technologies. Our efforts to educate the medical community about these
potentially unique approaches may require greater resources than would be
typically required for products based on conventional technologies. The safety,
efficacy, convenience and cost-effectiveness of our products as compared to
competitive products will also affect market acceptance.

WE ARE IN THE PROCESS OF ESTABLISHING OUR SALES AND MARKETING CAPABILITIES. WE
WILL NEED TO SUCCESSFULLY RECRUIT SALES PERSONNEL AND BUILD A SALES
INFRASTRUCTURE TO SUCCESSFULLY COMMERCIALIZE MACUGEN AND OTHER PRODUCTS THAT WE
DEVELOP, ACQUIRE OR LICENSE.

         We have limited experience in selling products and are in the process
of establishing our sales capabilities. While we have personnel with significant
marketing experience and have been collaborating with our partner, Pfizer, we
have limited experience as a company marketing products. To achieve commercial
success for any approved product, we must develop an effective sales and
marketing organization. We are beginning to recruit a specialty sales force to
participate in detailing Xalatan and, assuming regulatory approval, to market
and sell Macugen in the United States in collaboration with Pfizer. If we are
not successful in recruiting sales personnel or in building a sales and
marketing infrastructure, our business will materially suffer. Moreover, if the
commercial launch of Macugen is delayed as a result of FDA requirements or other
reasons, we may establish sales and marketing capabilities too early relative to
the launch of Macugen. This may be expensive, and our investment would be lost
if we cannot retain our sales and marketing personnel.

WE EXPECT TO DEPEND ON COLLABORATIONS WITH THIRD PARTIES TO DEVELOP AND
COMMERCIALIZE OUR PRODUCTS.

         Our business strategy includes entering into collaborations with
corporate and academic collaborators for the research, development and
commercialization of additional product candidates, such as our collaboration
with Pfizer. These arrangements may not be scientifically or commercially
successful. The termination of any of these arrangements might adversely affect
our ability to develop, commercialize and market our products.

         The success of our collaboration arrangements will depend heavily on
the efforts and activities of our collaborators. Our collaborators will have
significant discretion in determining the efforts and resources that they will
apply to these collaborations. The risks that we face in connection with these
collaborations, including our collaboration with Pfizer, include the following:

         -        our collaboration agreements are, or are expected to be, for
                  fixed terms and subject to termination under various
                  circumstances, including, in many cases, on short notice
                  without cause;

                                       22
<PAGE>

         -        we expect to be required in our collaboration agreements not
                  to conduct specified types of research and development in the
                  field that is the subject of the collaboration. These
                  agreements may have the effect of limiting the areas of
                  research and development that we may pursue, either alone or
                  in cooperation with third parties;

         -        our collaborators may develop and commercialize, either alone
                  or with others, products and services that are similar to or
                  competitive with our products that are the subject of the
                  collaboration with us; and

         -        our collaborators may change the focus of their development
                  and commercialization efforts. Pharmaceutical and
                  biotechnology companies historically have re-evaluated their
                  priorities following mergers and consolidations, which have
                  been common in recent years in these industries. The ability
                  of our products to reach their potential could be limited if
                  our collaborators decrease or fail to increase spending
                  relating to such products.

Collaborations with pharmaceutical companies and other third parties often are
terminated or allowed to expire by the other party. Such terminations or
expirations can adversely affect us financially as well as harm our business
reputation.

WE MAY NOT BE SUCCESSFUL IN ESTABLISHING ADDITIONAL COLLABORATIONS, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS AND SERVICES.

         An important element of our business strategy is entering into
collaborations for the development and commercialization of products when we
believe that doing so will maximize product value. If we are unable to reach
agreements with suitable collaborators, we may fail to meet our business
objectives for the affected product or program. We face significant competition
in seeking appropriate collaborators. Moreover, these collaboration arrangements
are complex to negotiate and time consuming to document. We may not be
successful in our efforts to establish additional collaborations or other
alternative arrangements. The terms of any additional collaborations or other
arrangements that we establish may not be favorable to us. Moreover, these
collaborations or other arrangements may not be successful.

WE HAVE NO MANUFACTURING FACILITIES AND LIMITED MANUFACTURING PERSONNEL. WE WILL
DEPEND ON THIRD PARTIES TO MANUFACTURE MACUGEN AND FUTURE PRODUCTS. IF THESE
MANUFACTURERS FAIL TO MEET OUR REQUIREMENTS, OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION EFFORTS MAY BE MATERIALLY HARMED.

         We have limited personnel with experience in, and we do not own
facilities for, manufacturing any products. We will depend on third parties to
manufacture Macugen and any future products that we may develop.

         For our clinical trials of Macugen, we engaged a third party
manufacturer to produce the active pharmaceutical ingredient used in Macugen. We
have entered into an agreement with an affiliate of this third party for
commercial supply of the active pharmaceutical ingredient. For our clinical
trials of Macugen, we also engaged a separate fill and finish manufacturer for
the finished drug product to formulate the active pharmaceutical ingredient from
a solid into a solution and to fill the solution into syringes. We have entered
into an agreement with this manufacturer to provide these finished product
services for commercial supply. These manufacturers of Macugen will be single
source suppliers to us for a significant period of time. We also expect to
continue to rely on a single source of supply for the PEGylation reagent used in
the manufacture of Macugen.

         We believe we currently have sufficient capacity to supply the active
pharmaceutical ingredient of Macugen to meet anticipated demand for Macugen if
the product is approved based on a 0.3 mg dose for approximately 24 months after
approval. However, in order to sustain Macugen supply at the quantities we
believe will be necessary to meet anticipated future market demand, we and our
contract manufacturer will need to increase the manufacturing capacity for the
active pharmaceutical ingredient. We initially intend to increase manufacturing
capacity for the active pharmaceutical ingredient by duplicating a portion of
our manufacturing lines at the contract manufacturer's facility. We are also
exploring other alternatives for increasing manufacturing capacity. If we are
unable to increase our manufacturing capacity, or if the cost of this increased
capacity is uneconomic to us, we may not be able to produce Macugen in a
sufficient quantity to meet future requirements to sustain supply of the product
to meet anticipated future demand. In addition, our revenues and gross margins
could be adversely affected.

