##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                    to
 Commission File No. 0-50772
 INHIBITEX, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    74-2708737
(I.R.S. Employer Identification No.)9005 Westside Parkway 
Alpharetta, Georgia
(Address of principal executive 
offices)
    
    30004
(Zip Code)
 (678) 746-1100   Not Applicable
 þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsBalance Sheets as of September 30, 2006 and December 31, 2005
    
    
    3Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
and for the Period from Inception (May 13, 1994) through September 30, 2006
    
    
    4Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005 and for the
Period from Inception (May 13, 1994) through September 30, 2006
    
    
    5Notes to Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    20Item 6. Exhibits
    
    
    22Signatures
    
    
    23Exhibit IndexEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 302 CERTIFICATION OF THE CEO AND CFO




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 BALANCE SHEETS
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,804,984
    
    
    $
    33,842,937Short-term investments
    
    
    37,687,922
    
    
    
    53,288,016Prepaid expenses and other current assets
    
    
    1,677,133
    
    
    
    1,917,436Accounts receivable
    
    
    219,671
    
    
    
    44,923Total current assets
    
    
    66,389,710
    
    
    
    89,093,312Property and equipment, net
    
    
    6,834,275
    
    
    
    8,175,074Total assets
    
    $
    73,223,985
    
    
    $
    97,268,386LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    915,787
    
    
    $
    1,879,191Accrued expenses
    
    
    2,883,504
    
    
    
    5,316,906Current portion of notes payable
    
    
    833,333
    
    
    
    1,319,445Current portion of capital lease obligations
    
    
    837,510
    
    
    
    869,043Current portion of deferred revenue
    
    
    191,667
    
    
    
    191,667Other current liabilities
    
    
    152,727
    
    
    
    1,152,702Total current liabilities
    
    
    5,814,528
    
    
    
    10,728,954Long-term liabilities:Notes payable, net of current portion
    
    
    833,333
    
    
    
    1,458,333Capital lease obligations, net of current portion
    
    
    1,029,175
    
    
    
    1,646,323Deferred revenue, net of current portion
    
    
    575,000
    
    
    
    687,500Other liabilities, net of current portion
    
    
    1,178,306
    
    
    
    1,294,210Total long-term liabilities
    
    
    3,615,814
    
    
    
    5,086,366Total liabilities
    
    
    9,430,342
    
    
    
    15,815,320Stockholders equity:Preferred stock, $.001 par value; 5,000,000
shares authorized at September 30, 2006 and
December 31, 2005; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 75,000,000 shares
authorized at September 30, 2006 and December
31, 2005; 30,275,152 and 30,219,715 shares
issued and outstanding at September 30, 2006 and
December 31, 2005, respectively
    
    
    30,275
    
    
    
    30,220Warrants
    
    
    11,517,743
    
    
    
    11,514,793Additional paid-in capital
    
    
    213,019,213
    
    
    
    212,210,931Deferred stock compensation
    
    
    
    
    
    
    (772,347
    )Deficit accumulated during the development stage
    
    
    (160,773,588
    )
    
    
    (141,530,531
    )Total stockholders equity
    
    
    63,793,643
    
    
    
    81,453,066Total liabilities and stockholders equity
    
    $
    73,223,985
    
    
    $
    97,268,386
  3




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INHIBITEX,
INC.
(A DEVELOPMENT STAGE COMPANY)
 
 STATEMENTS OF OPERATIONS
 (unaudited)
 Period fromInception(May 13, 1994)Three Months Ended
    
    
    Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Revenue:License fees and milestones
    
    $
    37,500
    
    
    $
    37,500
    
    
    $
    112,500
    
    
    $
    112,500
    
    
    $
    1,275,000Collaborative research and
development
    
    
    125,000
    
    
    
    125,000
    
    
    
    375,000
    
    
    
    375,000
    
    
    
    3,374,455Grants and other revenue
    
    
    6,127
    
    
    
    165,823
    
    
    
    193,579
    
    
    
    286,474
    
    
    
    780,053Total revenue
    
    
    168,627
    
    
    
    328,323
    
    
    
    681,079
    
    
    
    773,974
    
    
    
    5,429,508Operating expense:Research and development
    
    
    2,510,667
    
    
    
