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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-K



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FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)



| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------

For the year ended December 31, 2006



| |  ̈ | 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: 000-50564



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RENOVIS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3353740                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|Two Corporate Drive, South San Francisco, CA                   |  | 94080                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(650) 266-1400

(Registrants telephone number, including area code)



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Securities registered pursuant to Section 12(b) of the Act:



|                                         |  |                                          
|---------------------------------------- |  | -----------------------------------------
|Title of Each Class                      |  | Name of Each Exchange on Which
Registered
|Common Stock, par value $0.001 per share |  | The NASDAQ Stock Market LLC              

Securities registered pursuant to Section 12(g) of the Act:



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ̈NO  x

Indicate by check mark whether registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. YES ̈NO  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined Rule 12b-2 of the Exchange Act). Check one:

Large
accelerated filer ̈Accelerated filer  x                Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    YES ̈NO  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates was $326,115,546 computed by reference to the last sales
price of $15.31 as reported by the NASDAQ Global Market (formerly the NASDAQ National Market), as of the last business day of the Registrants most recently completed second fiscal quarter, June 30, 2006.

The number of outstanding shares of the registrants common stock, par value $0.001 per share, as of March 1, 2007 was 29,558,364.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement for the 2007 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.



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RENOVIS, INC.

FORM 10-K  ANNUAL REPORT

FOR THE YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS



|                                                                                                                               |  |     
|------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                               |  | Page
|PART I                                                                                                                         |  |     
|Item 1         Business                                                                                                        |  | 2   
|Item 1A      Risk Factors                                                                                                      |  | 14  
|Item 1B      Unresolved Staff Comments                                                                                         |  | 27  
|Item 2         Properties                                                                                                      |  | 27  
|Item 3         Legal Proceedings                                                                                               |  | 27  
|Item 4         Submission of Matters to a Vote of Security Holders                                                             |  | 27  
|                                                                                                                               | 
|PART II                                                                                                                        |  |     
|Item 5         Market for Registrants Common Equity, Related Stockholder Matters and Issuer    Purchases of Equity Securities |  | 28  
|Item 6         Selected Financial Data                                                                                         |  | 30  
|Item 7         Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 31  
|Item 7A      Quantitative and Qualitative Disclosures About Market Risk                                                        |  | 41  
|Item 8         Financial Statements and Supplementary Data                                                                     |  | 42  
|Item 9         Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                           |  | 68  
|Item 9A      Controls and Procedures                                                                                           |  | 68  
|Item 9B      Other Information                                                                                                 |  | 68  
|                                                                                                                               | 
|PART III                                                                                                                       |  |     
|Item 10       Directors and Executive Officers of the Registrant                                                               |  | 70  
|Item 11       Executive Compensation                                                                                           |  | 70  
|Item 12       Security Ownership of Certain Beneficial Owners and Management and Related    Stockholder Matters                |  | 70  
|Item 13       Certain Relationships and Related Transactions                                                                   |  | 70  
|Item 14       Principal Accounting Fees and Services                                                                           |  | 70  
|                                                                                                                               | 
|PART IV                                                                                                                        |  |     
|Item 15       Exhibits and Financial Statement Schedules                                                                       |  | 71  
|                                                                                                                               | 
|SIGNATURES                                                                                                                     |  | 76  



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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K, including the sections entitled Business, Risk Factors and Managements Discussion
and Analysis of Financial Condition and Results of Operations, contains forward-looking statements.

Forward-looking
statements include, but are not limited to, statements about:



| |  |  | the progress, timing and completion of the research, development and clinical trials for any of our current or future product candidates;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sufficiency of our cash reserves;
| | - |  | ---------------------------------



| |  |  | our relationships with licensees, partners and collaborators;
| | - |  | -------------------------------------------------------------



| |  |  | filing for and receipt of future regulatory approvals or clearances;
| | - |  | --------------------------------------------------------------------



| |  |  | our ability, or the ability of our collaborators, to market, commercialize and achieve market acceptance for our future product candidates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our future financial performance; and
| | - |  | -------------------------------------



| |  |  | our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

Forward-looking statements also include, but are not limited to, expectations of future revenues, future levels
of research and development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources and our intention to seek revenue from product sales, upfront fees and milestone
payments and royalties resulting from the licensing of our intellectual property. Further, there can be no assurance that the necessary regulatory approvals will be obtained, that we will be able to develop commercially viable products or that any
of our programs will be partnered with pharmaceutical companies or other partners. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other
factors include those listed under Risk Factors and elsewhere in this annual report and other risks detailed in our reports filed with the Securities and Exchange Commission. In some cases, you can identify forward-looking statements by
terminology such as may, will, could, should, expects, intends, seeks, plans, anticipates, believes, estimates,
predicts, projects, potential, target, continue or the variations on these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, based on information available at the time the statements are made, we cannot guarantee future results, levels of activity, performance or achievements. We do not intend to update any of the forward-looking statements
after the date of this report or to conform these statements to the new information, changes in assumptions or actual results.



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Item 1. Business

Overview

Renovis is a science-driven, biopharmaceutical company that seeks to discover, develop, and commercialize therapeutics for major medical needs in the areas of neurological and inflammatory diseases. We apply our
integrated capabilities in preclinical research and development, including molecular biology, medicinal chemistry, in vitro and in vivo pharmacology, drug metabolism and pharmacokinetics, toxicology and informatics, to identify and select small
molecule drug candidates that meet stringent standards for development. This approach has yielded multiple lead candidates from diverse, proprietary chemical series in our late-stage preclinical programs for pain and inflammation. We are engaged in
an exclusive, worldwide collaboration with Pfizer Inc. (Pfizer) to discover and develop product candidates targeting the vanilloid receptor, VR1, for the potential treatment of pain and other major medical needs. Our unpartnered preclinical programs
are focused on identifying antagonists of the purinergic receptors, P2X7 and P2X3, as novel potential treatments for a broad spectrum of pain and inflammatory conditions.

LOGO

Based on the progress demonstrated in the table above and our planned activities in 2007, we currently expect
Pfizer to begin clinical development of a VR1 antagonist in 2007 and we currently expect to begin clinical development of product candidates from our P2X7 and P2X3 programs during 2008.

We were incorporated in Delaware on January 5, 2000. Our office is located at Two Corporate Drive, South San Francisco, California 94080, and our
telephone number is (650) 266-1400. Our website address is www.renovis.com.

Our Drug Discovery Approach

The goal of our drug discovery organization is to discover and develop small molecule drugs to treat major medical needs in the areas of neurological and
inflammatory diseases. We select molecular targets that have a biologically or chemically validated role in a neurological or inflammatory disease process affecting many patients for which we believe there is an opportunity for significant
improvement in the safety, dosing, or effectiveness of existing treatment options. We believe such targets offer us opportunities to efficiently identify and develop best-in-class or first-in-class product candidates.

Renovis scientists integrate a broad range of drug discovery capabilities, including medicinal chemistry, cell biology and high throughput screening, in
vivo pharmacology, toxicology and safety, as well as an extensive series of in vitro and in vivo metabolic and safety profiling assays, to conduct preclinical research and development and create human drug candidates. The integration of these
efforts begins very early in the drug



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discovery process at Renovis to guide the design of compounds with drug-like characteristics. Our approach focuses on identifying the optimal balance of
properties required for a best-in-class human therapeutic, such as potency, selectivity, safety, exposure, dosing frequency and patient compliance much earlier in the discovery process than in a traditional high-throughput screening approach.

We believe this early integration of a broad spectrum of drug discovery capabilities is a critical element that distinguishes our drug
discovery approach. With a less integrated approach, organizations frequently focus narrowly on optimizing molecules for a single desired trait such as potency or metabolism and subsequently encounter difficulty in adding other important chemical
characteristics, such as oral bioavailability or an ability to penetrate into the central nervous system. We believe our fully integrated drug discovery approach may lead to better preclinical and clinical success rates with small molecule drug
candidates that have the potential to become best-in-class human therapeutics.

Our scientists design and create proprietary focused
screening libraries for the identification and generation of chemical leads in our drug discovery programs. The identification of drug-like lead molecules is a critical step in the drug discovery process and we invest significant time and effort in
library design and synthesis to ensure that the compounds incorporate critical drug-like properties. These focused screening libraries are synthesized at Renovis (or by one or more of our preferred global vendors) for our internal drug discovery
screens. Where appropriate, we focus our research on families of related molecular targets to improve our ability to leverage our proprietary screening libraries across multiple drug discovery programs. In our VR1, P2X7, and P2X3 programs we were
successful in rapidly identifying multiple proprietary molecules from our focused chemical screening libraries that are potent and selective antagonists of the receptors and which offered promising opportunities for rapid development toward our goal
of securing best or first-in-class status.

We believe the overall efficiency and effectiveness of our drug discovery approach depends upon
our drug discovery philosophy, our disciplined adherence to our target selection criteria, the design and synthesis of proprietary chemical libraries, our focus on strongly enabled patent portfolios covering the composition of matter of our lead
compounds and chemical series, and a commitment to best-in-class and first-in-class opportunities.

Drug Discovery Programs

Our drug discovery and development programs focus on new therapeutic approaches for neurological and inflammatory diseases.

Neurological Diseases

In the area of neurological
diseases we are currently focused on identifying and developing new treatments for pain. In our programs that address various forms of pain, our strategy is to pursue novel mechanisms of analgesia, or pain relief, that are superior to those of
existing pain treatments. Our goal in each program is to identify and develop orally bioavailable analgesics suitable for once-daily dosing that demonstrate superior efficacy in multiple chronic pain indications, such as osteoarthritic pain, or pain
associated with osteoarthritis, and neuropathic pain, or nerve pain. We believe that small molecules that inhibit the vanilloid receptor 1 (VR1) or the purinergic receptors P2X3 and P2X7 have the potential to meet this goal.

Chronic Pain Market Opportunity

The world wide pain management market for 2008 is estimated to exceed $29.8 billion. Currently marketed treatment options for chronic pain include narcotics,non-steroidal anti-inflammatories and COX2 inhibitors for inflammatory pain
and antidepressants and anticonvulsants (e.g. Neurontin® and Lyrica®) for
neuropathic pain. The existing treatment options for chronic inflammatory pain have limitations including physical dependence, gastrointestinal bleeding, increased risk of serious cardiovascular events (heart attack and stroke) and liver damage. The
most prevalent treatments for neuropathic pain demonstrate central nervous system side effects such as sedation, dizziness and cognitive defects. In addition, many patients do not experience satisfactory pain



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relief. We believe the shortcomings of existing therapies provide an opportunity for new classes of therapies for chronic pain. Accordingly, the goal for our
drug discovery programs focused on pain is to identify and develop well-tolerated, orally bioavailable therapies, suitable for once daily dosing with efficacy equivalent to or greater than currently marketed treatment options in a broad range of
chronic pain states.

VR1 Antagonist Program

Key mediators of pain signaling are ion channels, which regulate the flow of different ions, or charged atoms, between the inside and outside of neurons, or nerve cells. The transient receptor potential (TRP) ion
channels constitute a large and diverse family, several of which are thought to mediate pain signaling and are attractive targets for drug discovery. The best known of these is the VR1 receptor. We believe drugs that block VR1, preventing it from
activating nerve cell signaling, could be effective, non-narcotic analgesics for the treatment of chronic pain and could also be effective for treating non-neurological conditions such as urinary incontinence, irritable bowel syndrome and asthma.

Accumulated evidence indicates that VR1 plays an important role in the development and maintenance of various pain states, including
inflammatory and neuropathic pain; furthermore, in our collaboration with Pfizer, we have demonstrated oral analgesic efficacy in preclinical models of these conditions. In addition to our preclinical results, VR1 research conducted by others has
expanded significantly over the past several years and the analgesic potential of inhibiting VR1 has been demonstrated by various approaches, including gene knockouts, VR1 receptor antagonism and human clinical data. In VR1 knockout mice that were
bred to omit the VR1 gene, researchers have observed reduced pain sensation. In studies with experimental VR1 antagonists, researchers have shown robust analgesic effects in multiple animal models of inflammatory, osteoarthritis, and neuropathic
pain that suggest broad potential for VR1 antagonists in these various disease states. Results from early clinical trials provided the first clinical evidence that VR1 antagonists may alleviate the pain and hyperalgesia, or heightened sensitivity to
pain, associated with inflammation and injury in humans. In a placebo-controlled study in healthy volunteers, a VR1 antagonist drug candidate reduced the areas of induced flares compared with placebo at a well-tolerated dose. Collectively, these
preclinical and clinical findings strongly suggest that VR1 antagonists have the potential to treat a broad spectrum of pain conditions.

In addition to pain, VR1 may play a role in several other areas of major medical need. For example, the expression of VR1 in sensory neurons and a layer of the lining of the bladder known as the urothelium, may explain the success in Phase
II trials of a potent VR1 agonist known as RTX in treating urinary incontinence. If this effect is attributable to desensitisation of the VR1 receptor, VR1 antagonism may achieve a similar positive effect on bladder function. Similarly, VR1 agonists
have also been effective in clinical trials involving gastrointestinal disorders such as irritable bowel syndrome, gastro-esophageal reflux disease and fecal urgency which suggests that antagonism of VR1 may have value in these disease states. VR1
is also suspected in certain airway diseases, such as asthma, based on the presence of the receptor in sensory nerves throughout the airways and the detection of natural agonists of VR1 in the lungs of asthma patients. While there is strong
preclinical evidence for the involvement of VR1 in numerous areas of major medical need, there are no approved therapies known to function as VR1 antagonists and limited clinical trial data to confirm the preclinical evidence. Thus, if successfully
developed, VR1 antagonists would represent a novel class of treatments.

Our collaboration with Pfizer to identify, develop and
commercialize VR1 antagonists is our most advanced preclinical program. We began our internal VR1 drug discovery program in 2003 and combined efforts with Pfizer following the execution of our collaborative research agreement in May 2005. In June
2006, Pfizer nominated a VR1 antagonist molecule from the collaboration for studies to enable a potential Investigational New Drug Application (IND). Based on the progress of the program to date and our planned activities in 2007, we expect that
Pfizer will nominate at least one additional molecule for IND-enabling studies and initiate human clinical studies during 2007. We are eligible to receive milestone payments of more than $170.0 million and double-digit royalties on worldwide net
sales of products successfully developed and commercialized under this collaboration.



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P2X3, P2X2/3 Antagonist Program

The P2X3 and P2X2/3 receptors are members of a family of ligand-gated ion channels known as purinergic receptors. We believe that the P2X3 and P2X2/3
receptors are promising therapeutic targets for major medical needs in the areas of chronic pain and bladder dysfunction. These receptors are present in a restricted subset of primary sensory neurons, and preclinical studies examining their function
suggest that they may have important roles in pain signaling and bladder function in humans. Studies conducted using small molecule antagonists of P2X3 and P2X2/3, as well as gene knockdown experiments, have demonstrated profound pain relief in
multiple preclinical models of chronic inflammatory and neuropathic pain as well as urinary incontinence without apparent safety concerns.

We are conducting a drug discovery program to identify and develop product candidates that act as antagonists of the P2X3 and P2X2/3 receptors. To our knowledge, there are no marketed therapies or ongoing clinical trials of molecules that
target this novel mechanism for the treatment of pain and urinary incontinence. We have successfully identified proprietary small molecule antagonists of P2X3 and are actively engaged in the optimization of these lead candidates to support the
selection of a candidate for IND-enabling preclinical studies. Based on our progress to date and our planned activities in 2007, we expect to commence clinical development of a first-in-class P2X3 antagonist drug candidate during 2008.

Inflammatory Diseases

P2X7
Antagonist Program

Consistent with our focus on families of related molecular targets, we are pursuing a drug discovery program to
identify and develop antagonists of the purinergic receptor, P2X7, which represents a promising molecular target for potential new therapies in the areas of rheumatoid arthritis (RA) and inflammatory bowel disease (IBD). Approximately
2.1 million Americans suffer from RA and approximately 1 million more are afflicted with the two most common forms of IBD, ulcerative colitis and Crohns disease. There is an urgent need for safe and effective small molecule therapies
for these inflammatory conditions as current treatment options are often complex combination therapies including IV infusions or injections. In addition, many patients do not respond to available therapies or are unable to tolerate current
treatments. Side effects of current RA and IBD treatments include increased risk of serious infections, sepsis, tuberculosis and rare cases of opportunistic infections that can be fatal.

The P2X7 receptor is a member of the purinergic family of ligand-gated ion-channels. In contrast to the P2X3 and P2X2/3 receptors which are present
primarily in sensory neurons and represent targets for potential new therapies to treat chronic pain, the P2X7 receptor is found primarily in cells of the immune systems where it is thought to play a role in inflammatory processes important to human
disease states. P2X7 has been shown to initiate processing and release of IL-1 family cytokines such as IL-1ß and IL-18, which are believed to play a critical role in the inflammation underlying diseases like RA and IBD. Published research
with knockout mice indicates that the absence of P2X7 reduces inflammatory responses and the severity of induced arthritis. In addition to this preclinical evidence of the role of P2X7 in inflammatory diseases, a major pharmaceutical company
has reported positive clinical results from a Phase II study of a small molecule P2X7 antagonist in RA patients.

Our goal for this program
has been to design best-in-class P2X7 receptor antagonists that are distinguished by their potency, selectivity, pharmacokinetic properties and safety profiles. To date, we have identified and validated novel, orally bioavailable, potent, selective
P2X7 antagonists from multiple proprietary chemical series. We have recently selected a lead molecule for IND enabling studies and we are continuing to optimize the characteristics of lead candidates as back-up candidates. Based on our progress to
date and our planned activities in 2007, we expect to commence clinical development of a best-in-class P2X7 antagonist drug candidate during 2008.



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Other Programs

Exploratory Programs

In addition to our VR1, P2X3, and P2X7 drug discovery programs, we
conduct limited exploratory research on an ongoing basis to identify promising molecular targets to add to our preclinical pipeline in the future. For example, we have identified potent, small molecule antagonists of TRPV4, which is a member of
the family of transient receptor potential ion channels that also includes the VR1 receptor. Preliminary research indicates that TRPV4 may be an attractive target for chronic pain. We have made similar progress in an exploratory program
involving a key regulator of the endo-cannabinoid system, Fatty Acid Amide Hydrolase (FAAH). Research suggests that FAAH could be a novel mechanism for new therapies to treat a range of neurological conditions, including chronic pain,
Parkinsons disease, and anxiety.

NXY-059 and Cytoprotectants

In May 2003, our exclusive licensee, AstraZeneca, initiated two multi-national Phase III clinical trials (SAINT I and SAINT II) to test our
neuroprotectant drug candidate, NXY-059, versus placebo in acute ischemic stroke patients. NXY-059 had been previously shown to reduce infarct size and preserve brain function in experimental models of acute ischemic stroke. In May 2005, we
announced, in coordination with AstraZeneca, that the first of these two clinical trials, SAINT I, involving approximately 1,700 patients, achieved its primary endpoint by showing a statistically significant reduction versus placebo of disability in
patients after an acute ischemic stroke (p=0.038). In October 2006, we reported that the second Phase III clinical trial with NXY-059, which involved more than 3,200 patients, did not demonstrate a statistically significant reduction on the primary
endpoint of stroke-related disability in patients treated with NXY-059. After reviewing the data from this study, AstraZeneca announced its decision to discontinue development of NXY-059.

Based on the benefit of NXY-059 treatment observed in the SAINT I trial, we independently developed proprietary, orally available nitrone compounds
similar to NXY-059 that acted as cytoprotectants that reduced damage to vital tissues in experimental models of ischemia, or restricted oxygen. However, following the results of the SAINT II trial, we have discontinued further development of these
compounds.

Strategy

Our primary goal
is to create a proprietary pipeline of potential first- and best-in-class product candidates for major medical needs in the areas of neurological and inflammatory diseases. The key elements of our strategy for achieving this goal are to:

Build a balanced portfolio of product candidates.    We believe that our scientific expertise is
broadly applicable to a wide range of neurological and inflammatory diseases and that expanding our product portfolio will mitigate some of the risks associated with drug development. We intend to advance our preclinical product candidates into
clinical development as rapidly as practicable. We believe our scientific expertise enables us to effectively identify and capitalize on external product candidates and we may acquire or in-license such opportunities in the future. We also intend to
undertake new discovery projects to identify novel product opportunities for internal development or collaboration.

Focus research and development efforts in market opportunities with large unmet medical needs.    Our drug discovery efforts generally target diseases that represent attractive commercial opportunities and
that are underserved by available therapeutic alternatives. Shortcomings of currently available treatments may include limited efficacy, side effects or method of delivery. In particular, we believe that orally available drugs that treat disease
with a high degree of specificity without these shortcomings will have strong commercial potential.

Pursue
best-in-class and first-in-class opportunities involving families of related disease targets.    We select molecular targets that have a biologically or chemically validated role in a neurological or inflammatory disease
process for which we believe our proprietary chemical library may yield drug-like



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lead compounds. The molecular targets we select are not proprietary and, therefore, we seek targets that we believe offer us an opportunity to efficiently
identify and develop best-in-class or first-in-class product candidates that could have important competitive advantages in the marketplace.

Take an integrated approach to the early identification and design of lead compounds.We integrate a broad range of drug discovery capabilities early in the discovery process with
a focus on rapidly identifying the optimal balance of properties required for a best-in-class human therapeutic, such as potency, selectivity, safety, exposure, dosing frequency and patient compliance. These capabilities include medicinal chemistry,
cell biology and high throughput screening, in vivo pharmacology, toxicology and safety, as well as an extensive series of in vitro and in vivo metabolic and safety profiling assays. We believe this early integration of a broad spectrum of drug
discovery capabilities is a critical element that distinguishes our drug discovery approach.

Develop orally
available, small molecule drugs.    Our drug discovery and development efforts generally focus on orally available small molecule drugs. The major commercial advantage of small molecule product candidates is the potential
for oral administration. In addition, small molecule drugs can be manufactured by conventional methods, resulting in lower manufacturing costs and higher margins than for other types of drugs, such as protein therapeutics.

Establish selective corporate collaborations to assist in the development and commercialization of our products while retaining
significant commercial rights.    We intend to selectively form corporate collaborations to leverage our internal resources to undertake projects that are beyond our resources while retaining significant economic rights
to our products. Such projects include establishing a broad-based sales capability and completing large and costly clinical trials.

Strategic Alliances

We believe that strategic alliances with the right partners can improve our ability to build a sustainable pipeline of product
candidates. Our existing agreements with Pfizer and Genentech allow us to leverage their expertise in the clinical development and commercialization of drugs to treat major medical needs of large patient populations.

Pfizer

In May 2005, we
entered into a collaborative research agreement and a license and royalty agreement with Pfizer to research, develop and commercialize small molecule compounds that target VR1. The collaboration focuses on treatments for pain and other diseases and
disorders. Under the agreements, we received an upfront license fee of $10.0 million in July 2005. In addition to the upfront license fee, the Pfizer collaboration also provides us with research funding in excess of $7.0 million during the first two
years of the collaboration. Pfizer has the option to extend the research period for up to two additional years from June 2007 subject to additional funding requirements. Additionally, upon the successful achievement of research, development and
commercialization milestones for each product resulting from the collaboration, we will be eligible to receive milestone payments greater than $170.0 million in aggregate. In addition to milestone payments, we will be entitled to receive
double-digit royalties on net sales by Pfizer upon commercialization of a product generated by the collaboration.

Genentech

In December 2003, we entered into a collaborative research, development and license agreement with Genentech for the discovery and
development of drugs that inhibit pathological or tumor angiogenesis and promote nerve re-growth following nervous system injury. Under the terms of the agreement, Genentech paid us an upfront license and technology access fee of approximately $5.3
million in January 2004 and made a $3.0 million equity purchase concurrent with our initial public offering. The funded research under this agreement ended in February 2006. We are also eligible to receive future milestones and royalty payments on
therapeutic



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products emerging from the collaboration that are developed and commercialized by Genentech. In exchange, Genentech obtained exclusive worldwide rights to
research, develop, manufacture and commercialize protein-based therapeutics and other drug compositions for the treatment of cancer and other diseases in which mechanisms underlying new blood vessel growth play a significant role. Unless Genentech
exercises certain rights and makes additional payments to us, we will have the right to develop and commercialize products arising from the collaboration that are specifically useful for the treatment of central and peripheral nervous system
diseases and conditions. We would be required to make royalty payments and, in certain cases, milestone payments to Genentech on products that we develop and commercialize under the collaboration.