                                       23
<PAGE>

         Reliance on third party manufacturers entails risks to which we would
not be subject if we manufactured products ourselves, including:

         -        reliance on the third party for regulatory compliance and
                  quality assurance;

         -        the possible breach of the manufacturing agreement by the
                  third party because of factors beyond our control; and

         -        the possibility of termination or non-renewal of the agreement
                  by the third party, based on its own business priorities, at a
                  time that is costly or inconvenient for us.

         We may in the future elect to establish our own manufacturing
facilities to manufacture some of our products. We would need to invest
substantial additional funds and recruit qualified personnel in order to build
or lease and operate any manufacturing facilities.

THE MANUFACTURE AND PACKAGING OF PHARMACEUTICAL PRODUCTS SUCH AS MACUGEN ARE
SUBJECT TO THE REQUIREMENTS OF THE FDA AND SIMILAR FOREIGN REGULATORY BODIES. IF
WE OR OUR THIRD PARTY MANUFACTURERS FAIL TO SATISFY THESE REQUIREMENTS, OUR
PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY BE MATERIALLY HARMED.

         The manufacture and packaging of pharmaceutical products, such as
Macugen and our future product candidates, are regulated by the FDA and similar
foreign regulatory bodies and must be conducted in accordance with the FDA's
current good manufacturing practices and comparable requirements of foreign
regulatory bodies. There are a limited number of manufacturers that operate
under these current good manufacturing practices regulations who are both
capable of manufacturing Macugen and willing to do so. Failure by us or our
third party manufacturers to comply with applicable regulations, requirements,
or guidelines could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of regulatory authorities to grant
marketing approval of our products, delays, suspension or withdrawal of
approvals, license revocation, seizures or recalls of product, operating
restrictions and criminal prosecutions, any of which could significantly and
adversely affect our business.

         Changes in the manufacturing process or procedure, including a change
in the location where the product is manufactured or a change of a third party
manufacturer, may require prior FDA review and/or approval of the manufacturing
process and procedures in accordance with the FDA's current good manufacturing
practices. There are comparable foreign requirements. This review may be costly
and time consuming and could delay or prevent the launch of a product. For
example, our third party contract manufacturer changed the site used to
manufacture the active pharmaceutical ingredient of Macugen. We have completed
the transfer of the relevant manufacturing technology to the new site, have used
the new site to supply the active pharmaceutical ingredient of Macugen for use
in our clinical trials and plan to continue to use this site to produce
commercial quantities of the active pharmaceutical ingredient of Macugen. We
are performing analytical tests to demonstrate the comparability of our active
pharmaceutical ingredient following the site change. If we cannot establish that
the products manufactured at the new site are comparable to the satisfaction of
the FDA, we may not obtain or may be delayed in obtaining approval to launch
Macugen. In addition, if we elect to manufacture products in our own facility or
at the facility of another third party, we would need to ensure that the new
facility and the manufacturing process are in substantial compliance with
current good manufacturing practices. Any such new facility would be subject to
a pre-approval inspection by FDA.

         Furthermore, in order to obtain approval of our products, including
Macugen, by the FDA and foreign regulatory agencies, we need to complete testing
on both the active pharmaceutical ingredient and on the finished product in the
packaging we propose for commercial sales. This includes testing of stability,
identification of impurities and testing of other product specifications by
validated test methods. In addition, we will be required to consistently produce
the active pharmaceutical ingredient in commercial quantities and of specified
quality on a repeated basis and document our ability to do so. This requirement
is referred to as process validation. With respect to Macugen, although we have
manufactured Macugen at commercial scale, we have started, but not yet
completed, this process validation requirement. If the required testing or
process validation is delayed or produces unfavorable results, we may not obtain
approval to launch the product or approval may be delayed.

                                       24
<PAGE>

         The FDA and similar foreign regulatory bodies may also implement new
standards, or change their interpretation and enforcement of existing standards
and requirements, for manufacture, packaging, or testing of products at any
time. If we are unable to comply, we may be subject to regulatory, civil actions
or penalties which could significantly and adversely affect our business.

MACUGEN AND OUR OTHER POTENTIAL PRODUCTS MAY NOT BE COMMERCIALLY VIABLE IF WE
FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR THESE PRODUCTS BY MEDICARE
AND OTHER THIRD PARTY PAYORS. THE MARKETS FOR OUR PRODUCTS MAY ALSO BE LIMITED
BY THE INDICATIONS FOR WHICH THEIR USE MAY BE REIMBURSED OR THE FREQUENCY IN
WHICH THEY MAY BE ADMINISTERED.

         The availability and levels of reimbursement by governmental and other
third party payors affect the market for products such as Macugen and others
that we may develop. These third party payors continually attempt to contain or
reduce the costs of healthcare by challenging the prices charged for medical
products and services. In some foreign countries, particularly Canada and the
countries of the European Union, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing negotiations with
governmental authorities can take six to twelve months or longer after the
receipt of regulatory marketing approval for a product. To obtain reimbursement
or pricing approval in some countries, we may be required to conduct a clinical
trial that compares the cost-effectiveness of our products, including Macugen,
to other available therapies. If reimbursement for our products is unavailable
or limited in scope or amount or if pricing is set at unsatisfactory levels, our
business could be materially harmed.