    8,085,411
    
    
    
    15,985,417
    
    
    
    26,113,015
    
    
    
    125,781,001General and administrative
    
    
    1,953,787
    
    
    
    1,846,377
    
    
    
    7,328,153
    
    
    
    5,205,724
    
    
    
    31,393,808Total operating expense
    
    
    4,464,454
    
    
    
    9,931,788
    
    
    
    23,313,570
    
    
    
    31,318,739
    
    
    
    157,174,809Loss from operations
    
    
    (4,295,827
    )
    
    
    (9,603,465
    )
    
    
    (22,632,491
    )
    
    
    (30,544,765
    )
    
    
    (151,745,301
    )Other income (loss), net
    
    
    1,002,250
    
    
    
    (51,857
    )
    
    
    1,059,993
    
    
    
    (51,857
    )
    
    
    1,717,658Interest income, net
    
    
    704,996
    
    
    
    608,943
    
    
    
    2,329,441
    
    
    
    1,537,562
    
    
    
    5,636,118Net loss
    
    
    (2,588,581
    )
    
    
    (9,046,379
    )
    
    
    (19,243,057
    )
    
    
    (29,059,060
    )
    
    
    (144,391,525
    )Dividends and accretion to
redemption value of redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,382,063
    )Net loss attributable to common
stockholders
    
    $
    (2,588,581
    )
    
    $
    (9,046,379
    )
    
    $
    (19,243,057
    )
    
    $
    (29,059,060
    )
    
    $
    (160,773,588
    )Basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.33
    )
    
    $
    (0.64
    )
    
    $
    (1.12
    )Weighted average shares used to
compute basic and diluted net loss
per share
    
    
    30,272,775
    
    
    
    27,326,530
    
    
    
    30,253,888
    
    
    
    25,898,716
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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 STATEMENTS OF CASH FLOWS
 (unaudited)
 Period fromInception(May 13, 1994)Nine Months Ended
    
    
    ThroughSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (19,243,057
    )
    
    $
    (29,059,060
    )
    
    $
    (144,391,525
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    1,572,645
    
    
    
    935,764
    
    
    
    6,475,704Share-based compensation
    
    
    1,462,348
    
    
    
    372,564
    
    
    
    2,608,624Loss on sale of equipment
    
    
    717
    
    
    
    51,857
    
    
    
    100,708Amortization of investment premium or discount
    
    
    99,815
    
    
    
    216,551
    
    
    
    664,560Forgiveness of receivables from stockholders
    
    
    
    
    
    
    
    
    
    
    28,695Amortization of warrants and discount on debt
    
    
    
    
    
    
    
    
    
    
    176,477Stock issued for interest
    
    
    
    
    
    
    
    
    
    
    126,886Cumulative effect of change in accounting principle
    
    
    (58,460
    )
    
    
    
    
    
    
    41,040Changes in operating assets and liabilities:Prepaid expenses and other assets
    
    
    240,303
    
    
    
    (724,230
    )
    
    
    (1,677,133
    )Accounts receivable
    
    
    (174,748
    )
    
    
    129,917
    
    
    
    (219,671
    )Accounts payable and other liabilities
    
    
    (2,079,283
    )
    
    
    768,372
    
    
    
    2,246,820Accrued expenses
    
    
    (2,433,402
    )
    
    
    1,502,119
    
    
    
    2,883,504Deferred revenue
    
    
    (112,500
    )
    
    
    (112,498
    )
    
    
    766,667Net cash used in operating activities
    
    
    (20,725,622
    )
    
    
    (25,918,644
    )
    
    
    (130,168,644
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (232,863
    )
    
    
    (4,484,365
    )
    
    
    (8,963,041
    )Purchases of short-term investments
    
    
    (39,963,323
    )
    
    
    (100,509,117
    )
    
    
    (191,671,653
    )Proceeds from maturities of short-term investments
    
    
    55,563,000
    
    
    
    78,029,073
    
    
    
    153,338,598Net cash provided by (used in) investing activities
    
    
    15,366,814
    
    
    
    (26,964,409
    )
    
    
    (47,296,096
    )Cash flows from financing activities:Proceeds from promissory notes, notes payable and related warrants
    
    
    
    
    
    
    2,500,000
    
    
    