Intellectual Property

Patents, Trade Secrets
and Licenses

The following factors are important to our success:



| |  |  | receiving patent protection for our product candidates;
| | - |  | -------------------------------------------------------



| |  |  | not infringing on the intellectual property rights of others;
| | - |  | -------------------------------------------------------------



| |  |  | preventing others from infringing our intellectual property rights; and
| | - |  | -----------------------------------------------------------------------



| |  |  | maintaining our patent rights and trade secrets.
| | - |  | ------------------------------------------------

We actively seek, when appropriate, protection for our products, technologies and proprietary information through U.S. and foreign patents. In addition, we rely upon trade secrets and contractual arrangements to
protect our proprietary information.

As of December 31, 2006, we owned more than 35 U.S. patents, 45 U.S. patent applications, 30
foreign patents and 60 foreign patent applications related to our technologies, compounds and their applications in pharmaceutical development or their use as pharmaceuticals. As of December 31, 2006, we have licensed, from institutions such as
the Oklahoma Medical Research Foundation (OMRF), the University of Kentucky Research Foundation (UKRF), the Regents of the University of California (the Regents) and others, the exclusive rights to more than 30 U.S. patents, 5 U.S. patent
applications, 100 foreign patents and 15 foreign patent applications related to our technologies, compounds and their applications in pharmaceutical development or their use as pharmaceuticals. We face the risk that one or more of the above patent
applications may be denied. We also face the risk that our issued patents may be challenged or circumvented or may otherwise not provide protection for any commercially viable products we develop. We also note that U.S. patents and patent
applications may be subject to interference proceedings and U.S. patents may be subject to reexamination proceedings in the U.S. Patent and Trademark Office (and foreign patents may be subject to opposition or comparable proceedings in the
corresponding foreign patent office), which proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition,
such interference, reexamination and opposition proceedings may be costly. In the event that we seek to enforce any of our owned or exclusively licensed patents against an infringing party, it is likely that the party defending the claim will seek
to invalidate the patents we assert, which, if successful, would result in the entire loss of our patent or the relevant portion of our patent and not just with respect to that particular infringer. Any litigation to enforce or defend our patent
rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations.

In addition, our ability to assert our patents against a potential infringer depends on our ability to detect the infringement in the first instance. Many countries, including certain European countries, have
compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties in some circumstances (for example, the patent owner has failed to work the invention in that country, or the third party has
patented improvements). In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value
of the patent. Compulsory licensing of life-saving drugs is also becoming



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increasingly popular in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to
include some of our product candidates, which could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other
intellectual property protection which makes it difficult to stop infringement.

Our success will also depend in part upon our not
infringing patents issued to others. If our product candidates are found to infringe the patents of others, our development, manufacture and sale of such potential products could be severely restricted or prohibited. In this regard, we have received
correspondence from a third party alleging that we infringe certain patents held by the third party. We do not believe there is a reasonable basis for this action claiming that we are infringing any valid and enforceable patents of such third party.
To date, we have not been subject to any infringement actions. Although we do not believe that these patents seriously harm our ability to develop and commercialize our products, we cannot be certain of this. It is likely that in the future we will
encounter other similar situations which will require us to determine whether we need to license a technology or face the risk of defending an infringement claim.

Patent litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim relating to infringement of patents that is successfully asserted against us may require us to pay substantial
damages. Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. Furthermore, as a result of a patent infringement suit brought
against us or our strategic partners or licensees, we or our strategic partners or licensees may be forced to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a third partys intellectual
property unless that party grants us or our strategic partners or licensees rights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or proprietary rights of others in order to continue to
commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all. Even if our strategic partners, licensees or we were able to obtain
rights to the third partys intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may
have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.

Much of
our technology and many of our processes depend upon the knowledge, experience and skills of our scientific and technical personnel. To protect rights to our proprietary know-how and technology, we generally require all employees, contractors,
consultants, advisors, visiting scientists and collaborators as well as potential collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information. The agreements with employees and consultants also
require disclosure and assignment to us of ideas, developments, discoveries and inventions. These agreements may not effectively prevent disclosure of our confidential information or provide meaningful protection for our confidential information.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our
competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending
such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel.

We also use as advisors
and consultants individuals who are currently employed by universities. Most of these individuals are parties to agreements pursuant to which some of the work product created by these individuals belongs to their respective universities. While we
and these individuals try to maintain records which make it clear that the work these individuals do for us is not subject to their agreements with universities, it is always possible that a university will assert an ownership claim to the work of
one or more of these individuals.



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OMRF and UKRF.    We hold the exclusive, worldwide license to specified
intellectual property related to NXY-059, a novel free radical trapping neuroprotectant, owned by OMRF and UKRF pursuant to a license agreement entered into in July 1992. In consideration for this technology license, we are obligated to pay OMRF and
UKRF low-single digit royalties on any future net sales of products relating to our license, subject to a minimum annual royalty payment of $25,000 through the year the FDA first approves an NDA and $100,000 annually thereafter. The license
agreement terminates upon the later of the expiration of the last of any patent rights to licensed products that are developed under the agreement or 15 years from the effective date of the agreement. We may terminate the license agreement for any
reason following six months written notice to OMRF and UKRF.

The Regents of the University of California.    We
hold two exclusive, worldwide licenses to specified intellectual property related to targets and potential protein biotherapeutics relevant for inhibition of tumor angiogenesis and other pathological diseases and for nerve regeneration and repair
owned by the Regents pursuant to license agreements entered into in June 2001 and November 2002, respectively, each as amended in December 2003. In consideration for these technology licenses, we paid license fees to the Regents. We are required to
make additional annual payments on the November 2002 license. We are also obligated to pay the Regents royalties on any future net sales relating to our licenses subject to specified minimum annual royalty payments of $25,000 for products developed
under the June 2001 license and $50,000 for products developed under the November 2002 license. In addition, we are obligated to make payments to the Regents based on meeting certain regulatory and clinical milestones. The June 2001 license
automatically terminates upon the date of expiration of the last to expire patent under the license. The November 2002 license automatically terminates on or after December 31, 2018.

Government Regulation

The FDA and comparable
regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local
entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products.

The process required by the FDA before product candidates may be marketed in the United States generally involves the following:



| |  |  | preclinical laboratory and animal tests;
| | - |  | ----------------------------------------



| |  |  | submission of an IND which must become effective before clinical trials may begin;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug candidate for its intended use;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pre-approval inspection of manufacturing facilities and selected clinical investigators; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | FDA approval of a New Drug Application, or NDA, or NDA supplement, for an approval of a new indication if the product is already approved for another indication.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain
that any new approvals for our products will be granted on a timely basis, if at all.

Prior to commencing the first clinical trial with a
product candidate, we must submit an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial. In
such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND



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must be made for each successive clinical trial conducted during product development, and the FDA must grant permission for each clinical trial to start and
continue. Further, an independent institutional review board for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center. Regulatory authorities or an
institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

For purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that may overlap.



| |  |  | Phase I: Studies are initially conducted in a limited patient population to test the product candidate for safety, dosage tolerance, absorption, metabolism,
distribution and excretion in healthy humans or patients.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase II: Studies are conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for
specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase III clinical trials. In some
cases, a sponsor may decide to run what is referred to as a Phase IIb evaluation, which is a second, confirmatory Phase II trial that could, if positive, serve as a pivotal trial in the approval of a product candidate.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase III: When Phase II evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase III trials are
undertaken in large patient populations to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical trial sites.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called
Phase IV studies may be made a condition to be satisfied after a drug receives approval. The results of Phase IV studies can confirm the effectiveness of a product candidate and can provide important safety information to augment the FDAs
voluntary adverse drug reaction reporting system.

The results of product development, preclinical studies and clinical trials are
submitted to the FDA as part of an NDA, or as part of an NDA supplement. The FDA may deny approval of an NDA or NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional
pivotal Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplement does not satisfy the criteria for approval. Once issued, the FDA may withdraw product approval if ongoing regulatory
standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the
power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Satisfaction of FDA
requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Typically,
if a drug product is intended to treat a chronic disease, as is the case with some of the product candidates we are developing, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years
or more. Government regulation may delay or prevent marketing of product candidates or new diseases for a considerable period of time and impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant approvals
for new indications for our product candidates on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be
susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and
dosages. Further, even after regulatory approval is obtained, later discovery of



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previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in
obtaining, or failures to obtain, additional regulatory approvals for NXY-059 would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping
requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections
by the FDA and certain state agencies for compliance with good manufacturing practices, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future
suppliers will be able to comply with the good manufacturing practices regulations and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials,
require us to recall a drug from distribution, or withdraw approval of the NDA for that drug.

The FDA closely regulates the marketing and
promotion of drugs. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential
civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the products labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across
medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however,
restrict manufacturers communications on the subject of off-label use.

The FDAs policies may change and additional government
regulations may be enacted which could prevent or delay regulatory approval of our product candidates or approval of new indications for our product candidates. We cannot predict the likelihood, nature or extent of adverse governmental regulation
that might arise from future legislative or administrative action, either in the United States or abroad.

Competition

We compete in the segments of the pharmaceutical market that treat neurological and inflammatory diseases, which are highly competitive. We face
significant competition from most pharmaceutical companies as well as many biotechnology companies that are also researching and selling products designed to treat neurological and inflammatory diseases. Many of our competitors have significantly
greater financial, manufacturing, marketing and product development resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies
also have significantly greater research capabilities than we do. In addition, many universities and private and public research institutes are actively researching neurological and inflammatory diseases, some in direct competition with us. In
addition, we also must compete with these organizations to recruit scientists and clinical development personnel.

We believe that our
ability to successfully compete will depend on, among other things:



| |  |  | efficacy, safety and reliability of our product candidates;
| | - |  | -----------------------------------------------------------



| |  |  | timing and scope of regulatory approval;
| | - |  | ----------------------------------------



| |  |  | the speed at which we develop product candidates;
| | - |  | -------------------------------------------------



| |  |  | completion of clinical development and laboratory testing and obtaining regulatory approvals for product candidates;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to manufacture and sell commercial quantities of a product to the market;
| | - |  | -------------------------------------------------------------------------------------



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| |  |  | product acceptance by physicians and other health care providers;
| | - |  | -----------------------------------------------------------------



| |  |  | quality and breadth of our technology;
| | - |  | --------------------------------------



| |  |  | skills of our employees and our ability to recruit and retain skilled employees;
| | - |  | --------------------------------------------------------------------------------



| |  |  | protection of our intellectual property; and
| | - |  | --------------------------------------------



| |  |  | availability of substantial capital resources to fund development and commercialization activities.
| | - |  | ---------------------------------------------------------------------------------------------------

Employees



As of December 31, 2006, we had approximately 111 full-time employees, including 34 Ph.D.s. Of the full-time employees, 83 were engaged in research and development and 28 were engaged in general and
administrative activities. On January 23, 2007, we announced a restructuring that reduced the number of full-time positions in the company to approximately 70 full-time employees. We believe our relations with our employees are good.

Available Information

Our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) are available
free of charge on our Internet website as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission, or SEC. Our website address iswww.renovis.com. We can
furnish without charge to you, upon written or oral request, copies of our reports. You should direct any request to John C. Doyle, Senior Vice President, Corporate Development and Chief Financial Officer, Renovis, Inc., Two Corporate Drive, South
San Francisco, California 94080.



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Item 1A. Risk Factors

An investment in our common stock is very risky. You should carefully consider
the risks described below, together with all of the other information in this report before making a decision to invest in our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and
growth prospects could be adversely affected. In this case, the trading price of our common stock could decline and you may lose all or part of your investment in our common stock. Additional risks and uncertainties, not presently known to us, or
that we presently deem as immaterial, may also adversely affect our business. If any of these additional risks and uncertainties occur, the trading price of our common stock could decline, and you might lose all or part of your investment.

Risks Related to Our Company

We are an early stage biopharmaceutical company without commercial products, and we cannot assure you that we will successfully develop and commercialize potential products.

You must evaluate us in light of the uncertainties and complexities inherent in an early stage biopharmaceutical company. All of our product candidates
are in early stages of development and the commercialization of those products will not occur, if at all, for at least the next several years. Our future success is dependent upon, among other factors, our ability to develop viable product
candidates, successfully complete clinical trials and obtain regulatory approval for those product candidates. All of our early stage drug discovery programs are focused on unproven molecular disease targets and will require extensive additional
research and development prior to the commercial introduction of any product candidates. There can be no assurance that any of our research and development and clinical trial efforts, or those of our strategic partners and licensees, will result in
viable new products. For example, in October 2006, AstraZeneca, our exclusive licensee for our lead product candidate, NXY-059, indicated its intention to discontinue the development of NXY-059 following the announcement that NXY-059 did not meet
the primary or secondary endpoints in a pivotal Phase III study. Also, in August 2005, based on results of our Phase II clinical trials with REN-1654 in patient volunteers with post-herpetic neuralgia and sciatica, we announced that we were
discontinuing development of REN-1654 as an oral medication and, in June 2005, we announced our decision to discontinue efforts to develop REN-850 for the treatment of multiple sclerosis. Finally, in July 2004, we announced our decision to
discontinue efforts to commercialize REN-213, an intravenous drug candidate we were developing for the treatment of acute post-operative pain.

We depend on the efforts of our strategic partners and licensees to develop and commercialize many of our product candidates.

We cannot control the time or resources that our strategic partners or licensees devote to our collaborations with those parties, nor can we control our strategic partners or licensees business decisions. In addition, our
collaborators may not perform their obligations as expected. Changes in a collaborator's business strategy or business combinations involving a collaborator may adversely affect that partys willingness or ability to successfully meet its
obligations. Disagreements between us and our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or result in time-consuming and expensive negotiations, litigation or
arbitration. The failure of our strategic partners or licensees to successfully complete their obligations in a timely manner or the termination or breach of agreements by these parties, could materially harm our business, financial condition and
results of operations.

Clinical trials have in the past and may in the future fail to demonstrate the safety and efficacy of our
product candidates, which could prevent or significantly delay their regulatory approval and may adversely affect our business and stock price.

Any failure or substantial delay in completing clinical trials for our product candidates may severely harm our business. Before obtaining regulatory approval for the sale of any of our potential products or the
potential



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products of our current and future strategic partners and licensees, we and our strategic partners or licensees must subject these product candidates to
extensive preclinical and clinical testing to demonstrate their safety and efficacy in humans. The success of this preclinical and clinical testing is critical to achieving our product development goals. If our product development efforts are
unsuccessful, we will not obtain regulatory approval for them, we will not generate sales from them, and our business and results of operations would be adversely affected.

Clinical trials are expensive, time-consuming and typically take years to complete. In connection with clinical trials, we face the risks that:



| |  |  | a product candidate may not prove to be efficacious;
| | - |  | ----------------------------------------------------



| |  |  | we may discover that a product candidate may cause harmful side effects;
| | - |  | ------------------------------------------------------------------------



| |  |  | patients may die or suffer other adverse medical effects for reasons that may not be related to the product candidate being tested;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the results may not confirm the positive results of earlier trials; and
| | - |  | -----------------------------------------------------------------------



| |  |  | the results may not meet the level of statistical significance required by the FDA, or other regulatory agencies.
| | - |  | -----------------------------------------------------------------------------------------------------------------

The results in early phases of clinical testing are based upon limited numbers of patients and a limited follow-up period and success in early phase
trials may not be indicative of results in a large number of patients or long-term efficacy. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials even after
achieving promising results in earlier development activities, including previous late-stage clinical trials. For example, the results from the Phase III SAINT I trial for our lead product candidate, NXY-059, were not predictive of results obtained
in the second and larger Phase III clinical trial, SAINT II, and following the announcement of the results of the SAINT II clinical trial and the decision by AstraZeneca to discontinue the development of NXY-059, our stock price declined
significantly. Failure to demonstrate the safety and effectiveness of our product candidates in larger patient populations could prevent or significantly delay their regulatory approval and may adversely affect our business and our stock price.

Failure to enroll patients for clinical trials may cause delays in developing our product candidates.

We may encounter delays or rejections if we or our strategic partners or licensees are unable to enroll enough patients to complete clinical trials.
Patient enrollment depends on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the trial and the number and size of ongoing clinical
trials sponsored by others that seek to enroll similar patients. When one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed
trials. Any delays in planned patient enrollment may result in increased costs and delays, which could harm our ability to develop products.

The contract research organizations and independent clinical investigators that we and our strategic partners or licensees rely upon to conduct preclinical studies and clinical trials may not be diligent, careful or timely, and may
make mistakes in the conduct of these studies.

We depend on contract research organizations, or CROs, and independent clinical
investigators to conduct certain preclinical studies and clinical trials under their agreements with us or our collaborators. Before AstraZeneca decided to discontinue development of NXY-059, we depended on CROs to conduct clinical trials of NXY-059
under their agreements with AstraZeneca. In our preclinical research programs, we depend on CROs to conduct certain medicinal chemistry and in vivo testing activities that we are not staffed to perform ourselves. The personnel at these CROs are not
our employees and we cannot control the amount or timing of



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resources that they devote to our programs. Our contracts with CROs may involve fixed fees. If the costs of performing the research activities or clinical
trials exceed estimates, the CROs may fail to devote sufficient time and resources to our drug discovery and development programs, fail to enroll patients as rapidly as expected, or otherwise fail to perform in a satisfactory manner. Failure of the
CROs to meet their obligations could adversely affect the development of our product candidates and delay the regulatory approval and commercial introduction of our product candidates. Moreover, these independent investigators and CROs may also have
relationships with other commercial entities, some of which may compete with us. If independent investigators and CROs assist our competitors, it could harm our competitive position.

If we or our strategic partners or licensees fail to obtain U.S. regulatory approvals for product candidates under development, we will not be able
to generate revenue in the U.S. market from the commercialization of product candidates.

We must receive FDA approval for each of
our product candidates before we can commercialize or sell that product candidate in the United States. The FDA can limit or deny its approval for many reasons, including:



| |  |  | a product candidate may be found to be unsafe or ineffective;
| | - |  | -------------------------------------------------------------



| |  |  | regulators may interpret data from preclinical testing and clinical trials differently and less favorably than the way we interpret it;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulators may not approve the manufacturing processes or facilities that we or our strategic partners or licensees use; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | regulators may change their approval policies or adopt new regulations.
| | - |  | -----------------------------------------------------------------------

Failure to obtain FDA approval or any delay or setback in obtaining such approval could:



| |  |  | adversely affect our ability to market any drugs we develop independently or with strategic partners or licensees;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | impose additional costs and diminish any competitive advantages that we may attain; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | adversely affect our ability to generate royalties or product revenues.
| | - |  | -----------------------------------------------------------------------

Any such failures or delays in the regulatory approval process for any of our product candidates would delay or diminish our receipt of product revenues,
if any, and would materially adversely affect our business, financial condition and results of operations.

Even if we obtain FDA approval,
our product candidate may not be approved for all indications that we request, which could limit the uses of our product and adversely impact our potential royalties and product sales. If FDA approval of a product is granted, such approval may be
subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies. As to any product for which marketing approval is obtained, the labeling, packaging, adverse event reporting,
storage, advertising, promotion and record keeping related to the product will be subject to extensive regulatory requirements. The subsequent discovery of previously unknown problems with the product may result in restrictions on the product,
including withdrawal of the product from the market. We may be slow to adapt, or we may never adapt, to changes in existing requirements or adoption of new requirements or policies.

If we fail to comply with applicable U.S. regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, injunctions, civil penalties and criminal prosecution.



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If we or our strategic partners or licensees fail to obtain regulatory approvals in other countries
for product candidates under development, we will not be able to generate revenue in such countries from the commercialization of product candidates.

In order to market our products outside of the United States, we and our strategic partners and licensees must comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy.
Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The
regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country may negatively impact the regulatory processes in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects
detailed above regarding FDA approval in the United States, including the risks that our product candidate may not be approved for all indications that we request, which could limit the uses of our product and adversely impact our potential
royalties and product sales, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal prosecution.

Even if our product candidates are approved
and commercialized, competitive products may impede market acceptance of our products.

Hospitals, physicians or patients may
conclude that our potential products are less safe or effective or otherwise less attractive than existing drugs. Even if approved and commercialized, any future product candidates may fail to achieve market acceptance with hospitals, physicians or
patients. If our products do not receive market acceptance for any reason, our revenue potential could be diminished which would materially adversely affect our business, financial condition and results of operations. Further, our competitors may
develop new products that could be more effective or less costly, or that may seem more cost-effective, than our products.

Most of our
competitors have substantially greater capital resources, research and development staffs, facilities and experience in conducting clinical trials and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products.
As a result, they may achieve product commercialization or patent protection earlier than we can, if at all. Hospitals, physicians, patients or the medical community in general may not accept and use any products that we may develop.

We have no experience selling, marketing or distributing products and no internal capability to do so.

If we receive regulatory approval to commence commercial sales of any of our product candidates for which we have retained marketing rights, we will have
to establish a sales and marketing organization with appropriate technical expertise and supporting distribution capability. At present, we have no sales or marketing personnel. Factors that may inhibit our efforts to commercialize our products
without strategic partners or licensees include:



| |  |  | our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage against companies with broader product lines;
and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unforeseen costs associated with creating an independent sales and marketing organization.
| | - |  | ------------------------------------------------------------------------------------------



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As an alternative to establishing our own sales and marketing organization, we may engage a
pharmaceutical or other healthcare company with an existing distribution system and direct sales organization to assist us. We may not be able to successfully establish sales and distribution capabilities either on our own or in collaboration with
third parties or gain market acceptance for our products. To the extent we enter co-promotion or other licensing arrangements, any revenues we receive will depend on the efforts of third parties, and we may not succeed.

If our partners, licensees or contract manufacturers of our products fail to devote sufficient time and resources to our concerns, or if their
performance is substandard, our clinical trials and product introductions may be delayed and our costs may rise.

We have no
manufacturing facilities, and we have no experience in the commercial manufacturing of drugs and no experience in designing drug manufacturing processes. We depend on our partners, licensees and contract manufacturers to produce our product
candidates for clinical trials and to manufacture, supply, store and distribute any resulting products.

While we have not experienced
problems with our partners, licensees or contract manufacturers to date, our reliance on these third parties exposes us to the following risks, any of which could delay or prevent the completion of our clinical trials, the approval of our product
candidates by the FDA or other regulatory agencies, or the commercialization of our products, result in higher costs or deprive us of potential product revenues:



| |  |  | Drug manufacturers are obliged to operate in accordance with FDA-mandated current good manufacturing practices, or cGMPs. A failure of any of our partners,
licensees or contract manufacturers to establish and follow cGMPs and to document their adherence to such practices may lead to significant delays in the availability of material for clinical trials and may delay or prevent filing or approval of
marketing applications for our products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changing contract manufacturers may be difficult and the number of potential manufacturers is limited. Changing manufacturers may require re-validation of the
manufacturing processes and procedures in accordance with FDA-mandated cGMPs. Such re-validation may be costly and time-consuming. It may be difficult or impossible for us to find replacement manufacturers on acceptable terms quickly, or at all.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and
foreign agencies to ensure strict compliance with cGMPs, other government regulations and corresponding foreign standards. We are not aware of any violations by our partners, licensees or contract manufacturers of any of these regulations or
standards. While we are obligated to audit the performance of our contractor manufacturers, we do not have control over their compliance with these regulations and standards. Failure by our partners, licensees, contract manufacturers or us to comply
with applicable regulations could result in sanctions that would have a material adverse effect on our business, including fines, injunctions, civil penalties, failure of the government to grant premarket approval of drugs, delays, suspension or
withdrawal of approvals, seizures or recalls of product, operating restrictions and criminal prosecutions.

We or our strategic
partners or licensees may not be able to manufacture our product candidates in commercial quantities, which would prevent us from commercializing our product candidates.

To date, our product candidates have been manufactured in small quantities for preclinical and clinical trials. If any of these product candidates are
approved by the FDA or other regulatory agencies for commercial sale, they will need to be manufactured in larger quantities. We or our strategic partners or licensees, as applicable, may not be able to successfully increase the manufacturing
capacity, whether in collaboration with contract manufacturers or independently, for any of our product candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which the
FDA must review and approve. If we or our strategic partners or licensees are unable to successfully increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of that product candidate may be



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delayed or there may be a shortage in supply. Our product candidates require precise, high quality manufacturing. Failure to achieve and maintain these high
manufacturing standards, including the incidence of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could
seriously hurt our business.

