##### 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 June 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
    
    74-2708737(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)9005 Westside ParkwayAlpharetta, Georgia
    
    30004(Address of principal executive
    
    (Zip Code)offices)
 (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 June 30, 2006 and December 31, 2005
    
    
    3Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005 and for the Period from Inception (May 13, 1994) through June 30, 2006
    
    
    4Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 and for the Period from Inception (May 13, 1994) through June 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
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    21Item 4. Submission of Matters to a vote of Security Holders
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25Exhibit IndexEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO
  2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,109,441
    
    
    $
    33,842,937Short-term investments
    
    
    32,771,773
    
    
    
    53,288,016Prepaid expenses and other current assets
    
    
    1,745,947
    
    
    
    1,917,436Accounts receivable
    
    
    170,709
    
    
    
    44,923Total current assets
    
    
    69,797,870
    
    
    
    89,093,312Property and equipment, net
    
    
    7,390,864
    
    
    
    8,175,074Total assets
    
    $
    77,188,734
    
    
    $
    97,268,386LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,193,142
    
    
    $
    1,879,191Accrued expenses
    
    
    3,164,618
    
    
    
    5,316,906Current portion of notes payable
    
    
    902,778
    
    
    
    1,319,445Current portion of capital lease obligations
    
    
    851,690
    
    
    
    869,043Current portion of deferred revenue
    
    
    66,667
    
    
    
    191,667Other current liabilities
    
    
    1,152,758
    
    
    
    1,152,702Total current liabilities
    
    
    7,331,653
    
    
    
    10,728,954Long-term liabilities:Notes payable, net of current portion
    
    
    1,041,667
    
    
    
    1,458,333Capital lease obligations, net of current portion
    
    
    1,230,146
    
    
    
    1,646,323Deferred revenue, net of current portion
    
    
    612,500
    
    
    
    687,500Other liabilities, net of current portion
    
    
    1,217,256
    
    
    
    1,294,210Total long-term liabilities
    
    
    4,101,569
    
    
    
    5,086,366Total liabilities
    
    
    11,433,222
    
    
    
    15,815,320Stockholders equity:Preferred stock, $.001 par value; 5,000,000
shares authorized at June 30, 2006 and
December 31, 2005; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 75,000,000 shares
authorized at June 30, 2006 and December 31,
2005; 30,261,780 and 30,219,715 shares issued
and outstanding at June 30, 2006 and December
31, 2005, respectively
    
    
    30,262
    
    
    
    30,220Warrants
    
    
    11,517,743
    
    
    
    11,514,793Additional paid-in capital
    
    
    212,392,514
    
    
    
    212,210,931Deferred stock compensation
    
    
    
    
    
    
    (772,347
    )Deficit accumulated during the development stage
    
    
    (158,185,007
    )
    
    
    (141,530,531
    )Total stockholders equity
    
    
    65,755,512
    
    
    
    81,453,066Total liabilities and stockholders equity
    
    $
    77,188,734
    
    
    $
    97,268,386
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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 STATEMENTS OF OPERATIONS
(unaudited)
 Period fromInceptionThree Months Ended
    
    
    Six Months Ended
    
    
    (May 13, 1994)June 30
    
    
    June 30,
    
    
    ThroughJune 302006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Revenue:License fees and milestones
    
    $
    37,500
    
    
    $
    37,500
    
    
    $
    75,000
    
    
    $
    75,000
    
    
    $
    1,237,500Collaborative research and
development
    
    
    125,000
    
    
    
    125,000
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    3,249,455Grants and other revenue
    
    
    22,065
    
    
    
    6,020
    
    
    
    187,452
    
    
    
    120,651
    
    
    
    773,926Total revenue
    
    
    184,565
    
    
    
    168,520
    
    
    
    512,452
    
    
    
    445,651
    
    
    
    5,260,881Operating expense:Research and development
    
    
    6,048,198
    
    
    
    8,839,814
    
    
    
    13,474,750
    
    
    