         Because most persons suffering from wet AMD are elderly, we expect that
coverage for Macugen in the United States will be primarily through the Medicare
program. Although drugs that are not usually self-administered are ordinarily
covered by Medicare, the Medicare program has taken the position that it can
decide not to cover particular drugs if it determines that they are not
"reasonable and necessary" for Medicare beneficiaries. Limitations on coverage
could also be imposed at the local Medicare carrier level or by fiscal
intermediaries. Our business could be materially adversely affected if the
Medicare program, local Medicare carriers or fiscal intermediaries were to make
such a determination and deny or limit the reimbursement of Macugen. Our
business also could be adversely affected if physicians are not reimbursed by
Medicare for the cost of the procedure in which they administer Macugen on a
basis satisfactory to the administering physicians. If the local contractors
that administer the Medicare program are slow to reimburse physicians for
Macugen, the physicians may pay us more slowly, which would adversely affect our
working capital requirements.

         We also will need to obtain approvals for payment for Macugen from
private insurers, including managed care organizations. We expect that private
insurers will consider the efficacy, cost-effectiveness and safety of Macugen in
determining whether to approve reimbursement for Macugen therapy and at what
level. Obtaining these approvals can be a time consuming and expensive process.
Our business would be materially adversely affected if we do not receive
approval for reimbursement of Macugen from private insurers on a satisfactory
basis.

         Our business could also be adversely affected if the Medicare program
or other reimbursing bodies or payors limit the indications for which Macugen
will be reimbursed to a smaller set than we believe it is effective in treating
or establish a limitation on the frequency with which Macugen may be
administered that is less often than we believe would be effective.

         We expect to experience pricing pressures in connection with the sale
of Macugen and our future products due to the trend toward programs aimed at
reducing healthcare costs, the increasing influence of health maintenance
organizations and additional legislative proposals.

THE RECENT MEDICARE PRESCRIPTION DRUG COVERAGE LEGISLATION AND FUTURE
LEGISLATIVE OR REGULATORY REFORM OF THE HEALTHCARE SYSTEM MAY AFFECT OUR ABILITY
TO SELL OUR PRODUCTS PROFITABLY.

         In both the United States and some non-U.S. jurisdictions, there have
been a number of legislative and regulatory proposals to change the healthcare
system in ways that could affect our ability to sell our products profitably. In
the United States, new legislation has been proposed at the federal and state
levels that would result in significant changes to the healthcare system, either
nationally or at the state level. In particular, in December 2003, President
Bush signed into law new Medicare prescription drug coverage legislation.
Effective January 2004, the legislation

                                       25
<PAGE>

changed the methodology used to calculate reimbursement for drugs such as
Macugen that are administered in physicians' offices in a manner intended to
reduce the amount that is subject to reimbursement. In addition, beginning in
January 2006, the legislation directs the Secretary of Health and Human Services
to contract with procurement organizations to purchase physician-administered
drugs from the manufacturers and provides physicians with the option to obtain
drugs through these organizations as an alternative to purchasing from the
manufacturers, which some physicians may find advantageous. These changes may
also cause private insurers to reduce the amounts that they will pay for
physician-administered drugs. In addition, the Centers for Medicare & Medicaid
Services, or CMS, the agency within the Department of Health and Human Services
that administers Medicare and will be responsible for reimbursement of the cost
of Macugen, has asserted the authority of Medicare not to cover particular drugs
if it determines that they are not "reasonable and necessary" for Medicare
beneficiaries or to cover them at a lesser rate, comparable to that for drugs
already reimbursed that CMS considers to be therapeutically comparable. Further
federal and state proposals and healthcare reforms are likely. Our results of
operations could be materially adversely affected by the Medicare prescription
drug coverage legislation, by the possible effect of this legislation on amounts
that private insurers will pay and by other healthcare reforms that may be
enacted or adopted in the future.

WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
INSURANCE.

         Our business exposes us to the risk of product liability claims that is
inherent in the manufacturing, testing and marketing of drugs and related
products. If the use of one or more of our products harms people, we may be
subject to costly and damaging product liability claims. We have product
liability insurance that covers our clinical trials up to a $10 million annual
aggregate limit. We intend to expand our insurance coverage to include the sale
of commercial products if we obtain marketing approval for any of the products
that we may develop. Insurance coverage is increasingly expensive. We may not be
able to obtain or maintain adequate protection against potential liabilities. If
we are unable to obtain insurance at acceptable cost or otherwise protect
against potential product liability claims, we will be exposed to significant
liabilities, which may materially and adversely affect our business and
financial position. These liabilities could prevent or interfere with our
product development and commercialization efforts.

WE DEPEND ON OUR KEY PERSONNEL. IF WE ARE NOT ABLE TO RETAIN THEM OR RECRUIT
ADDITIONAL TECHNICAL PERSONNEL, OUR BUSINESS WILL SUFFER.

         We are highly dependent on the principal members of our management and
scientific staff, particularly Dr. David R. Guyer, our co-founder and Chief
Executive Officer, and Dr. Anthony P. Adamis, our scientific pioneer, Chief
Scientific Officer and Senior Vice President, Research. Our employment
agreements with these and our other executive officers are terminable on short
or no notice. We do not carry key man life insurance on any of our key
personnel. The loss of service of any of our key employees could harm our
business.

         In addition, our growth will require us to hire a significant number of
qualified technical, commercial and administrative personnel. There is intense
competition from other companies and research and academic institutions for
qualified personnel in the areas of our activities. If we cannot continue to
attract and retain, on acceptable terms, the qualified personnel necessary for
the continued development of our business, we may not be able to sustain our
operations or grow.

WE DEPEND ON THIRD PARTIES IN THE CONDUCT OF OUR CLINICAL TRIALS FOR MACUGEN AND
ANY FAILURE OF THOSE PARTIES TO FULFILL THEIR OBLIGATIONS COULD ADVERSELY AFFECT
OUR DEVELOPMENT AND COMMERCIALIZATION PLANS.