If we are unable to retain and recruit qualified scientists or if any of our key executives, key
employees or key consultants discontinues his or her employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business.

We are highly dependent on the key members of our management and scientific staff, especially our chief executive officer, Corey Goodman, Ph.D. and our
Senior Vice President of Research and Development, Michael Kelly, Ph.D. The loss of any of our key employees or key consultants could impede the achievement of our research and development objectives. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future is critical to our success. We may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, pharmaceutical and health care
companies, universities and non-profit research institutions for experienced scientists. We maintain key man insurance on Dr. Goodman. We do not maintain key man insurance policies on any of our other officers or
employees. All of our employees are employed at will and, therefore, each employee may leave our employment at any time.

Among
other equity incentive compensation, we have granted deferred stock units and stock options as a method of attracting and retaining employees, motivating performance and aligning the interests of employees with those of our stockholders. Due to
fluctuations in the trading price of our common stock, a substantial portion of the stock options held by our employees have exercise prices that are significantly higher than the current trading price of our common stock. If we are unable to
implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates.

In January 2007, we announced a restructuring plan, which included a reduction in headcount. The planning and implementation of our restructuring
has placed, and may continue to place a strain on our managerial, operational and other resources. In addition, the restructuring may negatively affect our employee turnover, recruiting and retention, and may not enable us to reduce our costs to the
extent anticipated. If we are unable to retain our existing employees, including qualified scientific personnel, and attract additional qualified candidates our business and results of operations could be adversely affected.

We have a history of losses and we may never achieve sustained profitability.

Since our inception, we have incurred significant net losses, including net losses of $28.4 million, $32.0 million, $39.9 million, $41.9 million and
$25.1 million, respectively, for the years ended December 31, 2006, 2005, 2004, 2003 and 2002. As of December 31, 2006, our cumulative net loss was $182.3 million. None of our product candidates has completed development or received
required regulatory approvals and, consequently, we have not generated revenues from the sale of products and do not expect to do so for at least the next several years. Even if one or more of our product candidates is commercialized, we expect to
incur substantial losses for the foreseeable future. The development and sale of our products will require completion of clinical trials and significant additional research and development activities. We expect to continue to incur significant
operating expenditures in the foreseeable future as we:



| |  |  | expand our research and development programs; and
| | - |  | -------------------------------------------------



| |  |  | advance new product candidates into clinical development from our existing research programs.
| | - |  | ---------------------------------------------------------------------------------------------

We also expect to experience negative cash flow for the foreseeable future as we fund our operating losses and capital expenditures. We will need to
generate significant revenues to achieve profitability. Our ability to generate revenues and achieve profitability depends on successful completion of clinical trials, our additional



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research and development efforts, our ability to successfully commercially introduce our products, market acceptance of our products, the competitive
position of our products and the other risk factors set forth in this report. We may not be able to generate these revenues, and we may never achieve profitability. Our failure to achieve, sustain and/or increase profitability on a quarterly or
annual basis could negatively impact the market price of our common stock.

If we cannot raise additional capital on acceptable
terms, we may be unable to complete clinical trials, obtain regulatory approvals or commercialize our product candidates.

We
believe that existing cash reserves will fund our planned activities for more than the next 12 months. However, we will require substantial future capital in order to continue to conduct the research and development, clinical and regulatory
activities necessary to bring our product candidates to market and to establish commercial manufacturing, sales and marketing capabilities. During the year ended December 31, 2006, our net cash used in operating activities was $19.0 million and
we had capital expenditures of $3.0 million. Our future capital requirements depend on many factors, including:



| |  |  | the progress of preclinical development and laboratory testing and clinical trials;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the time and costs involved in obtaining regulatory approvals;
| | - |  | --------------------------------------------------------------



| |  |  | delays that may be caused by evolving requirements of regulatory agencies;
| | - |  | --------------------------------------------------------------------------



| |  |  | the number of product candidates we pursue;
| | - |  | -------------------------------------------



| |  |  | the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | our plans to establish sales, marketing and/or manufacturing capabilities;
| | - |  | --------------------------------------------------------------------------



| |  |  | our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of technologies, products or other companies and other business opportunities that require financial commitments; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our revenues, if any, from successful development and commercialization of our products.
| | - |  | ----------------------------------------------------------------------------------------

We intend to seek additional funding through strategic collaborations. We face intense competition from many other companies in the pharmaceutical and
biotechnology industry for corporate collaborations, as well as for establishing relationships with academic and research institutions and for obtaining licenses to proprietary technology. If we are unable to attract and retain corporate partners to
develop, introduce and market our products, our business may be materially and adversely affected. Our strategy and any reliance on corporate partners, if we are able to establish such collaborative relationships, are subject to additional risks.
Our collaborators may not devote sufficient resources to the development, introduction and marketing of our products or may not pursue further development and commercialization of products resulting from collaborations with us. If a corporate
partner elects to terminate its relationship with us, our ability to develop, introduce and market our products may be significantly impaired and we may be forced to discontinue the product altogether. We may not be able to negotiate alternative
corporate partnership agreements on acceptable terms, if at all. The failure of any collaboration efforts could have a material adverse effect on our ability to develop, introduce and market our products and, consequently, could have a material
adverse effect on our business, results of operations and financial condition.

In addition to strategic collaborations, we may seek
funding through private or public sales of our securities, entering into credit arrangements or licensing all or a portion of our technology. This funding may significantly dilute existing stockholders or may limit our rights to our technology.

In October 2006, we filed a registration statement on Form S-3 with the SEC to be able to sell from time to time up to $150.0 million of
any combination of debt securities, common stock, preferred stock and warrants.



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The SEC has not declared this registration statement effective and securities may not be sold, nor may offers to buy the securities be accepted, prior to the
time this registration statement becomes effective. The terms of any offering will be determined at the time of such offering. In addition, in 2005 we filed a registration statement on Form S-3 with the SEC to be able to sell from time to time up to
$100.0 million of any combination of debt securities, common stock, preferred stock and warrants. The SEC declared this registration statement effective in May 2005. In September 2005, we sold 4,000,000 shares of common stock to the public under
this registration statement at $13.50 per share for gross proceeds of $54.0 million. As of December 31, 2006, $46.0 million remains available under this registration statement.

We may not be able to obtain additional funding on reasonable terms, or at all. If we cannot obtain adequate funds, we may:



| |  |  | terminate or delay preclinical development or clinical trials for one or more of our product candidates;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | delay establishment, or fail to establish, sales, marketing and/or manufacturing capabilities;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | curtail significant product development programs that are designed to identify new product candidates;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | not be in a position to acquire technologies or pursue other business opportunities that require financial commitments; and/or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | relinquish rights to our technologies or product candidates.
| | - |  | ------------------------------------------------------------

Risks Related to Our Industry

Claims that we infringe a third partys intellectual
property may give rise to burdensome litigation, result in potential liability for damages or stop our development and commercialization efforts.

Third parties may assert patent or other intellectual property infringement claims against us or our strategic partners or licensees with respect to technologies used in our potential products. While we have conducted
patent searches to determine whether the technologies used in our products infringe patents held by third parties, we expect that numerous patent applications are currently pending and may be filed in the future for technologies generally related to
our technologies, including many patent applications that remain confidential after filing. Due to these factors and the inherent uncertainty in conducting patent searches, we may violate third-party patent rights that we have not yet identified.

U.S. and foreign patents have been issued to third parties in the same fields as some of our product candidates. There may also be patent
applications filed by these or other parties in the United States and various foreign jurisdictions that are in the same fields as some of our product candidates. These patent applications, if issued, could subject us to infringement actions.
Although we have received communications from a third party alleging that we may infringe certain patents held by the third party, we do not believe there is a reasonable basis for an action claiming that we are infringing any valid and enforceable
patents of such third party. To date we have not been subject to any infringement actions.

The owners or licensees of these and other
patents may file one or more infringement actions against us. Patent litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim relating to infringement of patents that is successfully asserted against us may
cause us to pay substantial damages.

Even if we were to prevail, any litigation could be costly and time-consuming and would divert the
attention of our management and key personnel from our business operations. Furthermore, as a result of a patent infringement suit brought against us or our strategic partners or licensees, we or our strategic partners or licensees may be forced to
stop or delay developing, manufacturing or selling potential products that are claimed to infringe a third partys intellectual property unless that party grants us or our strategic partners or licensees rights to use its intellectual property.
In such cases, we may be required to obtain licenses to patents or



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proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any
patents or proprietary rights of third parties on acceptable terms, or at all. Even if our strategic partners, licensees or we were able to obtain rights to the third partys intellectual property, these rights may be non-exclusive, thereby
giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may have to discontinue development of a product candidate or cease some of our business operations as a
result of patent infringement claims, which could severely harm our business.

We may be subject to damages resulting from claims
that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees
were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or
we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims,
litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key research
personnel or their work product could hamper or prevent our ability to commercialize certain product candidates, which could severely harm our business.

If we are unable to protect our intellectual property rights, our competitors may develop and market products with similar features that may reduce demand for our potential products.

The following factors are important to our success:



| |  |  | receiving patent protection for our product candidates;
| | - |  | -------------------------------------------------------



| |  |  | not infringing on the intellectual property rights of others;
| | - |  | -------------------------------------------------------------



| |  |  | preventing others from infringing our intellectual property rights; and
| | - |  | -----------------------------------------------------------------------



| |  |  | maintaining our patent rights and trade secrets.
| | - |  | ------------------------------------------------

We will be able to protect our intellectual property rights in patents and trade secrets from unauthorized use by third parties only to the extent that such intellectual property rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets.

We try to protect our proprietary position by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. Because the patent position of biotechnology and pharmaceutical companies involves complex legal and
factual questions, the issuance, scope and enforceability of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference
proceedings and U.S. patents may be subject to reexamination proceedings in the U.S. Patent and Trademark Office (and foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office), which
proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, reexamination and
opposition proceedings may be costly. Thus, any patents that we own or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the future or those we may license from third
parties may not result in patents being issued. If issued, they may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed. We rely on third-party payment services for the payment of foreign patent annuities and other fees. Non-payment or delay in payment of such fees, whether intentional or unintentional, may result in
loss of patents or patent rights important to our business.



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Many countries, including certain countries in Europe, have compulsory licensing laws under which a
patent owner may be compelled to grant licenses to third parties (for example, in cases in which the patent owner has failed to work the invention in that country, or the third party has patented improvements). In addition, many
countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Compulsory licensing of
life-saving drugs is also becoming increasingly popular in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to include some of our product candidates, which could limit
our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection which makes it difficult
to stop infringement.

In addition, our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult
to detect infringers who do not advertise the compounds that are used in their products. Any litigation to enforce or defend our patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our
management and key personnel from our business operations.

We also rely on trade secrets, know-how and technology, which are not protected
by patents, to maintain our competitive position. We try to protect this information by entering into confidentiality agreements with parties that have access to it, such as our strategic partners, collaborators, employees and consultants. Any of
these parties may breach these agreements and disclose our confidential information or our competitors might learn of the information in some other way. If any trade secret, know-how or other technology not protected by a patent were to be disclosed
to or independently developed by a competitor, our business, financial condition and results of operations could be materially adversely affected.

Governmental and third-party payors may impose sales and pharmaceutical pricing restrictions or controls on our potential products that could limit our future product revenues and adversely affect profitability.

The commercial success of our potential products is substantially dependent on whether third-party reimbursement is available for the ordering of our
products by the medical profession for use by their patients. Medicare, Medicaid, health maintenance organizations and other third-party payors may not cover or provide adequate payment for our potential products. They may not view our potential
products as cost-effective and reimbursement may not be available to consumers or may not be sufficient to allow our potential products to be marketed on a competitive basis. Likewise, legislative or regulatory efforts to control or reduce health
care costs or reform government health care programs could result in lower prices or rejection of our potential products. Changes in reimbursement policies or health care cost containment initiatives that limit or restrict reimbursement for our
products may cause our future product revenues, if any, to decline.

Competition in the biotechnology and pharmaceutical industries
is intense, and if we fail to compete effectively our financial results will suffer.

Our business is characterized by extensive
research efforts, rapid developments and intense competition. Our competitors may have or may develop superior technologies or approaches to the development of competing products, which may provide them with competitive advantages. Our potential
products may not compete successfully. We believe that successful competition in our industry depends on product efficacy, safety, reliability, availability, timing, scope of regulatory approval, acceptance and price, among other things. Important
factors to our success also include speed in developing product candidates, completing clinical development and laboratory testing, obtaining regulatory approvals and manufacturing and selling commercial quantities of potential products to the
market.

We expect competition to increase as technological advances are made and commercial applications broaden. In commercializing our
initial product candidates and any additional product candidates, we will face substantial competition from pharmaceutical, biotechnology and other companies, universities and research institutions.



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Many of our competitors have substantially greater capital resources, research and development staffs,
facilities and experience in conducting clinical trials and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products. Many of our competitors may achieve product commercialization or patent protection earlier
than we achieve commercialization or patent protection, if at all. Furthermore, we believe that some of our competitors have used, and may continue to use, litigation to gain a competitive advantage.

Rapid technological change could make our products obsolete.

Biopharmaceutical technologies have undergone rapid and significant change and we expect that they will continue to do so. Any compounds, products or processes that we or our strategic partners or licensees develop
may become obsolete or uneconomical before achieving significant revenues. Rapid technological change could also make our products obsolete or uneconomical.

We face potential product liability exposure far in excess of our limited insurance coverage.

The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to product liability claims. These claims might be made directly by consumers, health care providers, pharmaceutical companies
or others selling our products. We have obtained limited product liability insurance coverage for our clinical trials in the amount of $1 million per occurrence and $1 million in the aggregate. However, our insurance may not reimburse us or may not
be sufficient to reimburse us for expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us
against losses due to liability. If we obtain marketing approval for any of our product candidates in development, we intend to expand our insurance coverage to include the sale of commercial products, but we may be unable to obtain commercially
reasonable product liability insurance for any products approved for marketing. On occasion, juries have awarded large judgments in class action lawsuits based on drugs that had unanticipated side effects. In addition, the pharmaceutical and
biotechnology industries, in general, have been subject to significant medical malpractice litigation. A successful product liability claim or series of claims brought against us would decrease our cash reserves and could cause our stock price to
fall.

Our activities involve hazardous materials and we may be liable for any resulting contamination or injuries.

Our research activities involve the use of hazardous materials. We cannot eliminate the risk of accidental contamination or injury
from these materials. If an accident occurs, we may be liable for any resulting damages, which may decrease our cash reserves and could cause our stock price to fall.

If we are unable to complete our assessment as to the adequacy of our internal control over financial reporting within the required time periods as required by Section 404 of the Sarbanes-Oxley Act of 2002,
or in the course of such assessments identify and report material weaknesses in our controls, our investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a
report of management on the companys internal controls over financial reporting in their Annual Reports on Form 10-K. This report is required to contain an assessment by management of the effectiveness of the companys internal controls
over financial reporting. In addition, the independent registered public accounting firm auditing a public companys financial statements must attest to and report on managements assessment of the effectiveness of the companys
internal controls over financial reporting. Although our management has determined, and our independent registered public accounting firm has attested, that our internal control over financial reporting was effective as of December 31, 2006,
and we intend to continue to diligently and vigorously review our internal controls over financial reporting in order to ensure



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compliance with the Section 404 requirements, if our independent registered public accounting firm is not satisfied in the future with our internal
controls over financial reporting or the level at which these controls are documented, designed, operated or reviewed, or if said firm interprets the requirements, rules or regulations differently from us, then they may decline to attest to
managements assessment or may issue a report that is qualified or has a scope limitation. We anticipate to continue to expend resources in developing the necessary documentation and testing procedures required by Section 404; however,
there is a risk that in the future we will not comply with all of the requirements imposed by Section 404. In addition, the very limited sized of our organization could lead to conditions that could be considered material weaknesses, such as
those related to segregation of duties that is possible in larger organizations but significantly more difficult in smaller organizations. Also, controls related to our general information technology infrastructure may not be as comprehensive as in
the case of a larger organization with more sophisticated capabilities and more extensive resources. It unclear how such circumstances could be interpreted in the future in the context of an assessment of internal controls over financial reporting.
If we fail to implement required new or improved controls, we may be unable to comply with the requirements of Section 404 in the future. This could result in an adverse reaction in the financial markets due to a loss of confidence in the
reliability of our financial statements, which could cause the market price of our common stock to decline or could limit our ability to obtain additional financing.

Risks Related to Our Common Stock

Our stock price has fluctuated significantly and we expect
that it may continue to do so.

An active public market for our common stock may not be sustained. The stock market, particularly in
recent years, has experienced significant volatility particularly with respect to pharmaceutical and biotechnology stocks. The volatility of pharmaceutical and biotechnology stocks often does not relate to the operating performance of the companies
represented by the stock. Other price fluctuations are directly attributable to performance. In October 2006, following the announcement of results from the pivotal Phase III study (SAINT II) of our lead product candidate, NXY-059, and the decision
of our exclusive licensee, AstraZeneca, to discontinue development of NXY-059, our stock price declined significantly.

Factors that could
cause volatility in the market price of our common stock include:



| |  |  | the results from our clinical trial programs and any future trials we may conduct;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | developments in the clinical trials of potentially similar competitive products;
| | - |  | --------------------------------------------------------------------------------



| |  |  | FDA or international regulatory actions;
| | - |  | ----------------------------------------



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



| |  |  | announcements of the introduction of new products by us or our competitors;
| | - |  | ---------------------------------------------------------------------------



| |  |  | market conditions in the pharmaceutical and biotechnology sectors;
| | - |  | ------------------------------------------------------------------



| |  |  | developments concerning intellectual property rights;
| | - |  | -----------------------------------------------------



| |  |  | litigation or public concern about the safety of our potential products;
| | - |  | ------------------------------------------------------------------------



| |  |  | comments by securities analysts;
| | - |  | --------------------------------



| |  |  | actual and anticipated fluctuations in our quarterly operating results;
| | - |  | -----------------------------------------------------------------------



| |  |  | deviations in our operating results from the estimates of securities analysts;
| | - |  | ------------------------------------------------------------------------------



| |  |  | rumors relating to us or our competitors;
| | - |  | -----------------------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | third party reimbursement policies; and
| | - |  | ---------------------------------------



| |  |  | developments concerning current or future collaborations, strategic alliances or similar relationships.
| | - |  | -------------------------------------------------------------------------------------------------------



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These and other external factors may cause the market price and demand for our common stock to fluctuate
substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been
volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a
lawsuit could also divert the time and attention of our management.

Future sales of common stock by our existing stockholders may
cause our stock price to fall.

The market price of our common stock could decline as a result of sales by our existing stockholders
of shares of common stock in the market, or the perception that these sales could occur. These sales might also make it more difficult for us to sell equity securities at a time and price that we deem appropriate.

Our directors and management exercise significant control over our company.

If acting together, our directors and executive officers and their affiliates can influence our management and affairs and all matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the
market price of our common stock.

Provisions of Delaware law or our charter documents and stockholder rights plan could delay or
prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for stockholders to change management.

Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that
stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. This is because these provisions may prevent or frustrate attempts by stockholders to replace or remove our current
management.

These provisions include:



| |  |  | a classified board of directors;
| | - |  | --------------------------------



| |  |  | a prohibition on stockholder action through written consent;
| | - |  | ------------------------------------------------------------



| |  |  | a requirement that special meetings of stockholders be called only by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or
(iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | advance notice requirements for stockholder proposals and nominations;
| | - |  | ----------------------------------------------------------------------



| |  |  | a requirement of approval of not less than 662/3% of all outstanding
shares of our capital stock entitled to vote to amend any bylaws by stockholder action, or to amend certain provisions of our certificate of incorporation; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the authority of the Board of Directors to issue preferred stock with such terms as the Board of Directors may determine.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

As a result, these provisions and others available under Delaware law could limit the price that investors are willing to pay in the future for shares of
our common stock.

In addition, in March 2005, we adopted a stockholder rights plan. Although the rights plan will not prevent a takeover,
it is intended to encourage anyone seeking to acquire our company to negotiate with our board prior to attempting a takeover by potentially significantly diluting an acquirers ownership interest in our outstanding capital stock. The existence
of the rights plan may also discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock.



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We have never paid dividends on our capital stock, and we do not anticipate paying any cash
dividends in the foreseeable future.

We have paid no cash dividends on any of our classes of capital stock to date and we currently
intend to retain our future earnings, if any, to fund the development and growth of our businesses. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

On September 1, 2003, we commenced a lease on 60,235 square feet of office and
laboratory space in South San Francisco, California. The space rented under this lease increased to 70,235 total square feet on May 1, 2006. The lease expires on August 31, 2009, although we have an option to extend the lease until
August 31, 2012. On October 31, 2003, we entered into a sublease for our former office and laboratory space in South San Francisco. The agreement for our former facility expired on October 1, 2005. We believe that our current facility
is adequate for our current needs.

Item 3. Legal Proceedings

We are not currently a party to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary course of business.

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

There were no matters submitted to a vote of
the security holders during the fourth quarter of 2006.



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PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Market Information

Our common stock is traded on the
NASDAQ Global Market under the symbol RNVS. The following table sets forth the range of the high and low intraday prices per share of our common stock on the NASDAQ Global Market. These prices represent quotations among dealers without adjustments
for retail markups, markdowns or commissions, and may not represent prices of actual transactions.



|                                     |  |      |       |     |   |      
|------------------------------------ |  | ---- | ----- | --- | - | -----
|                                     |  | High |       | Low
|Fiscal Year Ended December 31, 2005: |  |      |       |     |   |      
|First Quarter                        |  | $    | 14.44 |     | $ | 7.64 
|Second Quarter                       |  | $    | 19.25 |     | $ | 6.34 
|Third Quarter                        |  | $    | 16.54 |     | $ | 11.80
|Fourth Quarter                       |  | $    | 17.10 |     | $ | 12.40
|Fiscal Year Ended December 31, 2006: |  |      |       |     |   |      
|First Quarter                        |  | $    | 24.01 |     | $ | 15.05
|Second Quarter                       |  | $    | 21.23 |     | $ | 13.40
|Third Quarter                        |  | $    | 16.00 |     | $ | 10.53
|Fourth Quarter                       |  | $    | 15.46 |     | $ | 2.99 

As of March 1, 2007, there were approximately 253 holders of record of our common stock. This
number does not include the number of persons whose shares are in nominee or in street name accounts through brokers.

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our capital stock
in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this Item concerning the
Companys equity compensation plans is discussed in Note 10 to the financial statements contained in Part II Item 8 of this annual report.

Recent Sales of Unregistered Securities

On November 8, 2006, Renovis contributed 10,000 shares of the Companys
common stock to custodial accounts for each of the two minor children of a recently deceased employee of the company in exchange for an aggregate purchase price of $20.00, which is equal to the par value of the shares. These shares were issued in
accordance with the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended, or such other exemptions as may be available.

Use of Proceeds from Registered Securities

Our Registration Statement on Form S-1 (Reg.
No. 333-109806) in connection with our initial public offering was declared effective by the SEC on February 4, 2004. We completed our initial public offering on February 10, 2004 for gross proceeds of $75.9 million. The Company paid
the underwriters a commission of $5.3 million and incurred offering expenses of $2.2 million. After deducting the underwriters commission and the offering expenses, the Company received net proceeds of approximately $68.4 million.

Our Registration Statement on Form S-3 (Reg. No. 333-122762) was declared effective by the SEC on May 23, 2005. We completed a public
offering under this Registration Statement on September 28, 2005 for



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gross proceeds of $54.0 million. The Company paid the underwriters a commission of $3.2 million and incurred offering expenses of $0.3 million. After
deducting the underwriters commission and the offering expenses, the Company received net proceeds of approximately $50.4 million.

No payments for such expenses were made directly or indirectly to (i) any of our directors, officers or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our
affiliates.

The net proceeds have been invested into investment grade securities and money market accounts.

We have begun to use, and intend to continue to use, these proceeds for general corporate purposes, including clinical trials, research and development
expenses, general and administrative expenses, manufacturing expenses and potential acquisitions of companies, products and technologies that complement our businesses.

Performance Graph(1)

The following graph and related table compare the cumulative stockholder return
on our common stock with the cumulative total return of the Nasdaq Composite Index (Nasdaq) and the Nasdaq Biotechnology Index (Nasdaq Biotech) for the period beginning on February 4, 2004, the date of our initial public offering and ending on
December 31, 2006. The stock price performance on the graph below is not necessarily indicative of future price performance, and we do not make or endorse any predictions as to future stockholder returns.