    18,027,606
    
    
    
    123,270,334General and administrative
    
    
    2,607,913
    
    
    
    1,884,921
    
    
    
    5,374,366
    
    
    
    3,359,345
    
    
    
    29,440,021Total operating expense
    
    
    8,656,111
    
    
    
    10,724,735
    
    
    
    18,849,116
    
    
    
    21,386,951
    
    
    
    152,710,355Loss from operations
    
    
    (8,471,546
    )
    
    
    (10,556,215
    )
    
    
    (18,336,664
    )
    
    
    (20,941,300
    )
    
    
    (147,449,474
    )Other (loss) income, net
    
    
    (717
    )
    
    
    
    
    
    
    57,743
    
    
    
    
    
    
    
    715,408Interest income, net
    
    
    799,562
    
    
    
    486,222
    
    
    
    1,624,445
    
    
    
    928,619
    
    
    
    4,931,122Net loss
    
    
    (7,672,701
    )
    
    
    (10,069,993
    )
    
    
    (16,654,476
    )
    
    
    (20,012,681
    )
    
    
    (141,802,944
    )Dividends and accretion to
redemption value of redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,382,063
    )Net loss attributable to common
stockholders
    
    $
    (7,672,701
    )
    
    $
    (10,069,993
    )
    
    $
    (16,654,476
    )
    
    $
    (20,012,681
    )
    
    $
    (158,185,007
    )Basic and diluted net loss per share
    
    $
    (0.25
    )
    
    $
    (0.40
    )
    
    $
    (0.55
    )
    
    $
    (0.80
    )Weighted average shares used to
compute basic and diluted net loss
per share
    
    
    30,255,312
    
    
    
    25,198,094
    
    
    
    30,244,288
    
    
    
    25,172,976
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INHIBITEX, INC.
(A DEVELOPMENT STAGE COMPANY)
 
 STATEMENTS OF CASH FLOWS
(unaudited)
 Period fromInception(May 13, 1994)Six Months Ended
    
    
    ThroughJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (16,654,476
    )
    
    $
    (20,012,681
    )
    
    $
    (141,802,944
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    1,016,056
    
    
    
    543,244
    
    
    
    5,919,115Share-based compensation
    
    
    914,051
    
    
    
    248,376
    
    
    
    2,060,327Loss on sale of equipment
    
    
    717
    
    
    
    1,222
    
    
    
    100,708Amortization of investment premium or discount
    
    
    109,815
    
    
    
    35,416
    
    
    
    674,560Forgiveness 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
    
    
    171,489
    
    
    
    (766,551
    )
    
    
    (1,745,947
    )Accounts receivable
    
    
    (125,786
    )
    
    
    129,841
    
    
    
    (170,709
    )Accounts payable and other liabilities
    
    
    (762,947
    )
    
    
    (429,703
    )
    
    
    3,563,156Accrued expenses
    
    
    (2,152,288
    )
    
    
    1,743,102
    
    
    
    3,164,618Deferred revenue
    
    
    (200,000
    )
    
    
    (75,000
    )
    
    
    679,167Net cash used in operating activities
    
    
    (17,741,829
    )
    
    
    (18,582,734
    )
    
    
    (127,184,851
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (232,863
    )
    
    
    (4,308,739
    )
    
    
    (8,963,041
    )Purchases of short-term investments
    
    
    (11,630,208
    )
    
    
    (83,265,972
    )
    
    
    (163,338,538
    )Proceeds from maturities of short-term investments
    
    
    32,067,000
    
    
    
    59,182,073
    
    
    
    129,842,598Net cash provided by (used in) investing activities
    
    
    20,203,929
    
    
    
    (28,392,638
    )
    
    
    (42,458,981
    )Cash flows from financing activities:Proceeds from promissory notes, notes payable and related warrants
    
    
    
    
    
    
    2,177,642
    
    
    
    5,513,492Payments on promissory notes and capital leases
    
    
    (1,266,863
    )
    