    5,513,492Payments on promissory notes and capital leases
    
    
    (1,759,793
    )
    
    
    (1,073,048
    )
    
    
    (6,428,087
    )Proceeds from bridge loan and related warrants
    
    
    
    
    
    
    
    
    
    
    2,220,000Net proceeds from the issuance of preferred stock and warrants
    
    
    
    
    
    
    
    
    
    
    81,788,868Proceeds from the sale of equipment
    
    
    300
    
    
    
    
    
    
    
    300Proceeds from the issuance of common stock, net of issuance costs
    
    
    80,348
    
    
    
    39,065,511
    
    
    
    121,175,151Net cash (used in) provided by financing activities
    
    
    (1,679,145
    )
    
    
    40,492,463
    
    
    
    204,269,724(Decrease) increase in cash and cash equivalents
    
    
    (7,037,953
    )
    
    
    (12,390,590
    )
    
    
    26,804,984Cash and cash equivalents at beginning of period
    
    
    33,842,937
    
    
    
    71,580,823
    
    
    
    Cash and cash equivalents at end of period
    
    $
    26,804,984
    
    
    $
    59,190,233
    
    
    $
    26,804,984Supplemental cash flow information:Interest paid
    
    $
    257,778
    
    
    $
    134,796
    
    
    $
    1,242,705Supplemental non-cash investing and financing activities:Fixed assets capitalized using promissory notes and capital leases
    
    
    
    
    
    
    2,490,107
    
    
    
    4,447,946Conversion of bridge loans and interest payable into preferred stock
    
    
    
    
    
    
    
    
    
    
    2,124,576Preferred stock dividends and accretion of preferred stock to
redemption value
    
    
    
    
    
    
    
    
    
    
    16,382,063Unrealized gain (loss) on short-term investments
    
    
    99,398
    
    
    
    (43,635
    )
    
    
    19,427
  5




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INHIBITEX, INC.
(A Development Stage Company)
 
 NOTES TO UNAUDITED FINANCIAL STATEMENTS
 1. Operations
  Staphylococcus aureus (S. aureus)
   2. Summary of Significant Accounting Policies
 Use of Estimates.
 Cash, Cash Equivalents and Short-Term Investments. Accounting for Certain Investments in Debt and Equity Securities
   Property and Equipment, Net.
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Asset
    
    Estimated LifeComputer software
and
equipment
    
    3 yearsFurniture and
fixtures
    
    7 yearsLaboratory
equipment
    
    5 yearsLeasehold
improvements
    
    Lesser of estimated useful life or life of lease
 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use .
 Revenue Recognition. Revenue Recognition in Financial Statements Revenue Recognition.
 Accrued Expenses.
 Prepaid Expenses and Other Current Assets.
 Share-based Compensation. Share-Based
Payment . Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  7




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss  as reported
    
    $
    (2,588,581
    )
    
    $
    (9,046,379
    )
    
    $
    (19,243,057
    )
    
    $
    (29,059,060
    )Add: Amortization of share-based
compensation included in
net loss  as reported
    
    
    548,297
    
    
    
    124,188
    
    
    
    1,462,348
    
    
    
    372,564Deduct: Share-based
compensation expense determined
under fair value method
    
    
    (548,297
    )
    
    
    (541,592
    )
    
    
    (1,462,348
    )
    
    
    (1,560,520
    )Net loss  pro forma
    
    $
    (2,588,581
    )
    
    $
    (9,463,783
    )
    
    $
    (19,243,057
    )
    
    $
    (30,247,016
    )Net loss per share (basic and
diluted):As reported
    
    $
    (0.09
    )
    
    $
    (0.33
    )
    
    $
    (0.64
    )
    
    $
    (1.12
    )Pro forma
    
    $
    (0.09
    )
    
    $
    (0.35
    )
    
    $
    (0.64
    )
    
    $
    (1.17
    )
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Weighted average risk-free interest rate
    
    
    
    
    
    
    4.12
    %
    
    
    4.81
    %
    
    
    3.76
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected weighted average volatility
    
    
    
    
    
    
    .60
    
    
    
    .70
    
    
    
    .53Expected life of options (years)
    
    
    
    
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0Weighted average fair value of options granted
    
    
    
    
    