The following graph and related table assumes that $100.00 was invested on February 4, 2004, the date of our initial public offering, in our common
stock or the designated index, including reinvestment of dividends. We have not declared or paid any dividends on our common stock.

Cumulative Total Return

LOGO

---

|(1) | This section is not soliciting material, is not deemed filed with the SEC and is
not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Issuer Purchases of Equity Securities

We did not repurchase any shares of common stock during fiscal 2006.



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Item 6. Selected Financial Data

You should read the following selected financial data together with our
financial statements and related notes appearing in Part II Item 8 of this report and the Managements Discussion and Analysis of Financial Condition and Results of Operations section appearing in Part II Item 7 of this
report. The historical results are not necessarily indicative of results of any future periods.



|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                       |  | Year ended December 31,               |        
|                                                                       |  | 2006                                  |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|                                                                       |  | (in thousands, except per share data) |        
|Statement of Operations Data:                                          |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Contract revenue                                                       |  | $                                     | 10,428  |   |      | $ | 6,647   |      |  | $ | 2,625   |   |  | $    | 4,500   |   |  | $ |        |  
|Operating expenses:                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Research and development                                               |  |                                       | 28,112  |   |      |   | 30,724  |      |  |   | 33,899  |   |  |      | 21,805  |   |  |   | 10,944  |  
|General and administrative                                             |  |                                       | 15,595  |   |      |   | 10,087  |      |  |   | 9,750   |   |  |      | 7,141   |   |  |   | 5,266   |  
|Acquired in-process research and development                           |  |                                       |        |   |      |   |        |      |  |   |        |   |  |      | 17,305  |   |  |   | 8,882   |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating expenses                                               |  |                                       | 43,707  |   |      |   | 40,811  |      |  |   | 43,649  |   |  |      | 46,251  |   |  |   | 25,092  |  
|Loss from operations                                                   |  |                                       | (33,279 | ) |      |   | (34,164 | )    |  |   | (41,024 | ) |  |      | (41,751 | ) |  |   | (25,092 | )
|Interest income (expense), net                                         |  |                                       | 4,903   |   |      |   | 2,184   |      |  |   | 1,083   |   |  |      | (121    | ) |  |   | 15      |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loss                                                               |  | $                                     | (28,376 | ) |      | $ | (31,980 | )    |  | $ | (39,941 | ) |  | $    | (41,872 | ) |  | $ | (25,077 | )
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Deemed dividend upon issuance of Series E convertible preferred stock  |  |                                       |        |   |      |   |        |      |  |   |        |   |  |      | (43,393 | ) |  |   |        |  
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loss applicable to common stockholders                             |  | $                                     | (28,376 | ) |      | $ | (31,980 | )    |  | $ | (39,941 | ) |  | $    | (85,265 | ) |  | $ | (25,077 | )
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share applicable to common stockholders |  | $                                     | (0.97   | ) |      | $ | (1.24   | )    |  | $ | (1.84   | ) |  | $    | (87.93  | ) |  | $ | (41.94  | )
|                                                                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                       | 
|                                                                       |  | At December 31,                       |        
|                                                                       |  | 2006                                  |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|                                                                       |  | (in thousands)                        |        
|Balance Sheet Data                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash, cash equivalents and short-term investments                      |  | $                                     | 99,107  |   |      | $ | 118,889 |      |  | $ | 86,959  |   |  | $    | 41,437  |   |  | $ | 17,415  |  
|Total assets                                                           |  |                                       | 107,301 |   |      |   | 126,612 |      |  |   | 96,125  |   |  |      | 52,551  |   |  |   | 25,866  |  
|Long-term liabilities                                                  |  |                                       | 3,684   |   |      |   | 6,372   |      |  |   | 3,039   |   |  |      | 1,672   |   |  |   | 2,343   |  
|Convertible preferred stock                                            |  |                                       |        |   |      |   |        |      |  |   |        |   |  |      | 123,266 |   |  |   | 59,388  |  
|Total stockholders equity (net capital deficiency)                    |  |                                       | 93,086  |   |      |   | 108,598 |      |  |   | 82,776  |   |  |      | (78,552 | ) |  |   | (39,762 | )



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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth above under the caption Business  Risk Factors. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements for the
year ended December 31, 2006 and the related notes appearing in Part II Item 8 of this report.

Overview

We are a biopharmaceutical company focused on the discovery and development of drugs to treat major medical needs in the areas of neurological and
inflammatory diseases. Our integrated capabilities in preclinical research and development, including medicinal chemistry, bioinformatics, molecular biology and pharmacology, enable us to identify and select drug candidates that meet stringent
standards for development. This approach has yielded multiple lead candidates in our preclinical programs for pain and inflammation. Our proprietary preclinical programs are focused on identifying antagonists of selected purinergic receptors as
novel potential treatments for a broad spectrum of pain and inflammatory conditions. In addition, we have entered into a collaboration with Pfizer to discover and develop product candidates targeting the vanilloid receptor, VR1, for the potential
treatment of pain and other diseases and disorders, as well as a collaboration with Genentech in the areas of nerve growth and anti-angiogenesis.

Our business strategy is to become an integrated biopharmaceutical company by creating a pipeline of potential first- and best-in-class product candidates for major medical needs, primarily in the areas of neurological and inflammatory
diseases. We are pursuing this goal by investing strategically in our internal drug discovery activities and by applying our expertise to the identification and potential acquisition of external programs that are complementary to our own.

In October 2006, we announced the results of a pivotal Phase III study (SAINT II) of NXY-059, a novel free radical trapping
neuroprotectant, in acute ischemic stroke that was conducted by our exclusive licensee, AstraZeneca. The SAINT II study did not demonstrate a statistically significant reduction on the primary endpoint of stroke-related disability in patients
treated with NXY-059, as assessed versus placebo using the modified Rankin Scale. In addition, no statistically significant treatment benefit was seen with NXY-059 on secondary endpoints measuring the drug candidates effects on neurological
impairment and the reduction of the incidence of symptomatic intracranial hemorrhage when administered with the approved thrombolytic agent, rt-PA. The SAINT II data showed that NXY-059 was well tolerated and the mortality rate was comparable in the
treatment and placebo groups. After reviewing the data from this study, AstraZeneca decided to discontinue development of NXY-059. We have not incurred any asset impairment or additional liabilities associated with AstraZenecas decision to
discontinued the development of NXY-059. We intend to thoroughly evaluate potential future development options for NXY-059, but have no present plans to conduct further clinical trials with this drug candidate.

We have a limited history of operations. Since our inception we have generated all of our revenues from agreements with corporate partners. During
certain periods in 2004 and 2005, we conducted one or more Phase I and Phase II clinical trials with three product candidates that we subsequently discontinued based on our review of data generated in the studies. Each of these product candidates
was obtained through a license agreement or acquisition from a third party.

In May 2005, we entered into a collaborative research
agreement and a license and royalty agreement with Pfizer to research, develop and commercialize small molecule compounds that target the vanilloid receptor, VR1. The collaboration focuses on treatments for pain and other diseases and disorders.
Under the agreements, we received an upfront license fee of $10.0 million in July 2005. We have deferred the upfront license fee and are recognizing it as contract revenue on a straight-line basis over the estimated research period of two years
through



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June 2007. In addition to the upfront license fee, the Pfizer collaboration also provides us with research funding in excess of $7.0 million which is being
recognized over the estimated research period. Pfizer has the option to extend the research period for up to two additional years from June 2007 subject to additional funding requirements. Additionally, upon the successful achievement of research,
development and commercialization milestones for each product resulting from the collaboration, we will be eligible to receive milestone payments greater than $170.0 million in aggregate. In addition to milestone payments, we will be entitled to
receive double-digit royalties on net sales by Pfizer upon commercialization of a product generated by the collaboration. We began recognizing revenue under these agreements in the third quarter of 2005. For the years ended December 31, 2006
and 2005, we recognized $10.1 million and $4.3 million, respectively, in contract revenue. Revenue recognized in 2006 included milestone revenue of $1.5 million that we earned in connection with the progression of a product candidate from the VR1
collaboration into advanced preclinical studies.

In December 2003, we entered into a collaborative research, development and license
agreement with Genentech for the discovery and development of drugs that inhibit pathological or tumor angiogenesis and promote nerve re-growth following nervous system injury. Under the terms of the agreement, Genentech paid us an upfront license
and technology access fee of approximately $5.3 million in January 2004 and made a $3.0 million equity purchase concurrent with our initial public offering. The upfront payment was deferred and recognized as contract revenue on a straight-line basis
over the research period, which ended in February 2006. While the research period has ended, the agreement with Genentech remains in effect. We are eligible to receive future milestones and royalty payments on therapeutic products emerging from the
collaboration that are developed and commercialized by Genentech. In exchange, Genentech obtained exclusive worldwide rights to research, develop, manufacture and commercialize protein-based therapeutics and other drug compositions for the treatment
of cancer and other diseases in which mechanisms underlying new blood vessel growth play a significant role. Unless Genentech exercises certain rights and makes additional payments to us, we will have the right to develop and commercialize products
arising from the collaboration that are specifically useful for the treatment of central and peripheral nervous system diseases and conditions. We would be required to make royalty payments and, in certain cases, milestone payments to Genentech on
products that we develop and commercialize under the collaboration. As of December 31, 2006, we have not incurred any such payments under the agreement with Genentech.

As of December 31, 2006, we had an accumulated deficit of $182.3 million and approximately $99.1 million in cash, cash equivalents and short-term
investments. We anticipate that our current cash, cash equivalents and short-term investments will enable us to maintain our currently planned operations for more than the next 12 months. However, changes to our current operating plan may require us
to consume our capital resources sooner than we expect.

We expect to incur substantial losses for the foreseeable future as we:



| |  |  | expand our research and development programs;
| | - |  | ---------------------------------------------



| |  |  | advance new product candidates into clinical development from our existing research; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | acquire, license or otherwise invest in technology, product candidates and businesses that are complementary to our own.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

Revenues

We do not expect to generate revenue from
product sales or royalties in the foreseeable future. We seek to generate revenue from a combination of research funding, product sales, upfront fees and milestone payments in connection with collaborative or strategic relationships, and royalties
resulting from the license of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of milestone payments we may receive from our collaborative or strategic
relationships, as well as those we may receive upon the sale of our products, to the extent any are successfully commercialized. Revenue



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derived from collaborative and strategic relationships helps us fund our operations and may increase in the future if we are successful in achieving
milestones in our existing collaborations, licensing our technology and establishing new collaborations or strategic relationships. If we are unsuccessful in these goals, our revenues will decline and we may be required to limit our research and
development, clinical trial, manufacturing and marketing efforts.

Research and Development Expenses

Our research and development (R&D) expenses consist primarily of costs associated with research, preclinical development and clinical trials involving
product opportunities in the areas of neurological and inflammatory diseases.

The expenses we incur in connection with our research,
preclinical and clinical development consist primarily of:



| |  |  | employee compensation (including non-cash expenses for stock-based compensation);
| | - |  | ---------------------------------------------------------------------------------



| |  |  | supplies and materials;
| | - |  | -----------------------



| |  |  | costs for consultants, contract research and clinical trials (including non-cash expenses for stock-based compensation to non-employees);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | license fees;
| | - |  | -------------



| |  |  | facilities and overhead costs;
| | - |  | ------------------------------



| |  |  | funded R&D at other companies and research institutions;
| | - |  | --------------------------------------------------------



| |  |  | manufacturing of drug supplies for our programs; and
| | - |  | ----------------------------------------------------



| |  |  | depreciation of equipment.
| | - |  | --------------------------

R&D
costs, including some upfront fees and milestones paid to collaborators, are expensed as incurred. The timing of upfront fees and milestone payments in the future may cause variability in our future R&D expenses.

During the years ended December 31, 2006, 2005 and 2004, we incurred research and development expenses of $28.1 million, $30.7 million and $33.9
million, respectively. All of the research and development expense incurred in 2006 related to our preclinical R&D programs. The majority of research and development expense incurred in 2005 and 2004 relates to our preclinical R&D programs
and clinical development activities. For the years ended December 31, 2005 and 2004, we incurred $25.4 million and $22.5 million, respectively, in R&D expense relating to our preclinical programs and $5.3 million and $11.4 million,
respectively, in R&D expense relating to clinical development activities. During the years ended December 31, 2006 and 2005, research and development expense decreased by $2.6 million and $3.2 million, respectively. The decrease in research
and development expense in the past two years primarily reflected our decisions to end two clinical development programs, both of which involved multiple Phase II clinical studies that were in progress during 2004 and the first two quarters of 2005.
Preclinical R&D expense increased in 2006 from 2005 and 2004 as a result of our investments in preclinical activities in the areas of neurological and inflammatory diseases. The increase in expense in 2006 is the result of adding key personnel
in chemistry and pharmacology to support expansion of our preclinical programs, including our proprietary programs to identify antagonists of the purinergic receptors, P2X7 and P2X3. We also maintained our effort to identify and advance molecules
within our collaboration with Pfizer, and we invested in certain exploratory programs that represent future opportunities to further expand our internal pipeline.

Our clinical development efforts during 2004 were focused exclusively on initiating and conducting multiple Phase II clinical trials with REN-213 and REN-1654. We discontinued clinical development activities involving
REN-213 and REN-1654 during 2004 and 2005, respectively. Our preclinical R&D activities during



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2004 included toxicology and efficacy studies of various development candidates in preclinical models of pain and inflammatory disease as well as formulation
and manufacturing of drug supply for these studies. The preclinical R&D amount of $22.5 million was expended primarily on employee costs, supplies and materials and infrastructure related to neurobiology, chemistry, cell biology and related
functions associated with our earlier stage research programs.

Development timelines and costs are difficult to estimate and may vary
significantly for each product candidate and from quarter to quarter. The process of seeking regulatory approvals, and the subsequent compliance with applicable regulations, requires the expenditure of substantial resources.

General and Administrative Expenses

General and
administrative expenses consist primarily of compensation, including non-cash, stock-based compensation, for employees in executive and operational functions, including finance, legal, human resources and business development. Other significant
costs include facilities costs and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on
our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included in
this report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Our revenues are generated by complex collaborative research and
licensing arrangements. Revenues under such agreements may include upfront payments, research funding, milestone payments and royalties. In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21,Revenue Arrangements with Multiple
Deliverables, we evaluate whether the delivered element under these arrangements has value to our collaborative partner or licensee on a stand-alone basis and whether objective and reliable evidence of fair value of the undelivered element
exists. Arrangements with multiple deliverables that do not meet these criteria are treated as one unit of accounting for purposes of revenue recognition.

Revenues from nonrefundable upfront technology license fees, for product candidates where we are providing continuing services related to product development, are deferred and recognized as revenues ratably over the
estimated period of performance under the research agreement. The performance period is estimated at the inception of the arrangement and is periodically reevaluated. The reevaluation of the performance period may shorten or lengthen the period
during which the deferred revenue is recognized, which would result in an acceleration or delay of expected revenue recognition.

Research
funding is recognized as revenue as the related effort is performed.

Milestone payments we receive under collaborative arrangements are
recognized as revenues upon achievement of the milestone events, which represent the culmination of the earnings process, and when collectability is reasonably assured. Milestone payments are triggered either by the results of our research efforts
or by events external to us, such as regulatory approval to market a product or the achievement of specified sales



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levels by a marketing partner or licensee. Accordingly, the milestone payments are substantially at risk at the inception of the contract, and the amounts of
the payments assigned thereto are commensurate with the milestone achieved. Upon the achievement of a milestone event, we have no future performance obligations related to that milestone as the milestone payments we receive are nonrefundable.

Stock Compensation

Effective January 1, 2006, we adopted the fair value recognition provision of Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (SFAS 123(R)), which requires the recognition of the
fair value of stock-based compensation. Under the fair value recognition provisions for SFAS 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense
ratably over the requisite service period of the award. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards which requires various judgmental assumptions including estimating stock price volatility,
forfeiture rates and expected life. Our computation of expected volatility is based on a combination of peer companies historical volatilities and our market-based implied volatility. In addition, we consider many factors when estimating
expected forfeitures and expected life, including types of awards, employee class and historical experience. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in
the future from that recorded in the current period.

We adopted SFAS 123(R) using the modified prospective method which requires the
application of the accounting standard as of January 1, 2006. Our financial statements in 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective method, the financial statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS 123(R).

Upon the adoption of SFAS 123(R) in January 2006, the deferred
stock compensation balance of $4.9 million was reclassified to additional paid-in-capital.

Clinical Study Activities and Other
Expenses from Third-Party Contract Research Organizations

Some of our research and development, including certain preclinical and
clinical study activity, is conducted by various third parties, including contract research organizations, which may also provide contractually defined administration and management services. We recognize expenses for these contracted activities
based upon a variety of factors, including estimated and actual labor hours, actual and estimated patient enrollment rates, clinical site initiation activities and other activity-based factors. On a regular basis, our estimates of these costs are
reconciled to actual invoices from the service providers, and adjustments are made accordingly.

Results of Operations

Comparison of the Twelve Months Ended December 31, 2006, 2005 and 2004

Revenue

Total revenue and dollar and
percentage changes for each of the three years ending December 31, 2006 are as follows (dollar amounts are in thousands):



|                        |  |      |        |   |      |   |       |      |  |   |      
|----------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | -----
|                        |  | 2006 |        |   | 2005 |   |       | 2004
|Pfizer collaboration    |  | $    | 10,100 |   |      | $ | 4,350 |      |  | $ |     
|Genentech collaboration |  |      | 328    |   |      |   | 2,297 |      |  |   | 2,625
|                        |  |      |        |   |      |   |       |      |  |   |      
|Total revenue           |  | $    | 10,428 |   |      | $ | 6,647 |      |  | $ | 2,625
|Dollar increase         |  | $    | 3,781  |   |      | $ | 4,022 |      |  |   |      
|Percentage increase     |  |      | 57     | % |      |   | 153   | %    |  |   |      



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The increase in revenue in 2006 as compared to 2005 resulted from a collaborative research agreement and
a license and royalty agreement with Pfizer that we signed in May 2005. Under the agreements with Pfizer we received an upfront license fee of $10.0 million in July 2005. We recorded the upfront license fee as deferred revenue and are recognizing it
as contract revenue on a straight-line basis over the estimated research period of two years. In addition to the upfront license fee, the agreements with Pfizer also provide the Company with total research funding of more than $7.0 million during
the two-year research period. Revenue recognized in 2006 included milestone revenue of $1.5 million that we earned in connection with the progression of a product candidate from the VR1 collaboration into advanced preclinical studies. Revenue
recognized under a collaborative agreement with Genentech decreased in 2006 as compared to 2005 as the funded research period ended in February 2006 and all collaborative revenue was fully earned in the first quarter of 2006.

The year-over-year increase in revenue in 2005 as compared to 2004 is mainly attributable to the collaborative research agreement and license and royalty
agreement with Pfizer that was executed in May 2005.

We expect that any revenue we may earn will fluctuate from year over year as a result
of the timing and amount of any milestone payments we earn or any new collaborations we may enter into in the future. For the year ending December 31, 2007, we presently anticipate contract revenue from existing agreements of approximately $4.3
million to $8.8 million.

Research and Development Expenses

Total research and development expenses and dollar and percentage changes for each of the three years ending December 31, 2006 are as follows (dollar
amounts are in thousands):



|                    |  |      |        |    |      |   |        |      |  |   |       
|------------------- |  | ---- | ------ | -- | ---- | - | ------ | ---- |  | - | ------
|                    |  | 2006 |        |    | 2005 |   |        | 2004
|Total R&D expense   |  | $    | 28,112 |    |      | $ | 30,724 |      |  | $ | 33,899
|Dollar decrease     |  | $    | (2,612 | )  |      | $ | (3,175 | )    |  |   |       
|Percentage decrease |  |      | (9     | )% |      |   | (9     | )%   |  |   |       

Specific changes in R&D expense in 2006 as compared to 2005 are as follows:



| |  |  | clinical development costs, manufacturing costs of clinical trial supplies and costs of outside services decreased by $4.2 million primarily due to our decisions to
end two clinical development programs;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | amortization of intangible assets decreased to $0 in 2006 from $1.1 million as the underlying intangible assets were fully amortized as of the end of 2005;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expense related to equity instruments issued for consulting services decreased by $0.3 million primarily due to certain noncash compensation charges recorded in
2005 that are not recurring in 2006;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee compensation decreased by $0.6 million primarily due to the termination of two clinical programs in 2005;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | license fees decreased by $0.4 million primarily due to lower costs incurred on administration of license agreements;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | non-cash stock based compensation for options granted to employees increased by $2.4 million primarily due to our accounting for employee stock based compensation
under the fair value method in accordance with SFAS 123(R) as of January 1, 2006. Prior to January 1, 2006 we accounted for options granted to employees using the intrinsic value method in accordance with APB 25. During the year ended
December 31, 2006, we recorded $4.8 million in expense in accordance with SFAS 123(R). During year ended December 31, 2005, we recorded $2.4 million in expense utilizing the intrinsic value method of measuring stock compensation in
accordance with APB 25;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs of supplies and materials increased by $1.1 million primarily due to increased pre-clinical activities performed in-house; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | overhead expenses including employee training, depreciation of fixed assets and property tax increased by $0.9 million primarily due to increases in underlying
expenses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Specific changes in R&D expense in 2005 as compared to 2004 are as follows:



| |  |  | external clinical trial costs, manufacturing cost of clinical trial supplies and other costs related to pharmacology and in vivo studies decreased by $4.7 million
primarily due to our decisions to end two clinical development programs and cancellations of certain other clinical projects;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | non-cash stock based compensation for options granted to employees, accounted for under the intrinsic value method in accordance with APB 25, decreased by $0.8
million;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee related expense increased by $1.3 million due to increased headcount and increases in merit pay, partially offset by decreases in recruiting and relocation
related expenses; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | overhead expenses including information technology and building operating cost increased by $0.8 million primarily due to increases in underlying expenses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

We expect R&D expenses, excluding non-cash stock-based compensation and approximately $0.9 million in restructuring
expense that we will record in the first quarter of 2007, to decrease in 2007 as a result of voluntary attrition and the effect of our restructuring in January 2007.

General and Administrative Expenses

Total general and administrative (G&A) expenses and dollar
and percentage changes for each of the three years ending December 31, 2006 are as follows (dollar amounts are in thousands):



|                    |  |      |        |   |      |   |        |      |  |   |      
|------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | -----
|                    |  | 2006 |        |   | 2005 |   |        | 2004
|Total G&A expense   |  | $    | 15,595 |   |      | $ | 10,087 |      |  | $ | 9,750
|Dollar increase     |  | $    | 5,508  |   |      | $ | 337    |      |  |   |      
|Percentage increase |  |      | 55     | % |      |   | 3      | %    |  |   |      

Increases in G&A expense in 2006 as compared to 2005 are as follows:



| |  |  | non-cash stock based compensation for options granted to employees and non-employee directors increased by $3.8 million primarily due to our accounting for employee
stock based compensation under the fair value method in accordance with SFAS 123(R) as of January 1, 2006. During the year ended December 31, 2006, we recorded $5.2 million in expense under the fair value method of measuring stock
compensation in accordance with SFAS 123(R). During the year ended December 31, 2005, we recorded $1.4 million in expense utilizing the intrinsic value method of measuring stock compensation in accordance with APB 25;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee compensation increased by $1.3 million primarily due to an increase in G&A headcount;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | outside services increased by $0.6 million primarily due to increased corporate development activities;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | overhead expenses including employee training, depreciation of fixed assets and property tax increased by $0.7 million primarily due to increases in underlying
expenses; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legal expense decreased by $0.6 million primarily due to lower costs associated with intellectual property matters.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Specific changes in G&A expense in 2005 as compared to 2004 are as follows:



| |  |  | professional and consulting service expenses increased by $1.1 million primarily due to compliance with the Sarbanes-Oxley Act of 2002 and for business development
activities; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legal expenses decreased by $0.5 million primarily due to lower costs associated with intellectual property matters.
| | - |  | --------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

We expect G&A expenses, excluding non-cash stock-based compensation and approximately $0.2 million in
restructuring expense that we will record in the first quarter of 2007, to decrease in 2007 as compared to 2006 following our restructuring in January 2007.