    
    (693,594
    )
    
    
    (5,935,157
    )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
    
    
    70,967
    
    
    
    186,256
    
    
    
    121,165,770Net cash (used in) provided by financing activities
    
    
    (1,195,596
    )
    
    
    1,670,304
    
    
    
    204,753,273Increase (decrease) in cash and cash equivalents
    
    
    1,266,504
    
    
    
    (45,305,068
    )
    
    
    35,109,441Cash and cash equivalents at beginning of period
    
    
    33,842,937
    
    
    
    71,580,823
    
    
    
    Cash and cash equivalents at end of period
    
    $
    35,109,441
    
    
    $
    26,275,755
    
    
    $
    35,109,441Supplemental cash flow information:Interest paid
    
    $
    119,138
    
    
    $
    83,023
    
    
    $
    1,104,065Supplemental non-cash investing and financing activities:Fixed assets capitalized using promissory notes and capital leases
    
    
    
    
    
    
    1,255,560
    
    
    
    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
    
    
    30,364
    
    
    
    (21,428
    )
    
    
    (49,607
    )
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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, or . Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
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Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302006
    
    
    2005
    
    
    2006
    
    
    2005Net loss  as reported
    
    $
    (7,672,701
    )
    
    $
    (10,069,993
    )
    
    $
    (16,654,476
    )
    
    $
    (20,012,681
    )Add: Amortization of share-based
compensation included in
net loss  as reported
    
    
    580,574
    
    
    
    124,188
    
    
    
    914,051
    
    
    
    248,376Deduct: Share-based
compensation expense determined
under fair value method
    
    
    (580,574
    )
    
    
    (523,695
    )
    
    
    (914,051
    )
    
    
    (1,003,806
    )Net loss  pro forma
    
    $
    (7,762,701
    )
    
    $
    (10,469,500
    )
    
    $
    (16,654,476
    )
    
    $
    (20,768,111
    )Net loss per share (basic and
diluted):As reported
    
    $
    (0.25
    )
    
    $
    (0.40
    )
    
    $
    (0.55
    )
    
    $
    (0.80
    )Pro forma
    
    $
    (0.25
    )
    
    $
    (0.42
    )
    
    $
    (0.55
    )
    
    $
    (0.83
    )
   Three Months Ended
    
    Six Months EndedJune 30
    
    June 302006
    
    2005
    
    2006
    
    2005Weighted average risk-free interest rate
    
    
    4.89
    %
    
    
    3.86
    %
    
    
    4.81
    %
    
    
    3.74
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected weighted average volatility
    
    
    .70
    
    
    
    .50
    
    
    
    .70
    
    
    
    .50Expected life of options (years)
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0Weighted average fair value of options granted
    
    $
    1.36
    
    
    $
    3.48
    
    
    $
    2.28
    
    
    $
    3.81
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Fair Value of Financial Instruments.
 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 Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim
Financial Statements
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3. Net Loss Per Share
 Earnings Per Share Earnings Per Share,
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005HistoricalNumerator:Net loss
    
    $
    (7,672,701
    )
    
    $
    (10,069,993
    )
    
    $
    (16,654,476
    )
    
    $
    (20,012,681
    )Denominator:Weighted average common shares outstanding
    
    
    30,255,312
    
    
    
    25,198,094
    
    
    
    30,244,288
    
    
    
    25,172,976Basic and diluted net loss per share
    
    $
    (0.25
    )
    
    $
    (0.40
    )
    
    $
    (0.55
    )
    
    $
    (0.80
    )
  June 30,2006
    
    2005Restricted stock and stock options
    
    
    3,195,200
    
    
    
    2,260,377Warrants
    
    
    3,807,706
    
    
    
    3,800,143Total
    
    
    7,002,906
    
    
    
    6,060,520
 4.
    
