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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2003                                             
|          
|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 number: 000-21291



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Introgen Therapeutics, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                              |  |                                            
|--------------------------------------------------------------------------------------------- |  | -------------------------------------------
|Delaware                                                                                      |  | 74-2704230                                 
|(State or other jurisdiction of
    incorporation or organization)                            |  | (I.R.S. Employer
    Identification Number)
|                                                                                             
|301 Congress Avenue, Suite 1850
    Austin, Texas(Address of principal executive
    offices) |  | 78701(Zip Code)                            

Registrants telephone number, including
area code:

(512) 708-9310


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

None


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

Common Stock, $0.001 par value


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 þ         No o

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.    þ

Indicate by check mark
whether the Registrant is an accelerated filer (as defined in
Securities Exchange Act
Rule 12b-2).    Yes o         No þ

The aggregate market
value of the voting stock (common stock) held by non-affiliates
of the Registrant, as of the last day of the Registrants
second fiscal quarter, was approximately $61.6 million
based upon the last sale price reported on the Nasdaq National
Market for June 30, 2003. For purposes of this disclosure,
shares of common stock held by persons who hold more than 5% of
the outstanding shares of common stock and shares held by
executive officers and directors of the Registrant have been
excluded because such persons may be deemed to be affiliates.
This determination is not necessarily conclusive.

As of March 1, 2004,
the Registrant had 26,583,274 shares of common stock,
$0.001 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information
required by Items 10, 11, 12, 13 and 14 of Form 10-K
is incorporated by reference to the Registrants proxy
statement (2004 Proxy Statement) for the 2004 Annual
Stockholders Meeting, which will be filed with the
Securities and Exchange Commission within 120 days after
the close of the Registrants fiscal year ended
December 31, 2003.



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INTROGEN THERAPEUTICS, INC.

ANNUAL REPORT ON FORM 10-K


TABLE OF CONTENTS

|                                            |  |                                                                                           |    |  |    | 
|------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I                                     
|Item 1.                                     |  | Business                                                                                  |    |  | 2  | 
|Item 2.                                     |  | Properties                                                                                |    |  | 24 | 
|Item 3.                                     |  | Legal Proceedings                                                                         |    |  | 24 | 
|Item 4.                                     |  | Submission of Matters to a
    Vote of Security Holders                                   |    |  | 24 | 
|                                           
|PART II                                    
|Item 5.                                     |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |    |  | 24 | 
|Item 6.                                     |  | Selected Consolidated
    Financial Data                                                  |    |  | 26 | 
|Item 7.                                     |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |  | 27 | 
|Item 7A.                                    |  | Quantitative and Qualitative
    Disclosures about Market Risk                            |    |  | 49 | 
|Item 8.                                     |  | Consolidated Financial
    Statements and Supplementary Data                              |    |  | 49 | 
|Item 9.                                     |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |    |  | 49 | 
|Item 9A.                                    |  | Controls and Procedures                                                                   |    |  | 49 | 
|                                           
|PART III                                   
|Item 10.                                    |  | Directors and Executive
    Officers of the Registrant                                    |    |  | 50 | 
|Item 11.                                    |  | Executive Compensation                                                                    |    |  | 50 | 
|Item 12.                                    |  | Security Ownership of
    Certain Beneficial Owners and Management                        |    |  | 50 | 
|Item 13.                                    |  | Certain Relationships and
    Related Transactions                                        |    |  | 50 | 
|Item 14.                                    |  | Principal Accounting Fees
    and Services                                                |    |  | 50 | 
|                                           
|PART IV                                    
|Item 15.                                    |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                       |    |  | 51 | 
|Signatures                                  |  |                                                                                           | 55 | 
|Certifications                              |  |                                                                                           |    | 
|Consent of Ernst & Young LLP               
|Consent of Ernst & Young LLP               
|Certification of CEO & CFO - Rule 13a-14(a)
|Certification of CEO & CFO - Section 906   



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PART I






|        |         
|------- | --------
|Item 1. | Business

This Annual Report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements include, among others, statements concerning our
future operations, financial condition and prospects, and our
business strategies. The words believe,
expect, anticipate and other similar
expressions generally identify forward-looking statements.
Investors in our common stock are cautioned not to place undue
reliance on these forward-looking statements. These
forward-looking statements are subject to substantial risks and
uncertainties that could cause our future business, financial
condition, or results of operations to differ materially from
historical results or currently anticipated results. Investors
should carefully review the information contained under the
caption Risk Factors in Managements
Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in, or incorporated by reference
into, this Annual Report on Form 10-K.