Interest Income

Total interest income and dollar and percentage changes for each of the three years
ending December 31, 2006 are as follows (dollar amounts are in thousands):



|                      |  |      |       |   |      |   |       |      |  |   |      
|--------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | -----
|                      |  | 2006 |       |   | 2005 |   |       | 2004
|Total interest income |  | $    | 5,382 |   |      | $ | 2,561 |      |  | $ | 1,445
|Dollar increase       |  | $    | 2,821 |   |      | $ | 1,116 |      |  |   |      
|Percentage increase   |  |      | 110   | % |      |   | 77    | %    |  |   |      

The increase in interest income in 2006 and 2005 was primarily attributable to a higher rate of
return on our investment portfolio and higher average investment balances due to our common stock offering in September 2005, which resulted in net proceeds of $50.4 million.

Interest Expense



Total interest expense and dollar and percentage changes for each of the three years ending December 31, 2006 are as follows (dollar amounts are in
thousands):



|                       |  |      |      |   |      |   |      |      |  |   |      |  
|---------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                       |  | 2006 |      |   | 2005 |   |      | 2004 | 
|Total interest expense |  | $    | (479 | ) |      | $ | (377 | )    |  | $ | (362 | )
|Dollar increase        |  | $    | 102  |   |      | $ | 15   |      |  |   |      |  
|Percentage increase    |  |      | 27   | % |      |   | 4    | %    |  |   |      |  

The increase in interest expense in 2006 was primarily due to the higher aggregate debt balances
and higher borrowing interest rates. Interest expense was nominally higher in 2005 than 2004.

2007 Financial Guidance

For the year ending December 31, 2007, the Company presently anticipates:



| |  |  | total contract revenue from existing agreements of approximately $4.3 million to $8.8 million; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | total operating expenses of approximately $28.0 million to $32.0 million, excluding non-cash, stock-based compensation to be recognized in accordance with SFAS
123(R) and approximately $1.1 million in restructuring expense that we will record in the first quarter of 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and
Capital Resources

To date, we have funded our operations primarily through the sale of equity securities as well as through equipment
and leasehold improvement financing. As of December 31, 2006, we had received approximately $222.6 million from the sale of equity securities. In February 2004, we received approximately $71.4 million from our initial public offering of common
stock and concurrent private placement with Genentech. In September 2005, we completed a public offering of common stock under which we received net proceeds of approximately $50.4 million. In addition, since inception to December 31, 2006, we
financed the purchase of equipment and leasehold improvements with debt totaling approximately $15.2 million, of which $5.2 million was outstanding at December 31, 2006. The remaining obligations are secured by the purchased equipment and
leasehold improvements, bear interest at rates ranging from approximately 8.8% to 10.67% and are due in monthly installments through September 2010.



38



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##### Table of Contents

As of December 31, 2006, we had $99.1 million in cash, cash equivalents and short-term investments
as compared to $118.9 million as of December 31, 2005, a decrease of $19.8 million. The decrease resulted primarily from cash used in operating activities, capital purchases and principal payments on outstanding debt related to capital
purchases. Our cash and investments are invested in a diversified portfolio of financial instruments, including money market instruments, corporate notes and bonds, government or governmental agency securities and other debt securities issued by
financial institutions and other issuers with strong credit ratings.

Net cash used in operating activities was $19.0 million, $19.5
million and $25.2 million for the years ended December 31, 2006, 2005 and 2004, respectively. The $0.5 million decrease in cash used in operations in 2006 as compared to 2005 primarily reflected a decrease in net operating loss of $3.6 million
as a result of an increase in contract revenue of $3.8 million, offset by an increase in operating expense of $2.9 million. The $5.7 million decrease in cash used in operations in 2005 as compared to 2004 primarily reflected a decrease in net
operating loss of $8.0 million as a result of an increase in contract revenue of $4.0 million and a decrease in operating expense of $2.8 million.

In January 2007 we implemented a restructuring plan which resulted in the Company reducing its workforce by approximately 40% of its positions. The intention of the restructuring is to reduce spending while maintaining the research and
development capabilities needed to advance the Companys late stage preclinical drug discovery program. As a result of the restructuring and broader efforts to reduce spending on general and administrative activities, we expect operating
expenses of approximately $28.0 million to $32.0 million, excluding non-cash, stock-based compensation expense to be recognized in accordance with SFAS 123(R) and approximately $1.1 million in restructuring expense that we will record in the
first quarter of 2007.

Net cash provided by investing activities was $50.5 million for the year ended December 31, 2006 as compared
to net cash used by investing activities of $30.8 million and $44.2 million for the year ended December 31, 2005 and 2004, respectively. These fluctuations resulted primarily from timing differences in the investment purchases, sales and
maturities and the fluctuations in our portfolio mix between cash equivalents and short-term investments. We expect similar fluctuations to continue in the future. Capital equipment purchases for 2006, 2005 and 2004 were $3.0 million, $2.6 million
and $2.2 million, respectively. Capital equipment purchases for 2007 are expected to be approximately $1.0 million.

Net cash provided by
financing activities was $2.3 million, $53.0 million and $73.3 million for the years ended December 31, 2006, 2005 and 2004, respectively. Cash provided by financing activities in 2005 was higher than 2006 primarily due to the completion of a
public offering of common stock under which we received net proceeds of approximately $50.4 million in 2005. Net cash provided by financing activities for the year ended December 31, 2004 was higher than 2005 primarily due to our initial public
offering and concurrent private placement with Genentech in which we received $71.4 million.

The following summarizes our long-term
contractual obligations as of December 31, 2006 (dollar amounts are in thousands):



|                                        |  |       |        |      |   |       |  |      |       |      |   |            |  |   |     |  |   |  
|--------------------------------------- |  | ----- | ------ | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | - | --- |  | - | -
|                                        |  | Total |        | 2007 |   | 2008  |  | 2009 |       | 2010 |   | Thereafter
|Operating leases                        |  | $     | 5,394  |      | $ | 1,952 |  | $    | 2,037 |      | $ | 1,405      |  | $ |    |  | $ | 
|Equipment financing                     |  |       | 5,158  |      |   | 2,147 |  |      | 1,619 |      |   | 1,150      |  |   | 242 |  |   | 
|Interest related to equipment financing |  |       | 732    |      |   | 414   |  |      | 225   |      |   | 85         |  |   | 8   |  | $ | 
|                                        |  |       |        |      |   |       |  |      |       |      |   |            |  |   |     |  |   |  
|Total                                   |  | $     | 11,284 |      | $ | 4,513 |  | $    | 3,881 |      | $ | 2,640      |  | $ | 250 |  | $ | 
|                                        |  |       |        |      |   |       |  |      |       |      |   |            |  |   |     |  |   |  

Our future capital uses and requirements depend on numerous forward-looking factors. These factors
include but are not limited to the following:



| |  |  | the progress of preclinical development and laboratory testing and clinical trials;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the time and costs involved in obtaining regulatory approvals;
| | - |  | --------------------------------------------------------------



39



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##### Table of Contents

| |  |  | delays that may be caused by evolving requirements of regulatory agencies;
| | - |  | --------------------------------------------------------------------------



| |  |  | the number of product candidates we pursue;
| | - |  | -------------------------------------------



| |  |  | the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | our plans to establish or acquire sales, marketing and/or manufacturing capabilities;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of technologies, products and other business opportunities that require financial commitments; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | our revenues, if any, from successful development and commercialization of our products.
| | - |  | ----------------------------------------------------------------------------------------

Based upon our current operating plan we believe that our cash and cash equivalents as of December 31, 2006 will be sufficient to meet our projected
operating requirements for more than the next 12 months.

Until we can generate significant cash from our operations, we expect to continue
to fund our operations with existing cash resources. We will be required to seek additional sources of funding to complete development and commercialization of our products. When we raise funds in the future, we may be required to raise those funds
through public or private financings, strategic relationships or other arrangements. We cannot assure you that such funding will be available on terms attractive to us, or at all. Furthermore, any additional equity financing will be dilutive to
stockholders, and debt financing, if available, may involve restrictive covenants. Our inability to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy.

We did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange
traded contracts. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. We do not have relationships or transactions with persons or entities that
derive benefits from their non-independent relationship with us or our related parties.

In October 2006, we filed a registration statement
on Form S-3 with the SEC to be able to sell from time to time up to $150.0 million of any combination of debt securities, common stock, preferred stock and warrants. The SEC has not declared this registration statement effective and securities may
not be sold, nor may offer to buy the securities be accepted, prior to the time this registration statement becomes effective. The terms of any offering will be determined at the time of such offering. In 2005 we filed a registration statement on
Form S-3 with the SEC to be able to sell from time to time up to $100.0 million of any combination of debt securities, common stock, preferred stock and warrants. The SEC declared this registration statement effective in May 2005. In September 2005,
we sold 4,000,000 shares of common stock to the public under this registration statement at $13.50 per share for gross proceeds of $54 million. As of December 31, 2006, $46.0 million remains available under this registration statement.

Recent Accounting Pronouncements

In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by us in the first quarter of fiscal 2007. As of December 31, 2006, we have



40



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##### Table of Contents

federal and state net operating loss carryforwards of approximately $92.3 million and $89.2 million, respectively, and federal and state research and
development credits of approximately $3.0 million and $3.2 million, respectively, that may be subject to annual limitation, due to certain substantial changes in ownership, under the Internal Revenue Code and similar state provisions. The annual
limitation may result in the expiration of net operating loss and credit carryforwards before utilization. As of December 31, 2006, all of our deferred tax assets have been fully offset by a valuation allowance because the realization of these
assets is dependent upon future earnings. We are currently evaluating the effect that the adoption of FIN 48 will have on our results of operations and financial condition.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our primary exposure to market risk
is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term marketable securities. Due to the nature of our short-term investments,
we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.



41



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##### Table of Contents

Item 8. Financial Statements and Supplementary Data

RENOVIS, INC.

INDEX TO FINANCIAL STATEMENTS



|                                                            |  |   
|----------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm     |  | 43
|Balance Sheets                                              |  | 44
|Statements of Operations                                    |  | 45
|Statements of Stockholders Equity (Net Capital Deficiency) |  | 46
|Statements of Cash Flows                                    |  | 47
|Notes to Financial Statements                               |  | 48



42



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Renovis, Inc.

We have audited the accompanying balance sheets of Renovis, Inc. as of December 31, 2006 and 2005, and the related statements of operations,
stockholders equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position of Renovis, Inc. at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006,
in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, on
January 1, 2006, Renovis, Inc. changed its method of accounting of stock-based compensation in accordance with guidance provided in Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Renovis,
Inc.s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 2, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Palo Alto, California

March 2, 2007



43



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##### Table of Contents

RENOVIS, INC.

BALANCE SHEETS

(in thousands, except share and per share data)



|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                                                 |  | December 31, |         
|                                                                                                                                                                                                 |  | 2006         |          |   | 2005 |  
|Assets                                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Current assets:                                                                                                                                                                                  |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                                                        |  | $            | 41,958   |   |      | $ | 8,149    |  
|Short-term investments                                                                                                                                                                           |  |              | 57,149   |   |      |   | 110,740  |  
|Prepaids and other current assets                                                                                                                                                                |  |              | 928      |   |      |   | 1,082    |  
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|Total current assets                                                                                                                                                                             |  |              | 100,035  |   |      |   | 119,971  |  
|                                                                                                                                                                                                 |  |             
|Property and equipment, net                                                                                                                                                                      |  |              | 7,052    |   |      |   | 6,428    |  
|Other assets                                                                                                                                                                                     |  |              | 214      |   |      |   | 213      |  
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|                                                                                                                                                                                                 |  | $            | 107,301  |   |      | $ | 126,612  |  
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|                                                                                                                                                                                                 |  |             
|Liabilities and stockholders equity                                                                                                                                                             |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                                                                                             |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                                                                                 |  | $            | 517      |   |      | $ | 1,050    |  
|Accrued compensation                                                                                                                                                                             |  |              | 2,503    |   |      |   | 2,018    |  
|Loan payable, current portion                                                                                                                                                                    |  |              | 2,147    |   |      |   | 1,531    |  
|Deferred revenue                                                                                                                                                                                 |  |              | 3,400    |   |      |   | 5,328    |  
|Other accrued liabilities                                                                                                                                                                        |  |              | 1,964    |   |      |   | 1,715    |  
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                                                                                        |  |              | 10,531   |   |      |   | 11,642   |  
|                                                                                                                                                                                                 |  |             
|Loan payable, noncurrent portion                                                                                                                                                                 |  |              | 3,011    |   |      |   | 2,908    |  
|Deferred revenue, noncurrent portion                                                                                                                                                             |  |              |         |   |      |   | 2,500    |  
|Other long-term liabilities                                                                                                                                                                      |  |              | 673      |   |      |   | 964      |  
|                                                                                                                                                                                                 |  |             
|Commitments                                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Stockholders equity:                                                                                                                                                                            |  |              |          |   |      |   |          |  
|Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2006 and 2005; none issued and outstanding                                                                        |  |              |         |   |      |   |         |  
|Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2006 and 2005; 29,455,058 and 28,927,205 shares issued and
outstanding at December 31, 2006 and 2005, respectively |  |              | 29       |   |      |   | 29       |  
|Additional paid-in capital                                                                                                                                                                       |  |              | 275,439  |   |      |   | 267,454  |  
|Deferred stock compensation                                                                                                                                                                      |  |              |         |   |      |   | (4,898   | )
|Accumulated other comprehensive loss                                                                                                                                                             |  |              | (44      | ) |      |   | (25      | )
|Accumulated deficit                                                                                                                                                                              |  |              | (182,338 | ) |      |   | (153,962 | )
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                                                                                       |  |              | 93,086   |   |      |   | 108,598  |  
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  
|                                                                                                                                                                                                 |  | $            | 107,301  |   |      | $ | 126,612  |  
|                                                                                                                                                                                                 |  |              |          |   |      |   |          |  

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



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##### Table of Contents

RENOVIS, INC.

STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)



|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                              |  | Years ended December 31, |           
|                                                                                              |  | 2006                     |            |   | 2005 |   |            | 2004 | 
|Contract revenues                                                                             |  | $                        | 10,428     |   |      | $ | 6,647      |      |  | $ | 2,625      |  
|                                                                                              |  |                          |           
|Operating expenses:                                                                           |  |                          |            |   |      |   |            |      |  |   |            |  
|Research and development                                                                      |  |                          | 28,112     |   |      |   | 30,724     |      |  |   | 33,899     |  
|General and administrative                                                                    |  |                          | 15,595     |   |      |   | 10,087     |      |  |   | 9,750      |  
|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                      |  |                          | 43,707     |   |      |   | 40,811     |      |  |   | 43,649     |  
|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Loss from operations                                                                          |  |                          | (33,279    | ) |      |   | (34,164    | )    |  |   | (41,024    | )
|Interest income                                                                               |  |                          | 5,382      |   |      |   | 2,561      |      |  |   | 1,445      |  
|Interest expense                                                                              |  |                          | (479       | ) |      |   | (377       | )    |  |   | (362       | )
|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Net loss                                                                                      |  |                          | (28,376    | ) |      |   | (31,980    | )    |  |   | (39,941    | )
|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net loss per share applicable to common stockholders                        |  | $                        | (0.97      | ) |      | $ | (1.24      | )    |  | $ | (1.84      | )
|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  
|Shares used to compute basic and diluted net loss per share applicable to common stockholders |  |                          | 29,213,098 |   |      |   | 25,722,393 |      |  |   | 21,670,435 |  
|                                                                                              |  |                          |            |   |      |   |            |      |  |   |            |  





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



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##### Table of Contents

RENOVIS, INC.

STATEMENTS OF STOCKHOLDERS EQUITY (NET CAPITAL DEFICIENCY)

(in thousands, except share data)



|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------------------- |  | ------------ | - | -------------------------- | ------ | -- | ---------------------------------- | - | ------- | --------------------------- |  | - | ------------------------------------ | - |  | ------------------- | ------- | - | --------------------------------------------------- | - | ---- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                   |  | Common Stock |   | Additional Paid-in Capital |        |    | Notes Receivable from Stockholders |   |         | Deferred Stock Compensation |  |   | Accumulated Other Comprehensive Loss |   |  | Accumulated Deficit |         |   | Total Stockholders Equity (Net Capital Deficiency) |  
|                                                                                   |  | Shares       |   |                            | Amount |    |                                    |   |         |                             | 
|Balance at December 31, 2003                                                       |  | 1,348,128    |   |                            | $      | 1  |                                    | $ | 18,982  |                             |  | $ | (43                                  | ) |  | $                   | (15,451 | ) |                                                     | $ |     |   |  | $ | (82,041  | ) |  | $ | (78,552  | )
|Issuance of common stock upon IPO, net of issuance costs                           |  | 6,325,000    |   |                            |        | 7  |                                    |   | 68,338  |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 68,345   |  
|Issuance of common stock to an investor                                            |  | 250,000      |   |                            |        |   |                                    |   | 3,000   |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 3,000    |  
|Conversion of preferred stock to common stock upon IPO                             |  | 16,208,583   |   |                            |        | 16 |                                    |   | 123,250 |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 123,266  |  
|Issuance of common stock upon exercise of stock options                            |  | 72,360       |   |                            |        |   |                                    |   | 182     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 182      |  
|Issuance of common stock under employee stock purchase plan                        |  | 60,885       |   |                            |        |   |                                    |   | 589     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 589      |  
|Vesting of common stock from early exercise of stock options                       |  | 233,384      |   |                            |        |   |                                    |   | 312     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 312      |  
|Repurchase of common stock for cash                                                |  | (32,026      | ) |                            |        |   |                                    |   | (37     | )                           |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | (37      | )
|Repayment and forgiveness of promissory notes from stockholders                    |  |             |   |                            |        |   |                                    |   |        |                             |  |   | 43                                   |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 43       |  
|Fair market value of stock options granted to consultants and others for services  |  |             |   |                            |        |   |                                    |   | 1,450   |                             |  |   |                                     |   |  |                     | (141    | ) |                                                     |   |     |   |  |   |         |   |  |   | 1,309    |  
|Amortization of deferred stock compensation, net of cancellations                  |  |             |   |                            |        |   |                                    |   | (1,783  | )                           |  |   |                                     |   |  |                     | 6,429   |   |                                                     |   |     |   |  |   |         |   |  |   | 4,646    |  
|Comprehensive loss-unrealized loss on investments in securities                    |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   | (386 | ) |  |   |         |   |  |   | (386     | )
|Net loss                                                                           |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   | (39,941  | ) |  |   | (39,941  | )
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                 |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | (40,327  | )
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|Balance at December 31, 2004                                                       |  | 24,466,314   |   |                            |        | 24 |                                    |   | 214,283 |                             |  |   |                                     |   |  |                     | (9,163  | ) |                                                     |   | (386 | ) |  |   | (121,982 | ) |  |   | 82,776   |  
|Issuance of common stock upon secondary offering, net of issuance costs            |  | 4,000,000    |   |                            |        | 4  |                                    |   | 50,425  |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 50,429   |  
|Issuance of common stock upon exercise of options and warrants                     |  | 248,011      |   |                            |        | 1  |                                    |   | 606     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 607      |  
|Vesting of common stock from early exercise of stock options                       |  | 81,638       |   |                            |        |   |                                    |   | 128     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 128      |  
|Issuance of common stock under employee stock purchase plan and 401K matching      |  | 123,131      |   |                            |        |   |                                    |   | 1,220   |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 1,220    |  
|Issuance of common stock to consultants for services                               |  | 12,500       |   |                            |        |   |                                    |   | 133     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 133      |  
|Repurchase of common stock for cash                                                |  | (4,389       | ) |                            |        |   |                                    |   | (5      | )                           |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | (5       | )
|Fair market value of stock options granted to consultants and others for services  |  |             |   |                            |        |   |                                    |   | 1,107   |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 1,107    |  
|Amortization of deferred stock compensation, net of cancellations                  |  |             |   |                            |        |   |                                    |   | (443    | )                           |  |   |                                     |   |  |                     | 4,265   |   |                                                     |   |     |   |  |   |         |   |  |   | 3,822    |  
|Comprehensive gainunrealized gain on investments in securities                    |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   | 361  |   |  |   |         |   |  |   | 361      |  
|Net loss                                                                           |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   | (31,980  | ) |  |   | (31,980  | )
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                 |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | (31,619  | )
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|Balance at December 31, 2005                                                       |  | 28,927,205   |   |                            |        | 29 |                                    |   | 267,454 |                             |  |   |                                     |   |  |                     | (4,898  | ) |                                                     |   | (25  | ) |  |   | (153,962 | ) |  |   | 108,598  |  
|Issuance of common stock upon exercise of options                                  |  | 330,778      |   |                            |        |   |                                    |   | 854     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 854      |  
|Vesting of common stock from early exercise of stock options                       |  | 54,974       |   |                            |        |   |                                    |   | 66      |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 66       |  
|Issuance of common stock under employee stock purchase plan and 401K matching      |  | 117,101      |   |                            |        |   |                                    |   | 933     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 933      |  
|Issuance of common stock to nonemployees                                           |  | 25,000       |   |                            |        |   |                                    |   | 131     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 131      |  
|Fair market value of stock options granted to consultants and others for services  |  |             |   |                            |        |   |                                    |   | 863     |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 863      |  
|Reversal of unamortized deferred stock compensation upon adoption of SFAS No. 123R |  |             |   |                            |        |   |                                    |   | (4,898  | )                           |  |   |                                     |   |  |                     | 4,898   |   |                                                     |   |     |   |  |   |         |   |  |   |         |  
|Shared-based compensation recognized pursuant to SFAS No. 123R                     |  |             |   |                            |        |   |                                    |   | 10,036  |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | 10,036   |  
|Comprehensive lossunrealized loss on investments in securities                    |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   | (19  | ) |  |   |         |   |  |   | (19      | )
|Net loss                                                                           |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   | (28,376  | ) |  |   | (28,376  | )
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                 |  |             |   |                            |        |   |                                    |   |        |                             |  |   |                                     |   |  |                     |        |   |                                                     |   |     |   |  |   |         |   |  |   | (28, 395 | )
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  
|Balance at December 31, 2006                                                       |  | 29,455,058   |   |                            | $      | 29 |                                    | $ | 275,439 |                             |  | $ |                                     |   |  | $                   |        |   |                                                     | $ | (44  | ) |  | $ | (182,338 | ) |  | $ | 93,086   |  
|                                                                                   |  |              |   |                            |        |    |                                    |   |         |                             |  |   |                                      |   |  |                     |         |   |                                                     |   |      |   |  |   |          |   |  |   |          |  

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



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RENOVIS, INC.

STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                            |  | Years ended December 31, |         
|                                                                            |  | 2006                     |          |   | 2005 |   |          | 2004 | 
|Cash flows from operating activities                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Net loss                                                                    |  | $                        | (28,376  | ) |      | $ | (31,980  | )    |  | $ | (39,941  | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                               |  |                          | 2,025    |   |      |   | 2,829    |      |  |   | 2,903    |  
|Share-based compensation                                                    |  |                          | 10,036   |   |      |   | 3,822    |      |  |   | 4,646    |  
|Loss on disposal of fixed assets                                            |  |                          | 387      |   |      |   | 328      |      |  |   |         |  
|Noncash interest and issuances of equity                                    |  |                          | 1,192    |   |      |   | 1,421    |      |  |   | 1,449    |  
|Changes in assets and liabilities:                                          |  |                          |          |   |      |   |          |      |  |   |          |  
|Prepaids and other current assets                                           |  |                          | 154      |   |      |   | 76       |      |  |   | 483      |  
|Other assets                                                                |  |                          |         |   |      |   | 48       |      |  |   | 721      |  
|Accounts payable                                                            |  |                          | (533     | ) |      |   | (651     | )    |  |   | 1,016    |  
|Accrued compensation                                                        |  |                          | 485      |   |      |   | 600      |      |  |   | 689      |  
|Deferred revenue                                                            |  |                          | (4,428   | ) |      |   | 5,203    |      |  |   | 2,625    |  
|Other accrued liabilities                                                   |  |                          | 23       |   |      |   | (1,240   | )    |  |   | 197      |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash used in operating activities                                       |  | $                        | (19,035  | ) |      | $ | (19,544  | )    |  | $ | (25,212  | )
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Capital expenditures                                                        |  |                          | (3,036   | ) |      |   | (2,557   | )    |  |   | (2,159   | )
|Proceeds from disposal of fixed assets                                      |  |                          |         |   |      |   | 46       |      |  |   |         |  
|Purchases of short-term investments                                         |  |                          | (105,063 | ) |      |   | (179,422 | )    |  |   | (220,330 | )
|Sales of short-term investments                                             |  |                          | 124,375  |   |      |   | 95,971   |      |  |   | 116,750  |  
|Maturities of short-term investments                                        |  |                          | 34,259   |   |      |   | 55,125   |      |  |   | 61,500   |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                         |  | $                        | 50,535   |   |      | $ | (30,837  | )    |  | $ | (44,239  | )
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash flows from financing activities                                        |  |                          |          |   |      |   |          |      |  |   |          |  
|Principal payments on loan payable                                          |  |                          | (1,810   | ) |      |   | (1,665   | )    |  |   | (2,159   | )
|Proceeds from loan payable                                                  |  |                          | 2,529    |   |      |   | 2,536    |      |  |   | 3,316    |  
|Proceeds from issuance of common stock, net of repurchases                  |  |                          | 1,590    |   |      |   | 52,079   |      |  |   | 72,079   |  
|Proceeds from repayment of stockholder notes                                |  |                          |         |   |      |   |         |      |  |   | 43       |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net cash provided by financing activities                                   |  | $                        | 2,309    |   |      | $ | 52,950   |      |  | $ | 73,279   |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Net increase in cash and cash equivalents                                   |  |                          | 33,809   |   |      |   | 2,569    |      |  |   | 3,828    |  
|Cash and cash equivalents at beginning of period                            |  |                          | 8,149    |   |      |   | 5,580    |      |  |   | 1,752    |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of period                                  |  | $                        | 41,958   |   |      | $ | 8,149    |      |  | $ | 5,580    |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Supplemental disclosure of cash flow information                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Interest paid                                                               |  | $                        | 437      |   |      | $ | 332      |      |  | $ | 293      |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  
|Supplemental schedule of noncash financing activities                       |  |                          |          |   |      |   |          |      |  |   |          |  
|Deferred stock compensation                                                 |  | $                        |         |   |      | $ |         |      |  | $ | 371      |  
|                                                                            |  |                          |          |   |      |   |          |      |  |   |          |  

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



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

The Company and Nature of Operation and Basis of Preparation

Renovis, Inc. (the Company or Renovis) was incorporated
in the State of Delaware on January 5, 2000. We are a biopharmaceutical company focused on the discovery and development of drugs to treat major medical needs in the areas of neurological and inflammatory diseases. We are located in South San
Francisco, California.

The Company has sustained operating losses since inception and expects such losses to continue over the next
several years. Management plans to continue to finance the Companys operations with a combination of equity issuances, debt arrangements and revenues from corporate alliances with pharmaceutical companies. If adequate funds are not available,
the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs.

Use of
Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Prior to
January 1, 2006, we accounted for employee share-based compensation under Accounting Principles Board, Opinion No. 25, Accounting for Stock Issued to Employees(APB 25). In accordance with APB 25, we used the intrinsic value method
to account for employee share-based compensation expense and presented the amortization of deferred compensation as a separate line item on the statement of operations. We reclassified the amortization of deferred compensation to research and
development expense and general and administrative expense for the years ended December 31, 2005 and 2004 to conform to the current period presentation. Additionally, upon the adoption of SFAS 123(R) in January 2006, the deferred stock
compensation balance of $4.9 million was reclassified to additional paid-in-capital.

Business Segments

Statement of Financial Accounting Standards (SFAS) No. 131,Disclosures about Segments of an Enterprise and Related Information, requires an
enterprise to report segment information based on how management internally evaluates the operating performance of its business units (segments). Our operations are confined to one business segment; the discovery and development of pharmaceutical
products.

Revenue Recognition

The Companys revenues are generated by complex collaborative research and licensing arrangements. Revenues under such agreements may include upfront payments, research funding, milestone payments and royalties.
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21,Revenue Arrangements with Multiple Deliverables, we evaluate whether the delivered element under these arrangements has value to our collaborative partner or licensee on a
stand-alone basis and whether objective and reliable evidence of fair value of the undelivered element exists. Arrangements with multiple deliverables that do not meet these criteria are treated as one unit of accounting for the purposes of revenue
recognition.

Revenues from nonrefundable upfront technology license fees, for product candidates where we are providing continuing
services related to product development, are deferred and recognized as contract revenue



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



ratably over the estimated period of performance under the research agreement. The performance period is estimated at the inception of the arrangement and is
periodically reevaluated. The reevaluation of the performance period may shorten or lengthen the period during which the deferred revenue is recognized, which would result in an acceleration or delay of expected revenue recognition.

Research funding is recognized as revenue as the related effort is performed.

Milestone payments we receive under collaborative arrangements are recognized as revenue upon achievement of the milestone events, which represent the
culmination of the earnings process, and when collectability is reasonably assured. Milestone payments are triggered either by the results of our research efforts or by events external to us, such as regulatory approval to market a product or the
achievement of specified sales levels by a marketing partner or licensee. Accordingly, the milestone payments are substantially at risk at the inception of the contract, and the amounts of the payments assigned thereto are commensurate with the
milestone achieved. Upon the achievement of a milestone event, we have no future performance obligations related to that milestone as the milestone payments we receive are nonrefundable.

Research and Development

Research and development costs, which include related salaries, contractor fees, administrative expenses, and allocations of overhead costs, are charged to expense as incurred. License and milestone obligations that we must pay prior to
regulatory approval to market a product related to the licensed technology are also charged to research and development expense.

Cash, Cash Equivalents and Short-Term Investments

The Company invests its excess cash in bank deposits, money market
accounts and other marketable securities. The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents.

The Company has designated its investment securities as available-for-sale. The Company considers its available-for-sale portfolio as available for use
in current operations. Accordingly, all investments have been classified as short-term, even though the stated maturity date may be one year or more beyond the current balance sheet date. Available-for-sale securities are carried at fair value and
unrealized gains and losses are included in other comprehensive income (loss) and reported as a separate component of stockholders equity (net capital deficiency). Realized gains and losses and declines in value judged to be
other-than-temporary, if any, on available-for-sale securities are included in the statement of operations. The cost of securities sold is based on the specific identification method. Interest on marketable securities is included in interest income.

Concentration of Credit Risk

Cash and cash equivalents consist of financial instruments that potentially subject the Company to concentrations of credit risk to the extent recorded on the balance sheets. The Company has established guidelines for
investment of its excess cash that it believes maintain safety and liquidity through diversification of counterparties and maturities.

Fair Value of Financial Instruments

The Companys financial instruments consist principally of cash and cash
equivalents, short-term investments and loans payable. The carrying values of the Companys financial instruments approximate fair value.



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Property and Equipment, Net

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are recorded using the
straight-line method over the estimated useful lives of the respective assets, generally three to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the related assets.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss
would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss, if recognized, would be based on the excess of the
carrying value of the impaired asset over its respective fair value. Impairment, if any, is assessed using discounted cash flows.

Income Taxes

The Company utilizes the liability method of accounting for income taxes as required by SFAS
No. 109,Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and the 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. Currently, there is no provision for income taxes as the Company has incurred operating losses to date and a valuation allowance has been provided on the net
deferred tax assets.

Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provision of Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (SFAS 123(R)), which requires
the recognition of the fair value of stock-based compensation. Under the fair value recognition provisions for SFAS 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and
recognized as expense ratably over the requisite service period of the award. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards which requires various judgmental assumptions including estimating stock
price volatility, forfeiture rates and expected life. Our computation of expected volatility is based on a combination of peer companies historical volatilities and our market-based implied volatility. In addition, we consider many factors
when estimating expected forfeitures and expected life, including types of awards, employee class and historical experience. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current period.

The Company adopted SFAS 123(R) using the modified prospective
method which requires the application of the accounting standard as of January 1, 2006. Our financial statements in 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective method, the financial statements for
prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). See Note 10 Stockholders Equity for further details.

SFAS 123(R) eliminates the ability to account for share-based compensation transactions, as the Company formerly did, using the intrinsic value method as prescribed by Accounting Principles Board Opinion
No. 25,Accounting for Stock Issued to Employees (APB 25). Prior to January 1, 2006, the Company accounted for stock



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



options granted to employees using the intrinsic value method in accordance with APB 25. We have elected to use the simplified method to calculate the
beginning pool of excess tax benefits as described in FASB FSP 123(R)-3.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by us in the
first quarter of fiscal 2007. As of December 31, 2006, we have federal and state net operating loss carryforwards of approximately $92.3 million and $89.2 million, respectively, and federal and state research and development credits of
approximately $3.0 million and $3.2 million, respectively, that may be subject to annual limitation, due to certain substantial changes in ownership, under the Internal Revenue Code and similar state provisions. The annual limitation may result in
the expiration of net operating loss and credit carryforwards before utilization. As of December 31, 2006, all of our deferred tax assets have been fully offset by a valuation allowance because the realization of these assets is dependent upon
future earnings. We are currently evaluating the effect that the adoption of FIN 48 will have on our results of operations and financial condition.

2.
Comprehensive Loss

SFAS No. 130,Reporting Comprehensive Income, requires components of other comprehensive income,
including gains and losses on available-for-sale investments, to be included as part of total comprehensive income. Comprehensive loss for the years ended December 31, 2006, 2005 and 2004 are as follows (in thousands):



|                                                         |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | 2006 |         |   | 2005 |   |         | 2004 | 
|Net loss                                                 |  | $    | (28,376 | ) |      | $ | (31,980 | )    |  | $ | (39,941 | )
|Unrealized gains (loss) on available-for-sale securities |  |      | (19     | ) |      |   | 361     |      |  |   | (386    | )
|                                                         |  |      |         |   |      |   |         |      |  |   |         |  
|Comprehensive loss                                       |  | $    | (28,395 | ) |      | $ | (31,619 | )    |  | $ | (40,327 | )
|                                                         |  |      |         |   |      |   |         |      |  |   |         |  

3. Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per
share is computed by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by the
Company, preferred stock, options and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                  |  | Years ended December 31,                        |           
|                                                                                                  |  | 2006                                            |            |   | 2005 |   |            | 2004 | 
|                                                                                                  |  | (in thousands, except share and per share data) |           
|Historical                                                                                        |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Numerator:                                                                                        |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Net loss applicable to common stockholders                                                        |  | $                                               | (28,376    | ) |      | $ | (31,980    | )    |  | $ | (39,941    | )
|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Denominator:                                                                                      |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Weighted-average common shares outstanding                                                        |  |                                                 | 29,275,744 |   |      |   | 25,849,923 |      |  |   | 22,002,893 |  
|Less: Weighted-average unvested common shares subject to repurchase                               |  |                                                 | (62,646    | ) |      |   | (127,530   | )    |  |   | (332,458   | )
|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Denominator for basic and diluted net loss per share                                              |  |                                                 | 29,213,098 |   |      |   | 25,722,393 |      |  |   | 21,670,435 |  
|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net loss per share applicable to common stockholders                            |  | $                                               | (0.97      | ) |      | $ | (1.24      | )    |  | $ | (1.84      | )
|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Historical outstanding dilutive securities not included in diluted net loss per share calculation |  |                                                 |            |   |      |   |            |      |  |   |            |  
|Options to purchase common stock                                                                  |  |                                                 | 3,657,866  |   |      |   | 2,637,749  |      |  |   | 2,434,859  |  
|Warrants                                                                                          |  |                                                 | 33,358     |   |      |   | 33,358     |      |  |   | 57,222     |  
|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  
|                                                                                                  |  |                                                 | 3,691,224  |   |      |   | 2,671,107  |      |  |   | 2,492,081  |  
|                                                                                                  |  |                                                 |            |   |      |   |            |      |  |   |            |  

4. Collaboration and License Agreements

Pfizer

On May 26, 2005,
the Company entered into a collaborative research agreement and a license and royalty agreement with Pfizer to research, develop and commercialize small molecule compounds which work by targeting the vanilloid receptor (VR1). The collaboration
focuses on treatments for pain and other diseases and disorders.

Under the agreements, the Company received an upfront license fee of
$10.0 million in July 2005. In addition to the upfront license fee, the agreements with Pfizer also provide the Company with research funding in excess of $7.0 million over a two-year research period. The funded research period ends in June 2007.
Pfizer also has the option to extend the agreements for up to two additional years subject to additional funding requirements. Additionally, the Company will be eligible to receive research, development, approval and commercialization milestone
payments resulting in total potential payments to the Company of greater than $170.0 million through successful achievement of research development and commercialization milestones for each product candidate resulting from the collaboration. Upon
commercialization of a product resulting from the collaboration, the Company would be entitled to receive royalties on net sales by Pfizer.

The Company applied EITF Issue No. 00-21 in evaluating the appropriate accounting for the agreements, which became effective on June 28, 2005. In accordance with this guidance, the Company identified the initial license transfer and
the research and development services as the deliverables under the agreements and concluded that they should be accounted for as a single unit of accounting based upon the determination that these deliverables were linked and did not have
stand-alone value. The Company also determined that the achievement of each milestone for which it is eligible for milestone payments represents a separate earnings process. The Company believes that each of these milestones, such as the
commencement of a Phase I clinical trial or the filing of a New Drug Application, or an NDA, is well-defined, substantive, measurable and reasonable relative to risk and effort. Accordingly, the Company concluded that such payments should be
recognized as revenue when the milestone is achieved and collectability is reasonably assured.



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



In accordance with the evaluation discussed above, the Company began amortizing the upfront payment
from Pfizer ratably in the third quarter of 2005 over the estimated research term of two years. During the years ended December 31, 2006 and 2005, the Company recognized $10.1 million and $4.3 million, respectively, in revenue related to the
agreements. Revenue recognized in 2006 included milestone revenue of $1.5 million that was earned in connection with specific progress of the VR1 collaboration into advanced preclinical studies. As of December, 2006, deferred revenue under the
agreements was $3.4 million, of which $2.5 million related to the upfront payment received in July 2005.

Genentech

On December 31, 2003, the Company entered into a collaborative research, development and license agreement with Genentech for
the discovery and development of drugs that inhibit pathological or tumor angiogenesis and promote nerve re-growth following nervous system injury. Under the terms of the agreement, Genentech paid the Company an upfront license and technology access
fee of $5.3 million in January 2004 and made a $3.0 million equity purchase concurrent with our initial public offering. The Company deferred the $5.3 million upfront payment and began recognizing it on a straight-line basis over the two-year
estimated research period of the agreement. In July 2005, the Company revised the estimated completion date of the research period under the agreement by two months to February 2006 from the previous estimate of December 2005. Accordingly, the
Company recognized the remaining deferred revenue on a straight-line basis through February 2006. During the years ended December 31, 2006 and 2005, the Company recognized $0.3 million and $2.3 million, respectively, in revenue related to this
agreement. The funded research period under this agreement ended in February 2006. The Company is eligible to receive future milestone and royalty payments on therapeutic products emerging from the collaboration that are developed and commercialized
by Genentech.



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



5. Cash, Cash Equivalents and Short-Term Investments

The following is a summary of cash, cash equivalents and short-term investments as of December 31, 2006 and 2005 (in thousands):



|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|-------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------------- | - | ----------------------- |  | - | -------------------- | - |  | - | -------
|                                                                                             |  | December 31, 2006
|                                                                                             |  | Amortized Cost    |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Estimated Fair Value
|Cash                                                                                         |  | $                 | 4,367   |                        | $ |                        |  | $ |                     |   |  | $ | 4,367  
|Money market funds                                                                           |  |                   | 165     |                        |   |                        |  |   |                     |   |  |   | 165    
|Commercial paper                                                                             |  |                   | 78,977  |                        |   | 3                       |  |   | (46                  | ) |  |   | 78,934 
|Auction rate certificates                                                                    |  |                   | 5,000   |                        |   |                        |  |   |                     |   |  |   | 5,000  
|Corporate bonds                                                                              |  |                   | 2,153   |                        |   |                        |  |   | (4                   | ) |  |   | 2,149  
|U.S. government bonds                                                                        |  |                   | 8,489   |                        |   | 3                       |  |   |                     |   |  |   | 8,492  
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             |  | $                 | 99,151  |                        | $ | 6                       |  | $ | (50                  | ) |  | $ | 99,107 
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Reported as:                                                                                 |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Cash and cash equivalents                                                                    |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 41,958 
|Short-term investments                                                                       |  |                   |         |                        |   |                         |  |   |                      |   |  |   | 57,149 
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 99,107 
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Estimated fair value of short-term investments by contractual maturity at December 31, 2006: |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Maturing in less than one year                                                               |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 52,149 
|Maturing in one to five years                                                                |  |                   |         |                        |   |                         |  |   |                      |   |  |   |       
|Maturing in five to ten years                                                                |  |                   |         |                        |   |                         |  |   |                      |   |  |   |       
|Maturing in greater than ten years                                                           |  |                   |         |                        |   |                         |  |   |                      |   |  |   | 5,000  
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Total                                                                                        |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 57,149 
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             | 
|                                                                                             |  | December 31, 2005
|                                                                                             |  | Amortized Cost    |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Estimated Fair Value
|Cash                                                                                         |  | $                 | 2,427   |                        | $ |                        |  | $ |                     |   |  | $ | 2,427  
|Money market funds                                                                           |  |                   | 3,036   |                        |   |                        |  |   |                     |   |  |   | 3,036  
|Commercial paper                                                                             |  |                   | 2,687   |                        |   |                        |  |   | (1                   | ) |  |   | 2,686  
|Auction rate certificates                                                                    |  |                   | 99,375  |                        |   |                        |  |   |                     |   |  |   | 99,375 
|Corporate bonds                                                                              |  |                   | 903     |                        |   |                        |  |   | (3                   | ) |  |   | 900    
|U.S. government bonds                                                                        |  |                   | 10,486  |                        |   |                        |  |   | (21                  | ) |  |   | 10,465 
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             |  | $                 | 118,914 |                        | $ |                        |  | $ | (25                  | ) |  | $ | 118,889
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             |  |                   |         |                       
|Reported as:                                                                                 |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Cash and cash equivalents                                                                    |  |                   |         |                        |   |                         |  |   |                      |   |  |   | 8,149  
|Short-term investments                                                                       |  |                   |         |                        |   |                         |  |   |                      |   |  |   | 110,740
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 118,889
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|                                                                                             |  |                   |         |                       
|Estimated fair value of short-term investments by contractual maturity at December 31, 2005: |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Maturing in less than one year                                                               |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 11,365 
|Maturing in one to five years                                                                |  |                   |         |                        |   |                         |  |   |                      |   |  |   |       
|Maturing in five to ten years                                                                |  |                   |         |                        |   |                         |  |   |                      |   |  |   | 1,650  
|Maturing in greater than ten years                                                           |  |                   |         |                        |   |                         |  |   |                      |   |  |   | 97,725 
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        
|Total                                                                                        |  |                   |         |                        |   |                         |  |   |                      |   |  | $ | 110,740
|                                                                                             |  |                   |         |                        |   |                         |  |   |                      |   |  |   |        



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



The Companys marketable auction securities with contractual maturities greater than one year
have interest reset features. The interest rate of these securities reset at approximately every 30 days, typically through a remarketing process or based on an index.

To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. The Company recognizes an impairment charge when the decline in the
estimated fair value of a marketable security below the amortized cost is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time and the
severity to which the fair value has been less than amortized cost, any adverse changes in the investees financial condition and our intent and ability to hold the marketable security for a period of time sufficient to allow for any
anticipated recovery in market value.

There were no material gross realized losses or gains on the sale of available-for-sale securities
during the years ended December 31, 2006 and 2005.

6. Property and Equipment

Property and equipment consists of the following (in thousands):



|                                |  |              |        |   |      |   |        |  
|------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                |  | December 31, |       
|                                |  | 2006         |        |   | 2005 |  
|Computer equipment and software |  | $            | 3,365  |   |      | $ | 3,221  |  
|Laboratory and office equipment |  |              | 9,163  |   |      |   | 8,177  |  
|Leasehold improvements          |  |              | 1,749  |   |      |   | 1,095  |  
|                                |  |              |        |   |      |   |        |  
|                                |  |              | 14,277 |   |      |   | 12,493 |  
|Less accumulated depreciation   |  |              | (7,225 | ) |      |   | (6,065 | )
|                                |  |              |        |   |      |   |        |  
|Property and equipment, net     |  | $            | 7,052  |   |      | $ | 6,428  |  
|                                |  |              |        |   |      |   |        |  

Depreciation expense was $2.0 million for the year ended December 31, 2006 and $1.8 million
for each of the years ended December 31, 2005 and 2004.

7. Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):



|                                              |  |              |       |      |   |      
|--------------------------------------------- |  | ------------ | ----- | ---- | - | -----
|                                              |  | December 31,
|                                              |  | 2006         |       | 2005
|Professional fees                             |  | $            | 400   |      | $ | 569  
|Facilities-related                            |  |              | 408   |      |   | 356  
|Proceeds from early exercise of stock options |  |              | 38    |      |   | 104  
|Outside services                              |  |              | 437   |      |   | 199  
|Deferred rent                                 |  |              | 291   |      |   | 139  
|Accrued other                                 |  |              | 390   |      |   | 348  
|                                              |  |              |       |      |   |      
|Other accrued liabilities                     |  | $            | 1,964 |      | $ | 1,715
|                                              |  |              |       |      |   |      



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



8. Loans Payable

In February 2004, the Company entered into a credit facility with a lender that provided up to an aggregate of $5 million to finance the purchase of laboratory and computer equipment and certain leasehold
improvements. In March 2005, the lender provided for a new credit facility of $3.5 million which was available for the Company to draw down through December 31, 2005. The draw down period was extended through December 31, 2006 by the
lender. As of December 31, 2006, the Company had borrowed an aggregate of approximately $8.5 million under these facilities, of which $5.2 million was outstanding at that date. Payments are due in monthly installments over a period ranging from
42 to 48 months at interest rates ranging from 8.80% to 10.67% and are secured by the assets financed.

Future principal payments under the
loans payable are as follows (in thousands):



|                                  |  |               |        |  
|--------------------------------- |  | ------------- | ------ | -
|                                  |  | Loans Payable |       
|Year ending December 31,          |  |               |        |  
|2007                              |  | $             | 2,147  |  
|2008                              |  |               | 1,619  |  
|2009                              |  |               | 1,150  |  
|2010                              |  |               | 242    |  
|                                  |  |               |        |  
|Total principal payments required |  |               | 5,158  |  
|Less current portion              |  |               | (2,147 | )
|                                  |  |               |        |  
|Noncurrent portion                |  | $             | 3,011  |  
|                                  |  |               |        |  

9. Operating Leases

The Company leases its laboratory and office facilities under an operating lease arrangement that expires in August 2009. The Company has the option to extend the lease at this location in South San Francisco,
California through August 2012.

Rent expense was $1.7 million for the year ended December 31, 2006. Rent expense was $1.6 million for
the year ended December 31, 2005 (net of $0.2 million sublease income) and $1.8 million for the year ended December 31, 2004 (net of $0.3 million sublease income).

Future minimum lease payments as of December 31, 2006 under noncancelable operating leases are as follows (in thousands):



|                                |  |                  |      
|------------------------------- |  | ---------------- | -----
|                                |  | Operating Leases
|Year ending December 31,        |  |                  |      
|2007                            |  | $                | 1,952
|2008                            |  |                  | 2,037
|2009                            |  |                  | 1,405
|and thereafter                  |  |                  |     
|                                |  |                  |      
|Total minimum payments required |  | $                | 5,394
|                                |  |                  |      



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



10. Stockholders Equity

Common Stock

On February 10, 2004, the Company sold 6,325,000 shares of common stock to
the public in its initial public offering and realized net proceeds of approximately $68.3 million. Additionally, concurrent with the initial public offering the Company completed a private placement with Genentech for 250,000 shares of common stock
for proceeds of $3.0 million (Note 4).

On September 28, 2005, the Company sold 4,000,000 shares of common stock through a public
offering and realized net proceeds of approximately $50.4 million.

Through December 31, 2006, the Company has issued 555,554 shares
of its common stock to founders of the Company under restricted stock purchase agreements. Under the terms of the restricted stock purchase agreements, shares purchased generally vest over a three- to four-year period. Unvested shares are subject to
repurchase by the Company at the original issuance price. The restricted common stock was fully vested as of December 31, 2006. As of December 31, 2005, there were 6,583 shares subject to repurchase by the Company.