    Share-Based Award Plans
  1998 Equity Ownership Plan.
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2002 Non-Employee Directors Stock Option Plan and 2004 Stock Incentive Plan.
   Stock Options
 AggregateWeighted-Average

    
    
    Weighted-Average

    
    
    IntrinsicNumber of
    
    
    Exercise Price
    
    
    Remaining Contractual
    
    
    ValueOptions
    
    
    per Option
    
    
    Term
    
    
    ($000)Balance at December 31,
2005
    
    
    2,304,242Granted
    
    
    349,500Exercised
    
    
    37,361Forfeited or expired
    
    
    222,948Balance at June 30,
2006
    
    
    2,393,433
    
    
    $
    5.34
    
    
    
    3.98
    
    
    $
    224Vested or expect to vest at June
30, 2006
    
    
    2,391,057
    
    
    $
    5.33
    
    
    
    0.66
    
    
    $
    224Exercisable at June 30,
2006
    
    
    1,263,330
    
    
    $
    4.07
    
    
    
    3.11
    
    
    $
    224
   Weighted-AverageGrantShares
    
    
    Date FairRestricted Stock
    
    (000)
    
    
    ValueNon-vested at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    805,867
    
    
    
    2.04Vested
    
    
    
    
    
    
    Forfeited
    
    
    4,100
    
    
    
    2.05Non-vested at June 30, 2006
    
    
    801,767
    
    
    $
    2.04
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5.
    
    Contingency
  6.
    
    One-Time Termination Benefits
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANICAL 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 intention to reserve a significant portion of our financial resources to pursue later-stage clinical
development opportunities beyond our
MSCRAMM® platform
through in-licensing, acquisition or
merger to expand our near-term development pipeline;
    
    our strategic direction;
    
    our plans 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 and seek co-development partner or partners that
can provide financial and other synergistic capabilities to support
the development and maximize the potential or our MSCRAMM programs.
    
    our intent to further explore the utility of our MSCRAMM
antibodies in combination with the therapies that may stimulate the
neonatal immune system;
    
    our intent to conduct further pre-clinical studies of Aurexis
and our other MSCRAMM-based programs;
    
    our future development plans for Aurexis or other
MSCRAMM-based programs
    
    the ability of antibodies that target MSCRAMM proteins to reduce the incidence and severity of bacterial and
fungal infections;
    
    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;
    
    the annualized savings related to workforce reductions and one-time charges related to termination benefits;
    
    our intent to defend ourselves and prosecute our counterclaims
vigorously against Nabi;
    
    the potential to discover, develop or commercialize any product candidates resulting from existing or future
collaborations, including those with Dyax and Wyeth;
    
    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;
    
    our plan to establish partnerships or collaborations with other entities to develop and commercialize our
product candidates;
    
    the potential volatility of our quarterly and annual operating results;
    
    the expectation of continued substantial net losses;
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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 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; 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 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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Recent Developments
 Staphylococcus aureus
   
 
    
    We performed additional in vitrostudies and analyses involving clinical trial
material used in the Phase II and Phase III trials and examined all of the preclinical
and clinical data from the Veronate program. Based on these analyses, we concluded that
neither the manufacturing of Veronate, nor a change in the S. aureusstrains,
contributed to the Phase III results. In addition, we believe that the results of these
studies confirmed the biological activity of the specific MSCRAMM antibodies contained
in Veronate.
    
    Additional retrospective post-hoc analysis of data from infants in the Phase III
trial that acquired a S. aureusor definitive coagulase negative staphylococcal(CoNS)
infection (n= 549) was performed. In infants that received Veronate, a 51% reduction in
all-cause mortality was observed versus those that did not receive Veronate (6.3% vs.
12.9%, p=0.05).
    
    The independent expert panel reached the following conclusions:
 
    
    the Phase III trial results may have been influenced by the immune status of
very low birth weight infants, and should not limit future development of MSRAMM
antibodies and vaccines targeted for other patient populations with adequately
functioning immune systems;
    
    it was unlikely that the change in dose timing from the Phase II trial was
responsible for the Phase III results;
    
    adjunct therapy that stimulates the immune system may be a prerequisite to a
prophylactic antibody approach in very low birth weight infants; and
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
    
    monoclonal antibodies or antibodies resulting from vaccination may provide for
a more robust immune response than naturally occurring antibodies such as those
contained in Veronate.
 