    $
    4.30
    
    
    $
    1.93
    
    
    $
    3.83
  Fair Value of Financial Instruments.
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Concentrations of Credit Risk and Limited Contract Manufactures.
  Research and Development Expense.
 General and Administrative Expense.
 Income Taxes. Accounting for Income Taxes
 Comprehensive Loss. Comprehensive Income
 Lease Accounting.
 Reclassifications.
 Recent Accounting Pronouncements. Accounting for Uncertainty in Income Taxes
 3. Net Loss Per Share
 Earnings Per Share Earnings Per Share,
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net loss
    
    $
    (2,588,581
    )
    
    $
    (9,046,379
    )
    
    $
    (19,243,057
    )
    
    $
    (29,059,060
    )Denominator:Weighted average common shares outstanding
    
    
    30,272,775
    
    
    
    27,326,530
    
    
    
    30,253,888
    
    
    
    25,898,716Basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.33
    )
    
    $
    (0.64
    )
    
    $
    (1.12
    )
  September 30,2006
    
    2005Restricted stock and stock options
    
    
    3,511,504
    
    
    
    2,315,107Warrants
    
    
    3,807,706
    
    
    
    3,800,143Total
    
    
    7,319,210
    
    
    
    6,115,250
 4. Share-Based Award Plans
  1998 Equity Ownership Plan.
 2002 Non-Employee Directors Stock Option Plan and 2004 Stock Incentive Plan.
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AggregateWeighted-Average
    
    
    Weighted-Average
    
    
    IntrinsicNumber of
    
    
    Exercise Price
    
    
    Remaining Contractual
    
    
    ValueStock Options
    
    Options
    
    
    per Option
    
    
    Term
    
    
    ($000)Balance at December 31,
2005
    
    
    2,304,242
    
    $
    5.82Granted
    
    
    349,500
    
    
    3.45Exercised
    
    
    (49,128
    )
    
    
    1.06Forfeited or expired
    
    
    (468,597
    )
    
    
    6.36Balance at September 30,
2006
    
    
    2,136,017
    
    
    $
    5.42
    
    
    
    3.81
    
    
    $
    165Vested or expect to vest at
September 30, 2006
    
    
    2,132,861
    
    
    $
    5.42
    
    
    
    0.59
    
    
    $
    165Exercisable at September 30, 2006
    
    
    1,056,869
    
    
    $
    4.01
    
    
    
    2.92
    
    
    $
    165
    Weighted-AverageGrantDate FairRestricted Stock
    

Shares
    
    
    ValueNon-vested at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    1,424,488
    
    
    
    1.90Vested
    
    
    
    
    
    
    Forfeited
    
    
    (49,001
    )
    
    
    2.05Non-vested at September 30, 2006
    
    
    1,375,487
    
    
    $
    1.89
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5. Contingency
  6. One-Time Termination Benefits
  7. Other Income
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking statements. In some cases,
you can identify forward-looking statements by terms such as may, will, should, could,
would, expect, plan, intend, anticipate, believe, estimate, project, predict,
forecast, potential, likely or possible, as well as the negative of such expressions, and
similar expressions intended to identify forward-looking statements. These forward-looking
statements include, without limitation, statements relating to:
 
    
    our strategic direction or strategy;
    
    our plan to reserve a significant portion of our financial resources to acquire other clinical-stage
development opportunities beyond our MSCRAMM® platform through in-licensing, acquisition or merger
to expand our near-term development pipeline;
    
    our intent to not conduct any additional clinical trials in very low birth weight infants with the
donor-selected immune globulin form of Veronate;
    
    our intent to suspend the initiation of additional clinical trials of Aurexis pending outcome of our
in-licensing, acquisition or merger activities;
    
    our intent to conduct further pre-clinical studies of Aurexis and most of our other MSCRAMM-based programs;
    
    our future development plans for Aurexis or our other MSCRAMM-based programs pending the outcome of our
in-licensing, acquisition or merger activities, or the ability to attract a co-development partner for any of
our MSCRAMM-based programs;
    
    the number of months that our current cash, cash equivalents, and short-term investments will allow us to
operate;
    
    our future financing requirements, the factors that influence these requirements, and how we expect to fund
them;
    