Stock Plans

Amended
2003 Stock Plan

Effective January 3, 2005, the Board of Directors approved the Amended and Restated Renovis, Inc. 2003 Stock
Plan (Amended 2003 Plan), giving effect to certain amendments to the previously approved Renovis, Inc. 2003 Stock Plan. The Board of Directors approved further amendments to the Amended 2003 Plan on January 3, 2007. A total of 333,333 shares of
the Companys common stock were initially reserved for issuance under the Amended 2003 Plan. The Amended 2003 Plan also includes additional shares of common stock that have or will have become available for issuance under the Companys
predecessor stock option plans. Additionally, commencing in 2005 and on each January 15 thereafter during the term of the Amended 2003 Plan, the number of shares reserved for issuance under the Amended 2003 Plan is increased by the lesser of
(i) 3.5% of the Companys outstanding shares of common stock on that date, (ii) 1,055,555 shares, or (iii) such lesser number determined by our Board of Directors. On January 16, 2007, the Board authorized and reserved an
additional 1,034,527 shares of the Companys common stock for issuance under the Amended 2003 Plan.

The Amended 2003 Plan permits the
Company to grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, deferred stock units, dividend equivalents, performance share awards, stock payments and other stock related benefits, or any
combination thereof to employees or consultants of the Company. The Amended 2003 Plan provides that the automatic option grants for independent directors to purchase 11,111 shares and the chairman of the Board of Directors to purchase 22,222 shares
shall be granted annually on a date determined by the Board of Directors at its discretion, which date shall, to the extent practicable, be consistent with the date on which annual replenishment grants of options are made to employees
generally (the Annual Grant Date). The Board of Directors at its discretion may change the Annual Grant Date from year to year. Each eligible member of the Board of Directors must continue to serve through the Annual Grant Date in order to receive
an automatic option grant.

Stock options awarded to employees may be granted at an
exercise price no less than the fair market value, as defined in the Amended 2003 Plan, of the common stock on the date of grant. Options become exercisable as determined by the Board of Directors, generally at the rate of 1/48thper month such that the options will be fully vested after four years. Options granted under the Amended 2003 Plan expire no
more than ten years after the date of grant.



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



The predecessor plans to the Amended 2003 Plan allowed for the early exercise of options before they
had vested. Shares issued as a result of early exercise are subject to a repurchase option by the Company upon termination of the purchasers employment or services at the exercise price paid by the option holder. The repurchase right lapses
over a period of time as determined by the Board of Directors. The Company may exercise its repurchase options within 90 days of such voluntary or involuntary termination. As of December 31, 2006 and 2005, there were a total of 22,825 and
80,403 shares subject to repurchase relating to the early exercise of options at weighted-average exercise prices of $1.66 and $1.32 per share, respectively.

In accordance with EITF Issue No. 00-23,Issues Related to Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44, stock options granted or modified after
March 21, 2002, that are subsequently exercised for cash prior to vesting are treated differently from prior grants and related exercises. The consideration received for an exercise of an option granted after the effective date of the new
guidance is considered to be a deposit of the exercise price, and the related dollar amount is recorded as a liability. The shares and liability are reclassified into equity as the award vests. The shares subject to repurchase are not included in
the accompanying Statements of Stockholders Equity. The Company has appropriately applied the guidance for stock options granted after March 21, 2002 and recorded a liability on the balance sheets relating to 22,825 and 77,799 shares
issued pursuant to options exercised that were unvested as of December 31, 2006 and 2005, respectively, of $38,000 and $104,000.

The
following table summarizes stock option activity under the Amended 2003 Plan:



|                             |  |                            |   |  |                   |   |  |                                  |      
|---------------------------- |  | -------------------------- | - |  | ----------------- | - |  | -------------------------------- | -----
|                             |  | Shares Available for Grant |   |  | Number of Options |   |  | Weighted- Average Exercise Price
|Balance at December 31, 2003 |  | 83,866                     |   |  | 2,200,389         |   |  | $                                | 2.38 
|Shares authorized            |  | 333,333                    |   |  |                  |   |  |                                  |     
|Options granted              |  | (541,464                   | ) |  | 541,464           |   |  | $                                | 8.60 
|Options canceled             |  | 222,010                    |   |  | (222,010          | ) |  | $                                | 3.12 
|Shares repurchased           |  | 32,026                     |   |  |                  |   |  | $                                | 1.12 
|Options exercised            |  |                           |   |  | (305,744          | ) |  | $                                | 1.62 
|                             |  |                            |   |  |                   |   |  |                                  |      
|Balance at December 31, 2004 |  | 129,771                    |   |  | 2,214,099         |   |  | $                                | 3.94 
|Shares authorized            |  | 863,984                    |   |  |                  |   |  |                                  |     
|Options granted              |  | (821,799                   | ) |  | 821,799           |   |  | $                                | 11.75
|Shares issued                |  | (20,000                    | ) |  |                  |   |  | $                                | 12.70
|Options canceled             |  | 254,419                    |   |  | (254,419          | ) |  | $                                | 8.30 
|Shares repurchased           |  | 4,389                      |   |  |                  |   |  | $                                | 1.27 
|Options exercised            |  |                           |   |  | (312,747          | ) |  | $                                | 2.23 
|                             |  |                            |   |  |                   |   |  |                                  |      
|Balance at December 31, 2005 |  | 410,764                    |   |  | 2,468,732         |   |  | $                                | 6.31 
|Shares authorized            |  | 1,016,319                  |   |  |                  |   |  |                                  |     
|Options granted              |  | (1,420,686                 | ) |  | 1,420,686         |   |  | $                                | 17.66
|Options canceled             |  | 136,788                    |   |  | (136,788          | ) |  | $                                | 11.91
|Options exercised            |  |                           |   |  | (383,752          | ) |  | $                                | 2.35 
|                             |  |                            |   |  |                   |   |  |                                  |      
|Balance at December 31, 2006 |  | 143,185                    |   |  | 3,368,878         |   |  | $                                | 11.32
|                             |  |                            |   |  |                   |   |  |                                  |      

Inducement Stock Options

In July and August 2004, Renovis granted employment inducement stock options covering a total of 220,760 shares to certain newly hired executives. These
options were granted without stockholder approval



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



pursuant to NASDAQ Marketplace Rule 4350 (i)(1)(A)(iv) and in accordance with Renovis standard stock option terms, including a 10-year term and four
year vesting, and were granted at exercise prices equal to the fair market value on the date of grant. These options become exercisable at the rate of 25% at the end of the first year, with the remaining balance vesting ratably over the next three
years, or 1/48thof the original number of shares per month.

The following table summarizes the inducement stock option activities:



|                             |  |                            |   |  |                   |   |  |                                  |     
|---------------------------- |  | -------------------------- | - |  | ----------------- | - |  | -------------------------------- | ----
|                             |  | Shares Available for Grant |   |  | Number of Options |   |  | Weighted- Average Exercise Price
|Shares authorized            |  | 220,760                    |   |  |                  |   |  |                                  |    
|Options granted              |  | (220,760                   | ) |  | 220,760           |   |  | $                                | 8.07
|                             |  |                            |   |  |                   |   |  |                                  |     
|Balance at December 31, 2004 |  |                           |   |  | 220,760           |   |  | $                                | 8.07
|Options canceled             |  |                           |   |  | (83,843           | ) |  | $                                | 7.73
|Options exercised            |  |                           |   |  | (5,000            | ) |  | $                                | 7.64
|                             |  |                            |   |  |                   |   |  |                                  |     
|Balance at December 31, 2005 |  |                           |   |  | 131,917           |   |  | $                                | 8.30
|Options canceled             |  |                           |   |  | (88,421           | ) |  | $                                | 7.76
|Options exercised            |  |                           |   |  | (2,000            | ) |  | $                                | 9.41
|                             |  |                            |   |  |                   |   |  |                                  |     
|Balance at December 31, 2006 |  |                           |   |  | 41,496            |   |  | $                                | 9.41
|                             |  |                            |   |  |                   |   |  |                                  |     

Employment Commencement Incentive Plan

The Board of Directors approved the Renovis, Inc. 2006 Employment Commencement Incentive Plan (the 2006 Plan), effective February 7, 2006. The number
of shares of common stock reserved for issuance under the 2006 Plan was 424,392.

The 2006 Plan provided the Company with the ability to
grant specified types of equity awards including non-qualified stock options, restricted stock, stock appreciation rights, performance shares, dividend equivalents, deferred stock and stock payment awards to newly hired employees. New employees that
are otherwise eligible to receive grants under the 2006 Plan may receive all types of awards approved under these plans. A majority of the independent members of the Companys Board of Directors or the compensation committee of the Board of
Directors determine which new employees receive awards under the 2006 Plan and the terms and conditions of such awards, within certain limitations set forth in the 2006 Plan. The awards granted pursuant to the 2006 Plan are intended to be inducement
awards pursuant to NASDAQ Marketplace Rule 4350(i)(1)(A)(iv). The 2006 Plan was not subject to the approval of the Companys stockholders.

Options granted under the 2006 Plan have a 10-year term, and are granted at exercise prices equal
to the fair market value on the date of grant. These options generally become exercisable at the rate of 25% at the end of the first year, with the remaining balance vesting ratably over the next three years, or 1/48thof the original number of shares per month such that the options will be fully vested after four years. Only an employee who
has not previously been an employee or director of the Company or a subsidiary, or following a bona fide period of non-employment by the Company or a subsidiary, is eligible to participate in the 2006 Plan and only if he or she is granted an award
in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or a subsidiary. Shares available for grant under the 2006
Plan expired upon expiration of the 2006 Plan at December 31, 2006.



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



In January 2005, the Board of Directors approved a similar plan, the Renovis, Inc. 2005 Employment
Commencement Incentive Plan (the 2005 Plan). The number of shares of common stock reserved for issuance under the 2005 Plan was 250,000. The 2005 Plan has similar terms as the 2006 Plan as described above. Shares available for grant under the 2005
Plan expired upon expiration of the 2005 Plan at December 31, 2005.

The following table summarizes the 2006 Plan activity as of
December 31, 2006:



|                             |  |                            |   |  |                   |   |  |                                  |      
|---------------------------- |  | -------------------------- | - |  | ----------------- | - |  | -------------------------------- | -----
|                             |  | Shares Available for Grant |   |  | Number of Options |   |  | Weighted- Average Exercise Price
|Shares authorized            |  | 424,392                    |   |  |                  |   |  |                                  |     
|Shares issued                |  | (50,000                    | ) |  |                  |   |  | $                                | 15.62
|Options granted              |  | (211,292                   | ) |  | 211,292           |   |  | $                                | 15.07
|Options canceled             |  | 300                        |   |  | (300              | ) |  | $                                | 15.62
|Plan shares expired          |  | (163,400                   | ) |  |                  |   |  |                                  |     
|                             |  |                            |   |  |                   |   |  |                                  |      
|Balance at December 31, 2006 |  |                           |   |  | 210,992           |   |  | $                                | 15.07
|                             |  |                            |   |  |                   |   |  |                                  |      

The following table summarizes the 2005 Plan activity as of December 31, 2006:



|                             |  |                            |   |  |                   |   |  |                                  |      
|---------------------------- |  | -------------------------- | - |  | ----------------- | - |  | -------------------------------- | -----
|                             |  | Shares Available for Grant |   |  | Number of Options |   |  | Weighted- Average Exercise Price
|Shares authorized            |  | 250,000                    |   |  |                  |   |  |                                  |     
|Options granted              |  | (38,300                    | ) |  | 38,300            |   |  | $                                | 14.18
|Options canceled             |  | 1,200                      |   |  | (1,200            | ) |  | $                                | 12.48
|Plan shares expired          |  | (212,900                   | ) |  |                  |   |  |                                  |     
|                             |  |                            |   |  |                   |   |  |                                  |      
|Balance at December 31, 2005 |  |                           |   |  | 37,100            |   |  | $                                | 14.23
|Options canceled             |  |                           |   |  | (600              | ) |  | $                                | 16.42
|                             |  |                            |   |  |                   |   |  |                                  |      
|Balance at December 31, 2006 |  |                           |   |  | 36,500            |   |  | $                                | 14.20
|                             |  |                            |   |  |                   |   |  |                                  |      

The following tables summarize information about stock options outstanding as of December 31,
2006 for all stock plans (including the Inducement Stock Options, the 2005 Plan and the 2006 Plan):



|                    |  |                     |  |                                                         |  |                                  |       |                    |           |                                                         |      |                                  |   |      
|------------------- |  | ------------------- |  | ------------------------------------------------------- |  | -------------------------------- | ----- | ------------------ | --------- | ------------------------------------------------------- | ---- | -------------------------------- | - | -----
|Options Outstanding |  | Options Exercisable
|Exercise Price      |  | Number Outstanding  |  | Weighted- Average Remaining Contractual Life (In Years) |  | Weighted- Average Exercise Price |       | Number Exercisable |           | Weighted- Average Remaining Contractual Life (In Years) |      | Weighted- Average Exercise Price
|$0.81-$4.50         |  | 990,674             |  | 6.59                                                    |  | $                                | 2.99  |                    | 967,849   |                                                         | 6.60 |                                  | $ | 3.02 
|$5.40-$11.70        |  | 952,989             |  | 7.91                                                    |  | $                                | 10.53 |                    | 596,554   |                                                         | 7.87 |                                  | $ | 10.30
|$11.81-$16.42       |  | 490,023             |  | 9.12                                                    |  | $                                | 14.15 |                    | 89,419    |                                                         | 8.09 |                                  | $ | 13.44
|$18.19              |  | 1,220,880           |  | 9.04                                                    |  | $                                | 18.19 |                    | 350,793   |                                                         | 9.05 |                                  | $ | 18.19
|$20.37-$21.66       |  | 3,300               |  | 9.16                                                    |  | $                                | 21.54 |                    |          |                                                         |     |                                  | $ |     
|                    |  |                     |  |                                                         |  |                                  |       |                    |           |                                                         |      |                                  |   |      
|$0.81-$21.66        |  | 3,657,866           |  | 8.09                                                    |  | $                                | 11.54 |                    | 2,004,615 |                                                         | 7.47 |                                  | $ | 8.30 
|                    |  |                     |  |                                                         |  |                                  |       |                    |           |                                                         |      |                                  |   |      



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



The aggregate intrinsic value of outstanding options is $876,000 and is calculated as the difference
between the exercise price of the underlying awards and the quoted price of the Companys common stock for 465,738 shares of outstanding options that were in-the-money at December 31, 2006. The aggregate intrinsic value of exercisable
options is $838,000 for 445,851 shares of exercisable options that were in-the-money at December 31, 2006. As of December 31, 2006, there were 1,877,751 shares of vested and outstanding options with a weighted-average exercise price of
$8.31 per share and weighted-average remaining contractual life of 7.47 years. The aggregate intrinsic value of outstanding vested options is $788,000 for 418,522 shares of outstanding and vested options that were in-the-money at December 31,
2006.

As of December 31, 2006, there was approximately $14.6 million of total unrecognized compensation cost related to unvested
share-based compensation arrangements granted under our equity incentive plans. That cost was expected to be recognized over a weighted-average period of 2.99 years. In January 2007, the Company repurchased certain outstanding under-water
options from the officers of the Company at $0.001 per share, which resulted in an immediate recognition of unrecognized stock-based compensation of approximately $7.3 million related to the outstanding unvested options. Also in January 2007, the
Company committed to a restructuring plan in which the Company reduced its workforce by 40%. After the repurchase of outstanding unvested options from officers of the Company and reduction in workforce, there was approximately $6.2 million of total
unrecognized compensation cost related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of approximately 3.03 years.

The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $4.8 million, $2.6 million and $423,000,
respectively, determined as of the date of exercise. The estimated fair value of shares vested during the years ended December 31, 2006, 2005 and 2004 was $8.8 million, $7.8 million and $5.8 million, respectively. The weighted average fair
value of options granted during the years ended December 31, 2006 and 2005 was $9.72 and $7.87 per share, respectively. All options granted in 2006 and 2005 had exercise prices equal to the fair market value of the stock on the grant dates.

The following table summarizes information about stock options granted to employees during the year ended December 31, 2004
(including inducement stock options):



|                                         |  |                             |      |                                 |   |      
|---------------------------------------- |  | --------------------------- | ---- | ------------------------------- | - | -----
|Exercise Price:                          |  | Weighted Average Fair Value |      | Weighted Average Exercise Price
|Equal to market price on grant date      |  | $                           | 5.79 |                                 | $ | 8.73 
|Exceeded market price on grant date      |  |                             | 7.85 |                                 |   | 12.60
|Was less than market price on grant date |  |                             | 9.47 |                                 |   | 5.40 

Employee Stock Purchase Plan

The Company has an employee stock purchase plan for all eligible employees. Under the plan, shares of the Companys common stock may be purchased
over an offering period with a maximum duration of two years at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last day of the six-month purchase period. Employees may purchase shares having a
purchase price not exceeding 20% of their gross compensation during an offering period. To be eligible to participate in the Purchase Plan an employee must be scheduled to work more than 20 hours per week for at least five calendar months per year.
During the years ended December 31, 2006 and 2005, the Company issued 106,139 and 109,214 shares of common stock, respectively, under the Purchase Plan.

At December 31, 2006, 714,064 shares of common stock were available for future issuance under the plan. The employee stock purchase plan contains an evergreen provision that automatically increases,
on each



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RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



January 1, the number of shares reserved for issuance under the Purchase Plan by the lesser of 194,444 or 0.75% of the Companys outstanding shares
on such date, or a lesser amount as determined by our Board of Directors. On January 16, 2007, the Board authorized and reserved an additional 194,444 shares of the Companys common stock for issuance under the Purchase Plan.

Stockholder Rights Plan

On
March 23, 2005, our Board of Directors adopted a Stockholder Rights Plan (Rights Plan). On April 11, 2005, the Company filed with the Delaware Secretary of State a Certificate of Designations setting forth the terms of the Companys
Series A Junior Participating Preferred Stock, par value $0.001 per share (Preferred Shares) in connection with the adoption of the Rights Plan by our Board of Directors. The Company has agreed to initially reserve 100,000 Preferred Shares for
issuance upon exercise of the rights under the Rights Plan from and after the date of distribution.

The rights issued pursuant to the
Rights Plan expire on April 12, 2015 and are exercisable upon the earlier of ten business days after a person or group either (i) announces the acquisition of 15% or more of the Companys outstanding common stock or
(ii) commences a tender offer, which would result in ownership by the person or group of 15% or more of the Companys outstanding common stock. Upon exercise, all rights holders except the potential acquirer will be entitled to acquire the
Companys common stock at a discount. The Company is entitled to redeem the rights in whole at any time on or before the tenth day following acquisition by a person or group of 15% or more of the Companys common stock.

The rights under the Rights Plan were not distributed in response to any specific effort to acquire control of the Company. The rights under the Rights
Plan are designed to assure that all our stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers, open market accumulations and other potentially abusive tactics
to gain control of the Company, while not foreclosing a fair acquisition bid for the Company.

Stock Options Granted to Nonemployees

Stock compensation arrangements to non-employees are accounted for in accordance with SFAS 123(R) and EITF Issue No. 96-18,Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services, using a fair value approach. The compensation costs of these arrangements are subject to re-measurement
over the vesting terms as earned. During the years ended December 31, 2006, 2005 and 2004, the Company granted options to purchase 48,111, 30,611 and 42,787 shares of common stock to consultants at a weighted-average exercise price of $17.43,
$11.70 and $8.31 per share, respectively. The related compensation expense, calculated in accordance with EITF Issue No. 96-18 and recorded by the Company, was $863,000, $1.1 million and $775,000 in 2006, 2005 and 2004, respectively.

The weighted average assumptions for the Black-Scholes model used in determining the fair value of options granted to non-employees are as
follows:



|                                           |  |                         |   |  |      |   |  |      |  
|------------------------------------------ |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                           |  | Year ended December 31, |  
|                                           |  | 2006                    |   |  | 2005 |   |  | 2004 |  
|Dividend yield:                            |  | 0                       |   |  | 0    |   |  | 0    |  
|Risk-free interest rate:                   |  | 4.5                     | % |  | 4.3  | % |  | 4.4  | %
|Volatility:                                |  | 65                      | % |  | 80   | % |  | 80   | %
|Maximum contractual life (from grant date) |  | 10                      |   |  | 10   |   |  | 10   |  



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Restricted Stock Awards

During the year ended December 31, 2005, the Company issued 20,000 shares of common stock with a weighted average price of $12.70 per share to three
consultants in exchange for services. Of the 20,000 shares of common stock, 10,000 shares are restricted and subject to repurchase by the Company at the original issuance. The repurchase right lapses ratably each quarter over a period of two years
from the date of issuance. As of December 31, 2006 and 2005, 2,500 and 7,500 of these shares were subject to repurchase by the Company, respectively. The weighted average grant-date value of the unvested stock was $16.57 per share.

In May 2006, the Company granted 50,000 shares of restricted stock at $15.62 per share to an
employee. The restricted shares vest at 25% on each anniversary date from the vesting commencement date such that the award is fully vested on the 4thanniversary. The individuals employment was terminated on January 3, 2007 and the unvested 50,000 shares were cancelled and returned to the shares reserved for issuance under the 2003 Stock
Plan upon termination.

Warrants

In connection with our equipment loan agreements, we issued warrants to the lenders to purchase an aggregate of 51,210 shares of preferred stock in 2001 and 2002. These warrants were converted into warrants for 57,222
shares of common stock upon conversion of the preferred stock to common stock following the closing of the Companys initial public offering in February 2004. The warrants are exercisable for the longer of 10 years from the issuance date or the
seventh anniversary of the Companys initial public offering. In July 2005, warrants for 23,864 shares of common stock were exercised. As of December 31, 2006, warrants for 29,290 and 4,068 shares of common stock with exercise prices of
$7.37 and $9.24, respectively, remained outstanding.

Shares Reserved for Future Issuance

At December 31, 2006, the Company had reserved shares of common stock for future issuances as follows:



|                                  |  |          
|--------------------------------- |  | ---------
|Outstanding options               |  | 3,657,866
|2003 Employee Stock Purchase Plan |  | 714,064  
|Options available for grant       |  | 143,185  
|Warrants                          |  | 33,358   
|                                  |  |          
|                                  |  | 4,548,473
|                                  |  |          



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Pro forma Information for Periods Prior to the Adoption of SFAS 123(R)

Prior to the adoption of SFAS 123(R), the Company provided the disclosures required under SFAS 123,Accounting for Stock-Based Compensation, as
amended by SFAS 148. The pro-forma information for years ended December 31, 2005 and 2004 is as follows:



|                                                                                                |  |              |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                |  | December 31, |        
|                                                                                                |  | 2005         |         |   | 2004 |  
|Net loss applicable to common stockholders, as reported                                         |  | $            | (31,980 | ) |      | $ | (39,941 | )
|Plus: Employee stock compensation expense based on the intrinsic value method                   |  |              | 3,822   |   |      |   | 4,646   |  
|Less: Employee stock compensation expense determined under the fair value method for all awards |  |              | (7,818  | ) |      |   | (5,937  | )
|                                                                                                |  |              |         |   |      |   |         |  
|Pro forma net loss                                                                              |  | $            | (35,976 | ) |      | $ | (41,232 | )
|                                                                                                |  |              |         |   |      |   |         |  
|Net loss per share:                                                                             |  |              |         |   |      |   |         |  
|Basic and diluted, as reported                                                                  |  | $            | (1.24   | ) |      | $ | (1.84   | )
|                                                                                                |  |              |         |   |      |   |         |  
|Basic and diluted, pro forma                                                                    |  | $            | (1.40   | ) |      | $ | (1.90   | )
|                                                                                                |  |              |         |   |      |   |         |  

Impact of the Adoption of SFAS No. 123(R)

The Company adopted SFAS 123(R) using the modified prospective transition method beginning January 1, 2006. During periods following adoption of
SFAS 123(R), the Company recorded stock-based compensation expense for awards granted prior to, but not yet vested, as of December 31, 2005, as if the fair value method required for pro forma disclosure under SFAS 123 were in effect for
expense recognition purposes, adjusted for estimated forfeitures. For stock-based awards granted after January 1, 2006, the Company recognized compensation expense based on the estimated grant date fair value method using the Black-Scholes
valuation model. The Company recognizes compensation expense using a straight-line amortization method. Because SFAS 123(R) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, stock-based
compensation expense has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. The impact on the results of operations of recording
stock-based compensation for the year ended December 31, 2006 was as follows (in thousands, except per share amounts):



|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Research and development                    |  | $ | 4,830  |  
|General and administrative                  |  |   | 5,206  |  
|                                            |  |   |        |  
|Total stock-based compensation              |  | $ | 10,036 |  
|                                            |  |   |        |  
|Effect on loss per share, basic and diluted |  | $ | (0.34  | )

Due to our net loss position, a tax benefit was not realized during the year ended
December 31, 2006.