    
    Our intent is to further explore the utility of our MSCRAMM antibodies in combination with
therapies that may stimulate the neonatal immune system.
    
    Our plan is to pursue later-stage clinical development opportunities beyond our MSCRAMM
platform through in-licensing, acquisition or merger, in order to expand our near-term
development pipeline. We indicated that we intend to preserve our cash resources to
affect this plan by suspending further clinical development of Aurexis and seeking a
co-development partner that can provide financial and other synergistic
capabilities to support the development and maximize the potential of our MSCRAMM
programs.
 Critical Accounting Policies
   
    
    Revenue Recognition
    
    Accrued Expenses
    
    Share-based Compensation
  Share-Based Compensation
 Share-Based Payment, . Accounting for Stock-Based Compensation
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Results of Operations
 Three Months Ended June 30, 2006 and 2005
 Revenue.
 Research and Development Expense.
  Three Months EndedJune 30,2006
    
    
    2005(in thousands)Clinical and manufacturing-related expense
    
    $
    2,783
    
    
    $
    5,549Salaries, benefits, and share-based compensation expense
    
    
    1,994
    
    
    
    1,805License fees, legal, and other expense
    
    
    591
    
    
    
    884Depreciation and facility-related expense
    
    
    680
    
    
    
    602Total research and development expense
    
    $
    6,048
    
    
    $
    8,840
 General and Administrative Expense.
 Interest Income, net .
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Six Months Ended June 30, 2006 and 2005
 Revenue.
 Research and Development Expense.
  Six Months EndedJune 30,2006
    
    
    2005(in thousands)Clinical and manufacturing-related expense
    
    $
    6,434
    
    
    $
    11,908Salaries, benefits, and share-based compensation expense
    
    
    3,890
    
    
    
    3,383License fees, legal, and other expense
    
    
    1,823
    
    
    
    1,607Depreciation and facility-related expense
    
    
    1,327
    
    
    
    1,130Total research and development expense
    
    $
    13,474
    
    
    $
    18,028
 General and Administrative Expense.
 Interest Income, net .
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Liquidity and Capital Resources
 Sources of Liquidity
    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 quarter ended March 31, 2006 have not materially changed except as set forth
below.
 Risks Relating to Our Business
 In light of our Phase III Veronate results 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 later-stage clinical 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.
 Staphylococcus aureus (S. aureus)
  We may be forced to delay, curtail, or terminate the development or commercialization of our
clinical or preclinical MSCRAMM-based development programs if we are unable to attract a corporate
co-development partner or partners or obtain additional funding.
  
    
    the successful development of our product candidates in preclinical and clinical testing;
    
    the time it takes to receive the regulatory approvals needed advance our product candidates through
clinical development or to market;
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
    
    future payments, if any, received or made under existing or possible future collaborative arrangements
or licenses;
    
    the costs associated with protecting and expanding our patent and other intellectual property rights; and
    
    the cost to acquire rights or licenses to new products or compounds.
   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.
  Our revenues, expenses and results of operations will be subject to significant fluctuations, which
will make it difficult to compare our operating results from period to period.
  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.
  
    
    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;
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
    
    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 4. SUBMISSION OF MATTERS TO A VOTE
   Carl E. Brooks
    
    For
    
    
    20,197,720
    
    
    Withheld
    
    
    515,937Robert A. Hamm
    
    For
    
    
    20,200,970
    
    
    Withheld
    
    
    512,687Louis W. Sullivan
    
    For
    
    
    20,676,219
    
    
    Withheld
    
    
    37,438
  For
    
    
    20,699,281
    
    
    Against
    
    
    10,756
    
    
    Abstain
    
    
    3,620
 
 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: August 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
 26