    total estimated cash, cash equivalents and short-term investments as of December 31, 2006;
    
    our intent to defend ourselves and prosecute our counterclaims vigorously against Nabi;
    
    potential future revenue from collaborative research agreements, partnerships, or materials transfer agreements;
    
    our ability to successfully commercialize our products and generate product-related revenue in the future;
    
    the potential volatility of our quarterly and annual operating costs; and
    
    the expectation of continued substantial losses.
 These statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties including, without limitation: Wyeth terminating
our license and collaborative research agreement; our ability to execute our strategy on a timely
basis; maintaining sufficient resources, including key employees; our ongoing or future preclinical
or clinical trials not demonstrating the appropriate safety and efficacy of our product
candidates; our ability to successfully develop current and future product candidates either
independently or in collaboration with partners; our ability to secure and our use of third-party
contract clinical research and data management organizations, raw material suppliers and
manufacturers, who may not fulfill their contractual obligations or otherwise perform
satisfactorily in the future; manufacturing and maintaining sufficient quantities of clinical trial
material on hand to complete our preclinical or clinical trials on a timely basis; failure to
obtain regulatory approval to commence or continue our clinical trials or to market our product
candidates; our ability to protect and maintain our proprietary intellectual property rights from
unauthorized use by others; our collaborators do not fulfill their obligations under our
 13




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agreements with them in the future; our ability to attract suitable organizations to collaborate on
the development and commercialization of our product candidates; our collaborators do not fulfill
their obligations under our agreements with them in the future; the condition of the financial
equity and debt markets and our ability to raise sufficient funding in such markets; our ability to
manage our current cash reserves as planned; our ability to find suitable in-licensing, acquisition
or merger opportunities to expand our near-term development pipeline; changes in related
governmental laws and regulations; changes in general economic business or competitive conditions;
and other statements contained elsewhere in this Quarterly Report on Form 10-Q and risk factors
described in or referred to in greater detail in the Risk Factors section of this Form 10-Q, and the Form 10-Q for March  31, 2006 and June  30, 2006
, and the Companys Form 10-K for the year ended
December 31, 2005. There may be events in the future that we are unable to predict accurately, or
over which we have no control. You should read this Form 10-Q and the documents that we reference
herein and have been filed or incorporated by reference as exhibits completely and with the
understanding that our actual future results may be materially different from what we expect. Our
business, financial condition, results of operations, and prospects may change. We may not update
these forward-looking statements, even though our situation may change in the future, unless we
have obligations under the federal securities laws to update and disclose material developments
related to previously disclosed information. We qualify all of the information presented in this
Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
 Inhibitex ® , MSCRAMM ® , Veronate ® , and
Aurexis ® are registered trademarks of Inhibitex, Inc. MSCRAMM is an acronym for
Microbial Surface Components Recognizing Adhesive Matrix Molecules
 The following discussion should be read in conjunction with the condensed financial statements and
the notes thereto included in Item 1A of this Quarterly Report on Form 10-Q.
 Overview
 S. aureus,
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Critical Accounting Policies
   
    
    Revenue Recognition
    
    Accrued Expenses
    
    Share-based Compensation
  Share-Based Compensation
 Share-Based Payment, . Accounting for Stock-Based Compensation
   Results of Operations
 Three Months Ended September 30, 2006 and 2005
 Revenue.
 Research and Development Expense.
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Three Months EndedSeptember 30,2006
    
    
    2005(in thousands)Clinical and manufacturing-related expense
    
    $
    30
    
    
    $
    4,737Salaries, benefits, and share-based compensation expense
    
    
    1,140
    
    
    
    1,732License fees, legal, and other expense
    
    
    662
    
    
    
    949Depreciation and facility-related expense
    
    
    679
    
    
    
    667Total research and development expense
    
    $
    2,511
    
    
    $
    8,085
 General and Administrative Expense.
 Other
Income (Loss), net .
 Nine Months Ended September 30, 2006 and 2005
 Revenue.
 Research and Development Expense.
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Nine Months EndedSeptember 30,2006
    
    
    2005(in thousands)Clinical and manufacturing-related expense
    
    $
    6,464
    
    
    $
    16,645Salaries, benefits, and share-based compensation expense
    
    
    5,031
    
    
    