In November 2005, the FASB issued Staff Position (FSP) No. FAS 123(R)-3, Transition Election Related
to Accounting for Tax Effects of Share-Based Payment Awards (FSP 123R-3). The Company has elected to adopt the alternative transition method provided in the FSP 123R-3 for calculating the tax effects of stock-based compensation pursuant to
SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the APIC pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC
pool and Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R).



64



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Prior to the adoption of SFAS 123(R), the intrinsic value of the Companys unvested stock
options was recorded as deferred stock compensation as of December 31, 2005. Upon the adoption of SFAS 123(R) in January 2006, the deferred stock compensation balance of $4.9 million was reclassified to additional paid-in-capital.

Valuation Assumptions

The
Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach. Option valuation models require the input of subjective assumptions and these
assumptions can vary over time. The weighted-average assumptions used are as follows:



|                                    |  |                         |   |  |      |   |  |      |  
|----------------------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                    |  | Year ended December 31, |  
|                                    |  | 2006                    |   |  | 2005 |   |  | 2004 |  
|Equity incentive plans:             |  |                         |   |  |      |   |  |      |  
|Expected volatility                 |  | 66                      | % |  | 80   | % |  | 80   | %
|Risk-free interest rate             |  | 4.5                     | % |  | 3.8  | % |  | 3.3  | %
|Dividend yield                      |  | 0                       |   |  | 0    |   |  | 0    |  
|Expected life of options (in years) |  | 4.23                    |   |  | 5    |   |  | 5    |  
|Employee stock purchase plan:       |  |                         |   |  |      |   |  |      |  
|Expected volatility                 |  | 110                     | % |  | 80   | % |  | 80   | %
|Risk-free interest rate             |  | 4.9                     | % |  | 3.5  | % |  | 2.5  | %
|Dividend yield                      |  | 0                       |   |  | 0    |   |  | 0    |  
|Expected life of options (in years) |  | 0.5-2                   |   |  | 0.5  |   |  | 0.5  |  

The Companys computation of expected volatility is based on a combination of historical
volatilities of peer companies and market-based implied volatility from traded options on the Companys common stock. Peer companies historical volatilities are used in the determination of expected volatility due to the short trading
history of the Companys common stock, which began trading on February 5, 2004. In selecting the peer companies, the Company considered the following factors: industry, stage of life cycle, size and financial leverage. The computation of
the expected volatility for our employee stock purchase plan is based upon a combination of our historical volatility and our market-based implied volatility. Our computation of expected life of the options is determined based on historical
experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of the award is based on
the U.S. Treasury yield curve in effect at the time of grant.

The weighted average fair value of purchase rights granted under the
employee stock purchase plan was $3.77, $4.38 and $3.14 per share in 2006, 2005 and 2004, respectively.

11. Income Taxes

There is no provision for income taxes because we have incurred losses. Deferred income taxes reflect the tax effect of net operating loss, capitalized
research and development costs and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income taxes.



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



Significant components of the Companys deferred tax assets are as follows (in thousands):



|                                                   |  |              |         |   |      |   |         |  
|-------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                   |  | December 31, |        
|                                                   |  | 2006         |         |   | 2005 |  
|Deferred tax assets:                               |  |              |         |   |      |   |         |  
|Federal and state net operating loss carryforwards |  | $            | 37,436  |   |      | $ | 26,141  |  
|Federal and state research credits                 |  |              | 5,059   |   |      |   | 3,620   |  
|Capitalized research and development               |  |              | 13,668  |   |      |   | 15,821  |  
|Capitalized start-up costs                         |  |              | 849     |   |      |   | 1,698   |  
|Other                                              |  |              | 4,277   |   |      |   | 2,156   |  
|                                                   |  |              |         |   |      |   |         |  
|Total deferred tax assets                          |  |              | 61,289  |   |      |   | 49,436  |  
|Valuation allowance                                |  |              | (61,289 | ) |      |   | (49,436 | )
|                                                   |  |              |         |   |      |   |         |  
|Net deferred tax assets                            |  | $            |        |   |      | $ |        |  
|                                                   |  |              |         |   |      |   |         |  

Realization of the deferred tax assets is dependent upon the generation of future taxable income,
if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $11.9 million and $13.8 million for the years ended
December 31, 2006 and 2005, respectively.

As of December 31, 2006, the Company had net operating loss carryforwards for federal
income tax purposes of approximately $92.3 million which expire in the years 2020 to 2026 and federal research and development tax credits of approximately $3.0 million which expire in the years 2020 to 2026. The Company also has state net operating
loss carryforwards of approximately $89.2 million which expire beginning in 2012 and state research and development tax credits of approximately $3.2 million which have no expiration date.

Utilization of the Companys net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by
the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss before utilization.

12. Subsequent Event

On January 4, 2007, the Company entered into stock option cancellation agreements with the
officers of the Company. Under the terms of these stock option cancellation agreements, the officers surrendered certain options to purchase shares of the Companys common stock (Options) to the Company for cancellation in exchange
for $0.001 per share, the par value of the Companys common stock. The officers relinquished all right, title or interest in those Options. In aggregate, Options to purchase 1,005,000 shares were cancelled. The shares reserved for issuance
under the cancelled Options were immediately available for future grants to non-executive employees under the Companys Amended and Restated 2003 Stock Plan. The Company will incur a non-cash share-based payment charge of approximately $7.3
million related to the cancellation and repurchase of unvested stock options from the officers in the quarter ended March 31, 2007.

On January 22, 2007, the Company committed to a restructuring plan in which the Company reduced its workforce by approximately 40% of its positions with the intention of reducing spending while maintaining the research and development
capabilities needed to advance the Companys later-stage preclinical drug discovery programs. The Company expects this restructuring to be substantially completed by the end of the first quarter of 2007 and currently expects to incur a
restructuring charge of approximately $1.1 million in the first quarter of 2007, primarily associated with termination benefits.



66



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##### Table of Contents

RENOVIS, INC.

NOTES TO FINANCIAL STATEMENTS(Continued)



13. Selected Quarterly Financial Data (Unaudited)

The following tables summarize the unaudited quarterly financial data for the last two fiscal years (in thousands except share and per share data):



|                                                                           |  |                              |            |   |                |   |            |               |  |   |                |   |  |   |            |  
|-------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | -------------- | - | ---------- | ------------- |  | - | -------------- | - |  | - | ---------- | -
|                                                                           |  | Year Ended December 31, 2006 |           
|                                                                           |  | First Quarter                |            |   | Second Quarter |   |            | Third Quarter |  |   | Fourth Quarter |  
|Revenues                                                                   |  | $                            | 2,478      |   |                | $ | 3,650      |               |  | $ | 2,150          |   |  | $ | 2,150      |  
|Net loss                                                                   |  |                              | (7,135     | ) |                |   | (5,831     | )             |  |   | (7,434         | ) |  |   | (7,976     | )
|Net loss per sharebasic and diluted                                       |  |                              | (0.25      | ) |                |   | (0.20      | )             |  |   | (0.25          | ) |  |   | (0.27      | )
|Weighted average shares used in computing basic and diluted loss per share |  |                              | 28,976,250 |   |                |   | 29,178,167 |               |  |   | 29,303,319     |   |  |   | 29,389,130 |  
|                                                                           | 
|                                                                           |  | Year Ended December 31, 2005 |           
|                                                                           |  | FirstQuarter                 |            |   | Second Quarter |   |            | Third Quarter |  |   | FourthQuarter  |  
|Revenues                                                                   |  | $                            | 656        |   |                | $ | 656        |               |  | $ | 2,691          |   |  | $ | 2,644      |  
|Net loss                                                                   |  |                              | (9,990     | ) |                |   | (9,980     | )             |  |   | (6,300         | ) |  |   | (5,710     | )
|Net loss per sharebasic and diluted                                       |  |                              | (0.41      | ) |                |   | (0.41      | )             |  |   | (0.25          | ) |  |   | (0.20      | )
|Weighted average shares used in computing basic and diluted loss per share |  |                              | 24,527,116 |   |                |   | 24,625,270 |               |  |   | 24,850,866     |   |  |   | 28,848,414 |  



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##### Table of Contents

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Not
applicable.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

The Companys principal executive and financial officers reviewed and evaluated the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period
covered by this Form 10-K. Based on that evaluation, the Companys principal executive and financial officers concluded that the Companys disclosure controls and procedures are effective in timely providing them with material information
relating to the Company, as required to be disclosed in the reports the Company files under the Exchange Act.

(b) Managements
Report on Internal Control Over Financials Reporting

The Companys management is responsible for establishing and maintaining
adequate internal control over the Companys financial reporting. Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2006. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control  Integrated Framework. Based on the assessment using those criteria, management concluded that as of December 31,
2006, our internal control over financial reporting was effective. The Companys independent registered public accountants, Ernst & Young LLP, audited our financials statements included in this Annual Report on Form 10-K and have
issued an audit report on managements assessment of the Companys internal control over financials reporting as well as the effectiveness of the Companys internal control over financial report. The report on the audit of internal
control over financial reporting appears below.

(c) Change in Internal Control over Financial Reporting

There were no changes in the Companys internal control over financial reporting that occurred during the Companys last fiscal quarter that
have materially affected, or are reasonably likely to materially effect, the Companys internal control over financial reporting.

Item 9B. Other Information

None.



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Renovis, Inc.

We
have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting that Renovis, Inc. maintained effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Renovis, Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of
Renovis, Inc.s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that Renovis, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, Renovis, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Renovis,
Inc as of December 31, 2006 and 2005, and the related statements of operations, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2006 and our report dated March 2, 2007 expressed
an unqualified opinion thereon.

/s/ Ernst & Young LLP

Palo Alto, California

March 2, 2007



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##### Table of Contents

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item will
be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of our Stockholders (the Proxy Statement), which is expected to be filed not later than 120 days
after the end of our fiscal year ended December 31, 2006, and is incorporated in this report by reference.

Renovis written Code
of Business Conduct and Ethics applies to all of its directors and employees, including its executive officers. The Code of Business Conduct and Ethics is available on Renovis website athttp://www.investors.renovis.com. Changes to or
waivers of the Code of Business Conduct and Ethics will be disclosed on the same website.

Item 11. Executive Compensation

The information required by this item will be set forth in the Proxy
Statement and is incorporated in this report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this item will be
set forth in the Proxy Statement and is incorporated in this report by reference.

Item 14. Principal Accounting Fees and Services

The information required by this item will be set forth
in the Proxy Statement and is incorporated in this report by reference.



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##### Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Exhibits and Financial Statement Schedules:

(1) Financial Statements

See the Index to Financial Statements in Part II Item 8 of this report.

(2) Financial
Statement Schedules

Not applicable.

(3) Exhibits

A list of exhibits required by Item 601 of Regulation S-K filed with this Form 10-K or
incorporated by reference is found in the Exhibit Index immediately following Part IV of this report.

(b) Exhibits:

Those exhibits required by Item 601 of Regulation S-K filed or incorporated by reference is found in the Exhibit Index immediately following Part IV
of this report.

(c) Financial Statement Schedules:

See Item 15(a)(2) above.



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                        
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                
|               | 
|3.1(6)         |  | Amended and Restated Certificate of Incorporation of the Registrant.                                                                                   
|               | 
|3.2(1)         |  | Amended and Restated Bylaws of the Registrant.                                                                                                         
|               | 
|3.3(6)         |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation.                                                                         
|               | 
|3.4(10)        |  | Certificate of Designations of the Series A Junior Participating Preferred Stock.                                                                      
|               | 
|4.1(10)        |  | Specimen Common Stock Certificate.                                                                                                                     
|               | 
|4.2(11)        |  | Specimen Preferred Stock Certificate.                                                                                                                  
|               | 
|4.3(11)        |  | Form of Debt Security.                                                                                                                                 
|               | 
|4.4(12)        |  | Form of Senior Indenture, between the Registrant and one or more trustees to be named.                                                                 
|               | 
|4.5(12)        |  | Form of Subordinated Indenture, between the Registrant and one or more trustees to be named.                                                           
|               | 
|4.6(11)        |  | Form of Warrant.                                                                                                                                       
|               | 
|4.7(1)         |  | Amended and Restated Investor Rights Agreement, dated as of August 7, 2003, by and amongthe Registrant and holders of the
Registrants preferred stock.
|               | 
|4.8(1)         |  | Warrant for the purchase of shares of Series B Preferred Stock, dated April 27, 2001, issued bythe Registrant to GATX Ventures,
Inc.                   
|               | 
|4.9(1)         |  | Warrant for the purchase of shares of Series B Preferred Stock, dated April 27, 2001, issued bythe Registrant to TBCC Funding Trust
II.                
|               | 
|4.10(1)        |  | Warrant for the purchase of shares of Series B Preferred Stock, dated October 10, 2001, issuedby the Registrant to GATX Ventures,
Inc.                 
|               | 
|4.11(1)        |  | Equipment Loan and Security Agreement, dated July 24, 2002, with GATX Ventures, Inc. and Transamerica Commercial Finance
Corporation.                  
|               | 
|4.12(1)        |  | Warrant for the purchase of shares of Series C Preferred Stock, dated July 24, 2002, issued bythe Registrant to GATX Ventures,
Inc.                    
|               | 
|4.13(1)        |  | Warrant for the purchase of shares of Series C Preferred Stock, dated July 24, 2002, issued bythe Registrant to TBCC Funding Trust
II.                 
|               | 
|4.14(8)        |  | Equipment Loan and Master Security Agreement, dated February 26, 2004, with OxfordFinance Corporation.                                                 
|               | 
|4.15(9)        |  | Equipment Loan Promissory Note to Master Security Agreement dated March 25, 2005, withOxford Finance
Corporation.                                      
|               | 
|4.16(9)        |  | Rights Agreement, dated as of March 24, 2005, between the Registrant and Wells FargoShareowner Services.                                               
|               | 
|10.1(3)        |  | Form of Indemnity Agreement between the Registrant and each officer and director.                                                                      
|               | 
|10.3(1)*       |  | Amended and Restated 2003 Equity Incentive Plan.                                                                                                       
|               | 
|10.4(1)*       |  | 2000 Equity Incentive Plan.                                                                                                                            
|               | 
|10.5(5)*       |  | Employee Stock Purchase Plan.                                                                                                                          



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|               |  |                                                                                                                                                                                                          
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                                  
|               | 
|10.6(19)*      |  | Amended and Restated Employment Agreement dated January 30, 2007, by and between the Registrant and Corey S. Goodman.
Ph.D.                                                                              
|               | 
|10.7(19)*      |  | Form of Amended and Restated Employment Agreement by and between the Registrant and Executive Officers                                                                                                   
|               | 
|10.9(2)(7)     |  | License Agreement, dated as of July 15, 1992, by and among Centaur Pharmaceuticals, Inc., the Oklahoma Medical Research Foundation and the
University of Kentucky Research Foundation.                   
|               | 
|10.10(2)(7)    |  | First Amendment to License Agreement, dated as of June 29, 1995, by and among Centaur Pharmaceuticals, Inc., the Oklahoma Medical Research
Foundation and the University of Kentucky Research Foundation.
|               | 
|10.11(2)(7)    |  | Development, License and Marketing Agreement, dated as of June 26, 1995, by and between Centaur Pharmaceuticals, Inc. and Astra
AB.                                                                      
|               | 
|10.12(2)       |  | Amendment to Development, License and Marketing Agreement, dated as of July 8, 1997, by and between Centaur Pharmaceuticals, Inc. and Astra
AB.                                                          
|               | 
|10.13(2)       |  | Amendment to Development, License and Marketing Agreement, dated as of October 7, 1997, by and between Centaur Pharmaceuticals, Inc. and Astra
AB.                                                       
|               | 
|10.14(2)(7)    |  | Third Amendment to Development, License and Marketing Agreement, dated as of June 18, 2002, by and between Centaur Pharmaceuticals, Inc. and
Astra AB.                                                   
|               | 
|10.15(2)(7)    |  | Supply Agreement, dated as of June 26, 1995, by and between Centaur Pharmaceuticals, Inc. and Astra AB.                                                                                                  
|               | 
|10.16(2)(7)    |  | Amendment to Supply Agreement, dated June 18, 2002, by and between Centaur Pharmaceuticals, Inc. and AstraZeneca AB.                                                                                     
|               | 
|10.17(2)(7)    |  | License Agreement, dated as of January 15, 1998, by and between Centaur Pharmaceuticals, Inc. and Cutanix Corporation.                                                                                   
|               | 
|10.18(2)       |  | Amendment No. 1 to License Agreement, dated as of June 18, 1998, by and between Centaur Pharmaceuticals, Inc. and Cutanix
Corporation.                                                                   
|               | 
|10.19(2)(7)    |  | Second Amendment to License Agreement and Termination of Services and Supply Agreement, dated as of September 13, 2002, by and between
Centaur Pharmaceuticals, Inc. and Cutanix Corporation.            
|               | 
|10.20(4)(7)    |  | Patent License and Research Collaboration Agreement, dated July 15, 2003, by and between the Company and Merck & Co.,
Inc.                                                                               
|               | 
|10.21(4)(7)    |  | License Agreement, dated December 27, 2002, by and between the Company and The Regents of the University of California.                                                                                  
|               | 
|10.22(2)(7)    |  | Sublease, dated August 5, 2003, by and between the Company and Tularik Inc.                                                                                                                              
|               | 
|10.23(3)       |  | Asset Purchase Agreement, dated as of July 26, 2003, by and between the Registrant and Centaur Pharmaceuticals, Inc.                                                                                     
|               | 
|10.24(3)       |  | Amendment to Asset Purchase Agreement, dated as of October 23, 2002, by and between the Registrant and Centaur Pharmaceuticals,
Inc.                                                                     
|               | 
|10.25(4)(7)    |  | Collaborative Research, Development and License Agreement, dated as of December 31, 2003, by and between the Registrant and Genentech,
Inc.                                                              



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|               |  |                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                             
|               | 
|10.26(4)(7)    |  | License Agreement, dated as of June 1, 2001, by and between the Registrant and The Regents of the University of
California.                         
|               | 
|10.27(4)(7)    |  | First Amendment to License Agreement, dated as of December 15, 2002, by and between the Registrant and The Regents of the University of
California. 
|               | 
|10.28(4)       |  | Second Amendment to License Agreement, dated as of December 23, 2003, by and between the Registrant and The Regents of the University of
California.
|               | 
|10.29(4)(7)    |  | License Agreement, dated as of November 25, 2002, by and between the Registrant and The Regents of the University of
California.                    
|               | 
|10.30(18)*     |  | Amended and Restated 2003 Stock Plan.                                                                                                               
|               | 
|10.31*         |  | Amended and Restated 2005 Employment Commencement Incentive Plan and form of stock option agreement.                                                
|               | 
|10.32*         |  | Amended and Restated 2006 Employment Commencement Incentive Plan and form of stock option agreement.                                                
|               | 
|10.33(13)(7)   |  | Collaborative Research Agreement, dated May 26, 2005 by and between the Registrant and Pfizer, Inc.                                                 
|               | 
|10.34(13)(7)   |  | License and Royalty Agreement, dated May 26, 2005 by and between Registrant and Pfizer, Inc.                                                        
|               | 
|10.35(14)*     |  | Marlene F. Perry Employment Commencement Nonstatutory Stock Option.                                                                                 
|               | 
|10.36*         |  | Amendment of Marlene F. Perry Employment Commencement Nonstatutory Stock Option                                                                     
|               | 
|10.37(15)*     |  | Transition and Separation Agreement., effective as of May 31, 2006, by and between the Company and Dushyant Pathak,
Ph.D.                           
|               | 
|10.38(16)*     |  | 2007 Employment Commencement Incentive Plan and form of stock option agreement.                                                                     
|               | 
|10.39(16)*     |  | Confidential Separation Agreement, effective January 3, 2007, by and between the Registrant and Tito A. Serafini.                                   
|               | 
|10.40(17)*     |  | Form of Stock Option Cancellation Agreement by and between the Registrant and Executive Officers.                                                   
|               | 
|10.41(19)*     |  | Form of Deferred Stock Unit Award Grant Notice and Agreement by and between the Company and officers.                                               
|               | 
|10.42(19)*     |  | Form of Deferred Stock Unit Award Grant Notice and Agreement by and between the Company and employees.                                              
|               | 
|23.1           |  | Consent of Ernst & Young LLP, independent registered public accounting firm.                                                                        
|               | 
|31.1           |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.                                                                              
|               | 
|31.2           |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.                                                                              
|               | 
|32.1           |  | Section 1350 Certification of Chief Executive Officer.                                                                                              
|               | 
|32.2           |  | Section 1350 Certification of Chief Financial Officer.                                                                                              

---

|* | Management contract or compensatory plan.
|- | -----------------------------------------

|(1) | Incorporated by reference to the Companys Registration Statement on Form S-1 (SEC File No. 333-109806) filed on October 17, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to Amendment No. 1 to the Companys Registration Statement on Form S-1 (SEC File No. 333-109806) filed on October 23, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(3) | Incorporated by reference to Amendment No. 2 to the Companys Registration Statement on Form S-1 (SEC File No. 333-109806) filed on November 21, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to Amendment No. 3 to the Companys Registration Statement on Form S-1 (SEC File No. 333-109806) filed on January 16, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Amendment No. 4 to the Companys Registration Statement on Form S-1 (SEC File No. 333-109806) filed on January 29, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to Amendment No. 5 to the Companys Registration Statement on Form S-1 (SEC File No. 333-109806) filed on February 3, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Confidential treatment granted as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 28, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the Companys Current Report on Form 8-K (SEC file No. 000-50564) filed on April 11, 2005.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(11) | To be filed by amendment to the Companys Registration Statement on Form S-3 (SEC file No. 333-122762) filed on February 11, 2005 or by a report filed under the
Exchange Act and incorporated therein by reference.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to the Companys Registration Statement on Form S-3 (SEC file No. 333-122762) filed on February 11, 2005.
|---- | -----------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q (SEC File No. 000-50564) filed on August 12, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the Companys Registration Statement on Form S-8 (SEC File No. 333-123638) filed on March 29, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to the Companys Current Report on Form 8-K (SEC file No. 000-50564) filed June 2, 2006.
|---- | ------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to the Companys Current Report on Form 8-K (SEC file No. 000-50564) filed on January 4, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to the Companys Current Report on Form 8-K (SEC file No. 000-50564) filed on January 8, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to the Companys Registration Statement on Form S-8 (SEC File No. 333-140136) filed on January 22, 2007.
|---- | ----------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference to the Companys Current Report on Form 8-K (SEC file No. 000-50564) filed on February 1, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |  |  |               |  |                         |  |                                                       
|--------------------- |  |  |  | ------------- |  | ----------------------- |  | ------------------------------------------------------
|                      |  |  |  | RENOVIS, INC.
|                      |  |  | 
|Dated: March 14, 2007 |  |  |  | By:           |  | /S/    COREY S.
GOODMAN
|                      |  |  |  |               |  |                         |  | Corey S. Goodman President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                      |  |                                                                                                                      |  |               
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                             |  | Title                                                                                                                |  | Date          
|                                                      |  |                                                                                                                     
|/S/    COREY S. GOODMAN, PH.D. Corey S. Goodman       |  | Director, President andChief Executive Officer (Principal Executive Officer)                                         |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    JOHN C.
DOYLE John C. Doyle                    |  | Senior Vice President, Corporate Development andChief Financial Officer (Principal Financial and Accounting Officer) |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    BRUCE L. A. CARTER, PH.
D. Bruce L. A. Carter  |  | Director                                                                                                             |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    NANCY M.
CROWELL Nancy M. Crowell              |  | Director                                                                                                             |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    ANTHONY B. EVNIN,
PH.D. Anthony B. Evnin       |  | Director                                                                                                             |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    JOHN H.
FRIEDMAN John H. Friedman              |  | Director                                                                                                             |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    EDWARD E. PENHOET,
PH.D. Edward E. Penhoet     |  | Director                                                                                                             |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    JUDITH A. HEMBERGER,
PH.D. Judith A. Hemberger |  | Director                                                                                                             |  | March 14, 2007
|                                                      |  |                                                                                                                     
|/S/    JOHN P.
WALKER John P. Walker                  |  | Director                                                                                                             |  | March 14, 2007



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