         We depend on independent clinical investigators, contract research
organizations and other third party service providers in the conduct of our
clinical trials for Macugen and expect to do so with respect to other product
candidates. We rely heavily on these parties for successful execution of our
clinical trials, but do not control many aspects of their activities. For
example, the investigators are not our employees. However, we are responsible
for ensuring that each of our clinical trials is conducted in accordance with
the general investigational plan and protocols for the trial. Third parties may
not complete activities on schedule, or may not conduct our clinical trials in
accordance with regulatory requirements or our stated protocols. The failure of
these third parties to carry out their obligations could delay or prevent the
development, approval and commercialization of Macugen and future product
candidates.

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<PAGE>

REGULATORY RISKS

WE MAY NOT BE ABLE TO OBTAIN MARKETING APPROVAL FOR ANY OF THE PRODUCTS
RESULTING FROM OUR DEVELOPMENT EFFORTS, INCLUDING MACUGEN. FAILURE TO OBTAIN
THESE APPROVALS COULD MATERIALLY HARM OUR BUSINESS.

         Although we may not require additional research and development for the
approval of Macugen for the treatment of wet AMD, the use of Macugen for the
treatment of other indications and other products that we are developing or may
develop in the future will require additional research and development. The
research and development work that we must perform will include extensive
preclinical studies and clinical trials. We will be required to obtain an
investigational new drug application, or IND, prior to initiating human clinical
trials in the United States and must obtain regulatory approval prior to any
commercial distribution. This process is expensive, uncertain and lengthy, often
taking a number of years until a product is approved for commercial
distribution. We have only one product, Macugen, that has advanced to clinical
trials. We have not received regulatory approval to market Macugen in any
jurisdiction. Failure to obtain required regulatory approvals could materially
harm our business.

         We may need to successfully address a number of technological
challenges in order to complete the development of Macugen or any of our future
products. For example, to obtain marketing approval for Macugen, we will be
required to consistently produce the active pharmaceutical ingredient in
commercial quantities and of specified quality on a repeated basis and document
our ability to do so. We have not yet completed this process validation
requirement and, if we are unable to do so, our business will be materially
adversely affected.

         In addition, administration of a drug via intravitreal injection is a
new method for the potentially long-term treatment of chronic eye disease. As a
result, the FDA and other regulatory agencies may apply new standards for
safety, manufacturing, packaging and distribution of drugs using this mode of
administration, including Macugen. We are working with the FDA in connection
with its development of appropriate standards for drugs using this mode of
administration. As part of this process, we also support efforts by the United
States Pharmacopoeia, which works with the FDA to establish standards, to devise
a particulate limit and a standard to measure particulate matter appropriate for
ophthalmologic treatments administered as ultra low-volume injectables. It may
be time consuming or expensive for us to comply with these standards. This could
result in delays in our obtaining marketing approval for Macugen, or possibly
preclude us from obtaining such approval. This could also increase our
commercialization costs, possibly materially.

         Furthermore, Macugen and any of our future products may not be
effective, may be only moderately effective or may prove to have undesirable or
unintended side effects, toxicities or other characteristics that may preclude
our obtaining regulatory approval or prevent or limit commercial use, which
could have a material adverse effect on our business. The FDA and other
regulatory authorities may not approve any product that we develop.

THE "FAST TRACK" DESIGNATION FOR DEVELOPMENT OF MACUGEN MAY NOT ACTUALLY LEAD TO
A FASTER DEVELOPMENT OR REGULATORY REVIEW OR APPROVAL PROCESS.

         If a drug is intended for the treatment of a serious or
life-threatening condition and the drug demonstrates the potential to address
unmet medical needs for this condition, the drug sponsor may apply for FDA "fast
track" designation. The fast track classification does not apply to the product
alone, but applies to the combination of the product and the specific indication
or indications for which it is being studied. The FDA's fast track programs are
designed to facilitate the clinical development and evaluation of the drug's
safety and efficacy for the fast track indication or indications. Marketing
applications filed by sponsors of products in fast track development may qualify
for expedited review under policies or procedures offered by the FDA, but the
fast track designation does not assure such qualification. Although we have
obtained a fast track designation from the FDA for Macugen for the treatment of
both wet AMD and DME, we may not experience a faster development process, review
or approval compared to conventional FDA procedures. Our fast track designation
may be withdrawn by the FDA if it believes that the designation is no longer
supported by data from our clinical development program. Our fast track
designation does not guarantee that we will qualify for or be able to take
advantage of the expedited review procedures.

OUR PRODUCTS COULD BE SUBJECT TO RESTRICTIONS OR WITHDRAWAL FROM THE MARKET AND
WE MAY BE SUBJECT TO PENALTIES IF WE FAIL TO COMPLY WITH REGULATORY
REQUIREMENTS, OR IF WE EXPERIENCE UNANTICIPATED PROBLEMS WITH OUR PRODUCTS,

                                       27
<PAGE>

WHEN AND IF ANY OF THEM ARE APPROVED.

         Any product for which we obtain marketing approval, along with the
manufacturing processes, post-approval clinical data, advertising and
promotional activities for such product, will be subject to continual
requirements, review and periodic inspections by the FDA and other regulatory
bodies. Even if regulatory approval of a product is granted, the approval may be
subject to limitations on the indicated uses for which the product may be
marketed or to the conditions of approval, or contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the
product. Later discovery of previously unknown problems with our products,
manufacturer or manufacturing processes, or failure to comply with regulatory
requirements, may result in:

         -        restrictions on such products or manufacturing processes;

         -        withdrawal of the products from the market;

         -        voluntary or mandatory recall;

         -        fines;

         -        suspension of regulatory approvals;

         -        product seizure; and

         -        injunctions or the imposition of civil or criminal penalties.

         We may be slow to adapt, or we may never adapt, to changes in existing
regulatory requirements or adoption of new regulatory requirements or policies.

FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WOULD PREVENT US
FROM MARKETING OUR PRODUCTS ABROAD.