    5,115License fees, legal, and other expense
    
    
    2,484
    
    
    
    2,556Depreciation and facility-related expense
    
    
    2,006
    
    
    
    1,797Total research and development expense
    
    $
    15,985
    
    
    $
    26,113
 General and Administrative Expense.
 Other Income (Loss), net .
 Interest Income, net .
 Liquidity and Capital Resources
 Sources of Liquidity
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Cash Flows
     Funding Requirements
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
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PART II
OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
 You should carefully consider the following discussion of risks, together with the other
information contained in this Form 10-Q. The occurrence of any of the following risks could
materially harm our business, our financial condition, and our ability to raise additional capital
in the future or ever become profitable. In that event, the market price of our common stock could
decline and you could lose part or all of your investment. The Risk Factors included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005 and its Quarterly Report
on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006 have not materially changed
except as set forth below.
 Risks Relating to Our Business
 In light of the unfavorable results of our pivotal Phase III Veronate clinical trial and the
findings from an extensive review of the entire Veronate program, we have adopted a strategy
whereby we plan to preserve our cash resources by reducing the amount we are investing in our
existing MSCRAMM-based development programs, and seek collaborative partners for these programs
while we pursue other clinical-stage development opportunities through in-licensing, acquisition or
merger in order to balance our development pipeline. We may be unable to implement this
strategy on a timely basis, if at all, which could harm our business.
  We have experienced losses since our inception. We expect to continue to incur such losses for the
foreseeable future and we may never become profitable.
  
    
    costs related to our research programs and the clinical development of our product candidates; and
    
    general and administrative costs relating to our operations.
  Risks Related to the Ownership of Our Common Stock
 Our common stock price has been highly volatile, and your investment in us could suffer a decline
in value.
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
    
    our ability to complete an in-licensing, acquisition or merger of other clinical-stage development
programs on terms acceptable to shareholders, analysts, and institutional buyers;
    
    our ability to manage our cash burn rate at an acceptable level;
    
    disclosure of our or our competitors clinical trial status or data;
    
    the approval or commercialization of new products by us or our competitors, and the disclosure thereof;
    
    announcements of scientific innovations by us or our competitors;
    
    rumors relating to us or our competitors;
    
    public concern about the safety of our product candidates, products or similar classes of products;
    
    litigation to which we may become subject;
    
    disclosures of any favorable or unfavorable clinical or regulatory developments concerning our
clinical trials, manufacturing, or product candidates;
    
    actual or anticipated variations in our annual and quarterly operating results;
    
    changes in general conditions or trends in the biotechnology and pharmaceutical industries;
    
    changes in drug reimbursement rates or government policies related to reimbursement;
    
    announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
    
    new regulatory legislation adopted in the United States or abroad;
    
    our failure to achieve or meet equity research analysts expectations or their estimates of our
business, or a change in their recommendations concerning our company, the value of our common stock
or our industry in general;
    
    termination or delay in any of our existing or future collaborative arrangements;
    
    future sales of equity or debt securities, including large block trades or the sale of shares held by
our directors or management;
    
    the loss of our eligibility to use Form S-3 due to the amount of our market capitalization falling
below specified levels;
    
    the loss of our eligibility to trade our shares of common stock on the Nasdaq Global Market due to our
failure to maintain listing standards;
    
    changes in accounting principles;
    
    failure to comply with the periodic reporting requirements of publicly-owned companies, under the
Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002; and
    
    general economic conditions.
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ITEM 6. EXHIBITS
  Exhibit No.
    
    Description31.1
    
    Section 302 Certification of the Chief Executive Officer Required by Rule 13a-14(a) or
Rule 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Section 302 Certification of the Chief Financial Officer Required by Rule 13a-14(a) or
Rule 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer
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SIGNATURES
  Date: November 7, 2006
    
    INHIBITEX, INC/s/ Russell H. PlumbRussell H. PlumbVice President, Finance and Administration,Chief Financial Officer
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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Section 302 Certification of the Chief Executive Officer Required by Rule 13a-14(a) or
Rule 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Section 302 Certification of the Chief Financial Officer Required by Rule 13a-14(a) or
Rule 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Section 906 Certifications of the Chief Executive Officer and the Chief Financial Officer
 24