         We intend to have our products marketed outside the United States. In
order to market our products in the European Union and many other non-U.S.
jurisdictions, we must obtain separate regulatory approvals and comply with
numerous and varying regulatory requirements. In the case of Macugen, Pfizer has
responsibility to obtain regulatory approvals outside the United States, and we
will depend on Pfizer to obtain these approvals. The approval procedure varies
among countries and can involve additional testing. The time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval. We may not obtain foreign regulatory approvals on a
timely basis, if at all. Approval by the FDA does not ensure approval by
regulatory authorities in other countries, and approval by one foreign
regulatory authority does not ensure approval by regulatory authorities in other
foreign countries or by the FDA. We and our collaborators may not be able to
file for regulatory approvals and may not receive necessary approvals to
commercialize our products in any market. The failure to obtain these approvals
could materially adversely affect our business, financial condition and results
of operations.

WE HAVE ONLY LIMITED EXPERIENCE IN REGULATORY AFFAIRS, AND SOME OF OUR PRODUCTS
MAY BE BASED ON NEW TECHNOLOGIES. THESE FACTORS MAY AFFECT OUR ABILITY OR THE
TIME WE REQUIRE TO OBTAIN NECESSARY REGULATORY APPROVALS.

         We have only limited experience as a company in filing and prosecuting
the applications necessary to gain regulatory approvals. Moreover, some of the
products that are likely to result from our product development, licensing and
acquisition programs may be based on new technologies that have not been
extensively tested in humans. The regulatory requirements governing these types
of products may be less well defined or more rigorous than for conventional
products. As a result, we may experience a longer regulatory review in
connection with obtaining regulatory approvals of any products that we develop,
license or acquire.

RISKS RELATING TO INTELLECTUAL PROPERTY

IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PROTECTION FOR THE INTELLECTUAL PROPERTY
INCORPORATED INTO OUR PRODUCTS,

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<PAGE>

THE VALUE OF OUR TECHNOLOGY AND PRODUCTS WILL BE ADVERSELY AFFECTED.

         Our success will depend in large part on our ability or the ability of
our licensors to obtain and maintain protection in the United States and other
countries for the intellectual property incorporated into our products. The
patent situation in the field of biotechnology and pharmaceuticals generally is
highly uncertain and involves complex legal and scientific questions. Neither we
nor our licensors may be able to obtain additional issued patents relating to
our technology. Even if issued, patents may be challenged, narrowed,
invalidated, or circumvented, which could limit our ability to stop competitors
from marketing similar products or limit the length of term of patent protection
we may have for our products. In addition, our patents and our licensors'
patents also may not afford us protection against competitors with similar
technology. Because patent applications in the United States and many foreign
jurisdictions are typically not published until 18 months after filing, or in
some cases not at all, and because publications of discoveries in the scientific
literature often lag behind actual discoveries, neither we nor our licensors can
be certain that we or they were the first to make the inventions claimed in
issued patents or pending patent applications, or that we or they were the first
to file for protection of the inventions set forth in these patent applications.

IF WE FAIL TO COMPLY WITH OUR OBLIGATIONS IN THE AGREEMENTS UNDER WHICH WE
LICENSE DEVELOPMENT OR COMMERCIALIZATION RIGHTS TO PRODUCTS OR TECHNOLOGY FROM
THIRD PARTIES, WE COULD LOSE LICENSE RIGHTS THAT ARE IMPORTANT TO OUR BUSINESS.

         We are a party to a number of technology licenses that are important to
our business and expect to enter into additional licenses in the future. For
example, we hold licenses from Gilead, Nektar Therapeutics and Isis
Pharmaceuticals under patents relating to Macugen. These licenses impose various
commercialization, milestone payment, royalty, insurance, and other obligations
on us. If we fail to comply with these obligations, the licensor may have the
right to terminate the license, in which event we would not be able to market
products, such as Macugen, that may be covered by the license.

IF WE ARE UNABLE TO PROTECT THE CONFIDENTIALITY OF OUR PROPRIETARY INFORMATION
AND KNOW-HOW, THE VALUE OF OUR TECHNOLOGY AND PRODUCTS COULD BE ADVERSELY
AFFECTED.

         In addition to patented technology, we rely upon unpatented proprietary
technology, processes, and know-how. We seek to protect this information in part
by confidentiality agreements with our employees, consultants and third parties.
These agreements may be breached, and we may not have adequate remedies for any
such breach. In addition, our trade secrets may otherwise become known or be
independently developed by competitors.

THIRD PARTIES MAY OWN OR CONTROL PATENTS OR PATENT APPLICATIONS THAT WOULD BE
INFRINGED BY OUR TECHNOLOGIES, DRUG TARGETS OR POTENTIAL PRODUCTS. THIS COULD
CAUSE US TO BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER PROCEEDINGS,
WHICH COULD RESULT IN OUR INCURRING SUBSTANTIAL COSTS AND EXPENSES AND LIABILITY
FOR DAMAGES. THIS COULD ALSO REQUIRE US TO SEEK LICENSES, WHICH COULD INCREASE
OUR DEVELOPMENT AND COMMERCIALIZATION COSTS. IN EITHER CASE, THIS COULD REQUIRE
US TO STOP SOME OF OUR DEVELOPMENT AND COMMERCIALIZATION EFFORTS.

         We may not have rights under some patents or patent applications that
would be infringed by technologies that we use in our research, drug targets
that we select or product candidates that we seek to develop and commercialize.
Third parties may own or control these patents and patent applications in the
United States and abroad. These third parties could bring claims against us or
our collaborators that would cause us to incur substantial expenses and, if
successful against us, could cause us to pay substantial damages. Further, if a
patent infringement suit were brought against us or our collaborators, we or
they could be forced to stop or delay research, development, manufacturing or
sales of the product or product candidate that is the subject of the suit.

         As a result of patent infringement claims, or in order to avoid
potential claims, we or our collaborators may choose to seek, or be required to
seek, a license from the third party and would most likely be required to pay
license fees or royalties or both. These licenses may not be available on
acceptable terms, or at all. Even if we or our collaborators were able to obtain
a license, the rights may be nonexclusive, which would give our competitors
access to the same intellectual property. Ultimately, we could be prevented from
commercializing a product, or be forced to cease some aspect of our business
operations if, as a result of actual or threatened patent infringement claims,
we or our collaborators are unable to enter into licenses on acceptable terms.
This could harm our business significantly.

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<PAGE>

         There has been substantial litigation and other proceedings regarding
the patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. In addition to infringement claims against us, we may
become a party to other patent litigation and other proceedings, including
interference proceedings declared by the United States Patent and Trademark
Office and opposition proceedings in the European Patent Office, regarding
intellectual property rights with respect to our products and technology. The
cost to us of any patent litigation or other proceeding, even if resolved in our
favor, could be substantial. Some of our competitors may be able to sustain the
costs of such litigation or proceedings more effectively than we can because of
their substantially greater financial resources. Uncertainties resulting from
the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace.
Patent litigation and other proceedings may also absorb significant management
time.

RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING

WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED LOSSES SINCE INCEPTION. IF
WE DO NOT GENERATE SIGNIFICANT REVENUES, WE WILL NOT BE ABLE TO ACHIEVE
PROFITABILITY.

         We have no current source of product revenue. We have a limited
operating history and have not yet commercialized any products. To date, we have
focused primarily on the development of Macugen. We began operations in 2000,
and we have not been profitable in any quarter since inception. As of March 31,
2004, we had an accumulated deficit of approximately $153.3 million. We expect
to increase our spending significantly as we continue to expand our
infrastructure, development programs and commercialization activities. As a
result, we will need to generate significant revenues to pay these costs and
achieve profitability. We do not know whether or when we will become profitable
because of the significant uncertainties with respect to our ability to generate
revenues from the sale of our products and from our existing and potential
future collaborations.

WE MAY NEED ADDITIONAL FINANCING, WHICH MAY BE DIFFICULT TO OBTAIN. OUR FAILURE
TO OBTAIN NECESSARY FINANCING OR DOING SO ON UNATTRACTIVE TERMS COULD ADVERSELY
AFFECT OUR DEVELOPMENT PROGRAMS AND OTHER OPERATIONS.

         We will require substantial funds to conduct development, including
preclinical testing and clinical trials, of our potential products. We will also
require substantial funds to meet our obligations to our licensors and maximize
the prospective benefits to us from our licensors, and manufacture and market
products that are approved for commercial sale in the future, including Macugen.

         We currently believe that our available cash, cash equivalents and
marketable securities, expected milestone payments and reimbursements from
Pfizer under our collaboration and interest income will be sufficient to fund
our anticipated levels of operations through at least the end of 2005. However,
our future capital requirements will depend on many factors, including:

         -        the success of our collaboration with Pfizer to develop and
                  commercialize Macugen;

         -        the scope and results of our clinical trials;

         -        advancement of other product candidates into development;

         -        potential acquisition or in-licensing of other products or
                  technologies;

         -        the timing of, and the costs involved in, obtaining regulatory
                  approvals;

         -        the cost of manufacturing activities;

         -        the cost of commercialization activities, including product
                  marketing, sales and distribution;

         -        the costs involved in preparing, filing, prosecuting,
                  maintaining and enforcing patent claims and other
                  patent-related costs, including litigation costs and the
                  results of such litigation;

         -        our ability to establish and maintain additional collaborative
                  arrangements; and

         -        the success of our detailing agreement with Pfizer relating to
                  Xalatan.

         Additional financing may not be available to us when we need it or it
may not be available on favorable terms. If we are unable to obtain adequate
financing on a timely basis, we may be required to significantly curtail one or
more of our development, licensing or acquisition programs. We could be required
to seek funds through arrangements with collaborators or others that may require
us to relinquish rights to some of our technologies, product candidates or
products that we would otherwise pursue on our own. If we raise additional funds
by issuing equity securities, our then-existing stockholders will experience
dilution and the terms of any new equity securities may have preferences over
our common stock.

GENERAL COMPANY RELATED RISKS

OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL MAINTAIN THE
ABILITY TO CONTROL ALL MATTERS SUBMITTED TO STOCKHOLDERS FOR APPROVAL.

         Our executive officers, directors and stockholders who own more than 5%
of our outstanding common stock, in the aggregate, beneficially owned shares
representing approximately 65% of our capital stock as of March 23, 2004. As a
result, if these stockholders were to choose to act together, they would be able
to control all matters submitted to our stockholders for approval, as well as
our management and affairs. For example, these persons, if they choose to act
together, will control the election of directors and approval of any merger,
consolidation or sale of all or

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<PAGE>

substantially all of our assets. This concentration of voting power could delay
or prevent an acquisition of our company on terms that other stockholders may
desire.

      PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY PREVENT OR
      FRUSTRATE ATTEMPTS BY OUR STOCKHOLDERS TO CHANGE OUR MANAGEMENT AND HINDER
      EFFORTS TO ACQUIRE A CONTROLLING INTEREST IN US.

      Provisions of our corporate charter and bylaws may discourage, delay or
prevent a merger, acquisition or other change in control that stockholders may
consider favorable, including transactions in which you might otherwise receive
a premium for your shares. These provisions may also prevent or frustrate
attempts by our stockholders to replace or remove our management. These
provisions include:

      -     a classified board of directors;

      -     limitations on the removal of directors;

      -     advance notice requirements for stockholder proposals and
            nominations;

      -     the inability of stockholders to act by written consent or to call
            special meetings; and

      -     the ability of our board of directors to designate the terms of and
            issue new series of preferred stock without stockholder approval.

      The affirmative vote of the holders of at least 75% of our shares of
capital stock entitled to vote is necessary to amend or repeal the above
provisions of our certificate of incorporation. In addition, absent approval of
our board of directors, our bylaws may only be amended or repealed by the
affirmative vote of the holders of at least 75% of our shares of capital stock
entitled to vote.

      In addition, Section 203 of the Delaware General Corporation Law prohibits
a publicly held Delaware corporation from engaging in a business combination
with an interested stockholder, generally a person which together with its
affiliates owns or within the last three years has owned 15% of our voting
stock, for a period of three years after the date of the transaction in which
the person became an interested stockholder, unless the business combination is
approved in a prescribed manner. Accordingly, Section 203 may discourage, delay
or prevent a change in control of our company.

      IF OUR STOCK PRICE IS VOLATILE, PURCHASERS OF OUR COMMON STOCK COULD INCUR
      SUBSTANTIAL LOSSES.

      Our stock price is likely to be volatile. The stock market in general and
the market for biotechnology companies in particular have experienced extreme
volatility that has often been unrelated to the operating performance of
particular companies. As a result of this volatility, investors may not be able
to sell their common stock at or above their respective purchase prices. The
market price for our common stock may be influenced by many factors, including:

      -     results of our clinical trials or those of our competitors;

      -     the regulatory status of Macugen and our other potential products;

      -     failure of any of our product candidates, if approved, to achieve
            commercial success;

      -     developments concerning our collaborators, including Pfizer;

      -     regulatory developments in, and outside of, the United States;

      -     developments or disputes concerning patents or other proprietary
            rights;

      -     our ability to manufacture products to commercial standards;

      -     public concern over our drugs;

      -     litigation;

      -     the departure of key personnel;

      -     future sales of our common stock;

      -     variations in our financial results or those of companies that are
            perceived to be similar to us;

      -     changes in the structure of healthcare payment systems;

      -     investors' perceptions of us; and

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<PAGE>

      -     general economic, industry and market conditions.

      IF THERE ARE SUBSTANTIAL SALES OF OUR COMMON STOCK, OUR STOCK PRICE COULD
      DECLINE.

      If our existing stockholders sell a large number of shares of our common
stock or the public market perceives that existing stockholders might sell
shares of common stock, the market price of our common stock could decline
significantly. All of the shares sold in our initial public offering were freely
tradable without restriction or further registration under the federal
securities laws, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act. Substantially all of our remaining shares
will be eligible for sale pursuant to Rule 144 upon the expiration of 180-day
lock-up agreements on July 28, 2004.

      Holders of an aggregate of approximately 28 million shares of common stock
have rights with respect to the registration of their shares of common stock
with the Securities and Exchange Commission. If we register their shares of
common stock following the expiration of the lock-up agreements, they can sell
those shares in the public market.

      We have registered approximately 9,543,000 shares of common stock that are
authorized for issuance under our stock plans. As of March 31, 2004, 5,729,664
shares were subject to outstanding options, 4,701,004 of which were immediately
exercisable, but with respect to which we had the right to repurchase at the
initial exercise price all but 2,014,929 of the shares issuable upon exercise of
these options. Because they are registered, the shares authorized for issuance
under our stock plans, can be freely sold in the public market upon issuance,
subject to our repurchase rights, the lock-up agreements referred to above and
the restrictions imposed on our affiliates under Rule 144.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Our exposure to market risk is confined to our cash, cash equivalents and
marketable securities. We invest in high-quality financial instruments,
primarily money market funds, federal agency notes, asset backed securities,
corporate debt securities and United States treasury notes, with the effective
duration of the portfolio less than nine months and no security with an
effective duration in excess of two years, which we believe are subject to
limited credit risk. We currently do not hedge interest rate exposure. Due to
the short-term nature of our investments, we do not believe that we have any
material exposure to interest rate risk arising from our investments.

      Most of our transactions are conducted in United States dollars, although
we do have some development and commercialization agreements with vendors
located outside the United States. Transactions under certain of these
agreements are conducted in United States dollars, subject to adjustment based
on significant fluctuations in currency exchange rates. Transactions under
certain other of these agreements are conducted in the local foreign currency.
If the exchange rate undergoes a change of 10%, we do not believe that it would
have a material impact on our results of operations or cash flows.

ITEM 4.  CONTROLS AND PROCEDURES.

      Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and regulations. Disclosure
controls and procedures include controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our chief executive
officer and chief financial officer as appropriate, to allow timely decisions
regarding disclosure.

      As required by Rule 13a-15 under the Exchange Act, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act. This evaluation was carried out under the supervision and with the
participation of our management, including our chief executive officer and our
chief financial officer. Based on that evaluation, these officers have concluded
that, as of March 31, 2004, our disclosure controls and procedures were adequate
and

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<PAGE>

designed to ensure that material information relating to us would be made known
to them by others. There have been no changes in our internal controls over
financial reporting (as defined in Rules 13a-15(b) and 15(d)-15(f) under the
Exchange Act) or in other factors that has materially affected or is reasonably
likely to materially affect internal controls over financial reporting.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

            We are currently not a party to any material legal proceedings.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
        SECURITIES.

Sales of Unregistered Securities

      Set forth below is information regarding shares of common stock that we
issued, and options and restricted stock awards that we granted, during the
three months ended March 31, 2004. Also included is the consideration, if any,
received by us for those shares, and information relating to the section of the
Securities Act of 1933, or rule of the Securities and Exchange Commission, under
which exemption from registration was claimed.

      (a) Issuances of Capital Stock

            1. In February 2004, we issued 476,190 shares of common stock to an
affiliate of Pfizer Inc. at a price per share of $21.00 for cash proceeds of
approximately $10.0 million.

            2. In January 2004, upon the exercise of warrants for cash proceeds
of $0.8 million, we issued 146,233 shares of our Series B redeemable convertible
preferred stock at $6.00 per share to existing investors. Also in January 2004,
upon the cashless exercise of warrants, we issued 709,517 shares of Series B
redeemable convertible preferred stock to holders of 993,336 warrants to
purchase shares of Series B redeemable convertible preferred stock. The 709,517
shares were issued in exchange for the surrender of 283,819 warrants to purchase
shares of Series B redeemable convertible preferred stock.

            3. In January 2004, upon the exercise of warrants for cash proceeds
of $1.1 million, we issued 156,309 shares of our Series C-1 redeemable
convertible preferred stock at $6.80 per share to existing investors. Also in
January 2004, upon the cashless exercise of warrants, we issued 611,746 shares
of Series C-1 redeemable convertible preferred stock to holders of 904,712
warrants to purchase shares of Series C-1 redeemable convertible preferred
stock. The 611,746 shares were issued in exchange for the surrender of 292,966
warrants to purchase shares of Series C-1 redeemable convertible preferred
stock.

            4. In January 2004, upon the exercise of warrants for cash proceeds
of $1.2 million, we issued 166,818 shares of our Series C-2 redeemable
convertible preferred stock at $7.20 per share to existing investors. Also in
January 2004, upon the cashless exercise of warrants, we issued 545,861 shares
of Series C-2 redeemable convertible preferred stock to holders of 830,673
warrants to purchase shares of Series C-2 redeemable convertible preferred
stock. The 545,861 shares were issued in exchange for the surrender of 284,812
warrants to purchase shares of Series C-1 redeemable convertible preferred
stock.

            5. In February and March 2004, upon the cashless exercise of
warrants, we issued an aggregate of 680,509 shares of common stock to holders of
833,333 warrants to purchase 833,333 shares of common stock. The 680,509 shares
were issued in exchange for the surrender of 152,824 warrants to purchase shares
of common stock.

      No underwriters were involved in the foregoing sales of securities. We
issued these securities in reliance upon the exemption from the registration
requirements of the Securities Act, as set forth in Section 4(2) under the

                                       33
<PAGE>

Securities Act and Rule 506 of Regulation D promulgated thereunder relative to
sales by an issuer not involving any public offering, to the extent an exemption
from such registration was required. All purchasers of shares of our convertible
preferred stock described above represented to us in connection with their
purchase that they were accredited investors and were acquiring the shares for
investment and not distribution, that they could bear the risks of the
investment and could hold the securities for an indefinite period of time. The
purchasers received written disclosures that the securities had not been
registered under the Securities Act and that any resale must be made pursuant to
a registration or an available exemption from such registration.

      (b) Stock Option Grants

      In the three months ended March 2004, we issued to employees and
consultants 83,912 shares of common stock upon the exercise of stock options at
a weighted average exercise price of $1.05 per share. During the same period, we
granted options to purchase 1,178,660 shares of common stock at a weighted
average exercise price of $27.50 per share. In addition, we also issued 37,501
shares of restricted stock to employees for cash proceeds of $375.00.

      The issuance of stock options and the common stock issuable upon the
exercise of such options as described above were issued pursuant to written
compensatory plans or arrangements with the our employees, directors and
consultants, in reliance on the exemption provided by Rule 701 promulgated under
the Securities Act. All recipients either received adequate information about us
or had access, through employment or other relationships, to such information.

      All of the foregoing securities are deemed restricted securities for
purposes of the Securities Act. All certificates representing the issued shares
of common stock described above included appropriate legends setting forth that
the securities had not been registered and the applicable restrictions on
transfer.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        None

ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS.

        None

ITEM 5. OTHER INFORMATION.

        None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)     Exhibits:

Exhibit No.  Description

3.1          Amended and Restated Certificate of Incorporation (1)
3.2          Amended and Restated Bylaws (1)
10.1         Amendment No. 1 dated May 4, 2004 to Consulting Agreement between
Samir Patel and the Registrant dated November 1, 2001
31.1         Rule 13a-14(a) Certification of Principal Executive Officer
31.2         Rule 13a-14(a) Certification of Principal Financial Officer
32.1         Rule 1350 Certification of Chief Executive Officer
32.2         Rule 1350 Certification of Chief Financial Officer

                                       34
<PAGE>

--------------------------
(1)   Incorporated by reference to the registrant's Annual Report on Form 10-K
      filed on March 24, 2004

(b)   Reports on Form 8-K:

            (i) On February 23, 2004, we filed a Form 8-K dated February 23,
2004, furnishing under Item 12 "Results of Operations and Financial Condition,"
Eyetech's press release announcing financial results for the three and twelve
months ended December 31, 2003.

            (ii) On March 2, 2004, we filed a Form 8-K dated February 28, 2004,
furnishing under Item 9 "Regulation FD Disclosure" a trade release dated March
2, 2004.

                                       35
<PAGE>


                                   SIGNATURES

            Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      EYETECH PHARMACEUTICALS, INC.
                                              (Registrant)

Dated: May 12, 2004
                                      By:  /s/ DAVID R. GUYER
                                           -------------------------------------
                                                  David R. Guyer, M.D.
                                                  Chief Executive Officer

                                      By:  /s/ GLENN P. SBLENDORIO
                                           -------------------------------------
                                                  Glenn P. Sblendorio
                                                  Chief Financial Officer

                                       36
<PAGE>

                                  EXHIBIT INDEX

Exhibit No.  Description

3.1          Amended and Restated Certificate of Incorporation (1)
3.2          Amended and Restated Bylaws (1)
10.1         Amendment No. 1 dated May 4, 2004 to Consulting Agreement between
Samir Patel and the Registrant dated November 1, 2001
31.1         Rule 13a-14(a) Certification of Principal Executive Officer
31.2         Rule 13a-14(a) Certification of Principal Financial Officer
32.1         Rule 1350 Certification of Chief Executive Officer
32.2         Rule 1350 Certification of Chief Financial Officer

--------------------------
(1)  Incorporated by reference to the registrant's Annual Report on Form 10-K
     filed on March 24, 2004

                                       37