Access to Company Information

Our Internet website address is
www.introgen.com. Our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available free of charge through our
website as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
Securities and Exchange Commission. Our website and the
information contained therein or connected thereto is not
intended to be incorporated into this Annual Report on
Form 10-K.

Overview

Introgen Therapeutics, Inc. was incorporated in
Delaware in 1993. We are a biopharmaceutical company focused on
the discovery, development and commercialization of targeted
therapies for the treatment of cancer and other diseases. We are
developing product candidates to treat a wide range of cancers
using non-integrating gene agents. These agents are designed to
increase production of normal cancer-fighting proteins that act
to overpower cancerous cells. Our lead product candidate,
ADVEXIN therapy, combines the p53 gene with a non-replicating,
non-integrating adenoviral gene delivery system that we have
developed and extensively tested. The p53 gene is one of the
most potent members of a group of naturally occurring tumor
suppressor genes, which act to kill cancer cells, arrest cancer
cell growth and protect cells from becoming cancerous.

We are conducting two multi-national, multi-site
Phase 3 clinical trials of ADVEXIN therapy, both by itself
and in combination with chemotherapy, in recurrent squamous cell
cancer of the head and neck. Earlier multi-national, multi-site
Phase 2 clinical trials of ADVEXIN therapy in
217 patients with recurrent squamous cell cancer of the
head and neck treated previously with surgery, radiation or
chemotherapy indicated that treatment with ADVEXIN therapy
provided tumor growth control, including shrinkage and
eradication of some tumors, and was well tolerated.

The design of our two Phase 3 clinical
trials was agreed to by the Food and Drug Administration, or
FDA, under its Special Protocol Assessment program, and we have
received Fast Track designation for ADVEXIN therapy from the
FDA. By designating ADVEXIN therapy as a Fast Track product, the
FDA will take actions to expedite the evaluation and review of
the ADVEXIN therapy marketing application. ADVEXIN therapy for
head and neck cancer has also been designated as an Orphan Drug
under the Orphan Drug Act, which may give us seven years of
marketing exclusivity for ADVEXIN therapy for this indication if
approved by the FDA.

We have also completed or are currently
conducting numerous Phase 1 and Phase 2 clinical
trials of ADVEXIN therapy by itself and in combination with
chemotherapy or radiation therapy in a variety of cancers. These
trials include a completed Phase 2 clinical trial of
ADVEXIN administered as a complement with radiation therapy in
non-small cell lung cancer; a Phase 2 clinical trial of
ADVEXIN therapy combined

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with systemic chemotherapy for the treatment of
breast cancer; a Phase 1/early Phase 2 clinical trial
of ADVEXIN therapy for the treatment of advanced unresectable
squamous cell esophageal cancer; a Phase 1 clinical trial
of ADVEXIN therapy in prostate cancer; Phase 1 clinical
trials of ADVEXIN therapy in bronchoalveolar cancer; and a
Phase /early Phase 2 clinical trial in which ADVEXIN
therapy is being administered to prevent precancerous oral
lesions that have a high risk of developing into cancer.


To date, clinical investigators at sites in North
America, Europe and Japan have treated over 500 patients
with ADVEXIN therapy, establishing a large safety database. We
hold the worldwide rights for pre-clinical and clinical
development, manufacturing, marketing and commercialization of
ADVEXIN therapy.

We are developing our second product candidate,
INGN 241, for the treatment of solid tumors and in
melanoma, a deadly form of skin cancer. INGN 241 combines
the mda-7 gene with our adenoviral vector system to kill tumor
cells, including metastatic tumor cells, through multiple
mechanisms. A Phase 1/early Phase 2 trial indicated
that in patients with various solid tumors, INGN 241 is
well tolerated, displays minimal toxicity and is biologically
active.

Our principal executive offices are located at
301 Congress Avenue, Suite 1850, Austin, Texas 78701 and
our telephone number is (512) 708-9310. Our website is
located at www.introgen.com. The information contained on
our website is not a part of this Annual Report on
Form 10-K.

Background



| |                           
| | --------------------------
| | Gene Function and Genomics

A typical living cell in the body contains
thousands of different proteins essential to cellular structure,
growth and function. The cell produces proteins according to a
set of genetic instructions encoded by DNA, which contains all
the information necessary to control the cells biological
processes. DNA is organized into segments called genes, with
each gene containing the information required to produce one or
more specific proteins. The production of a protein that a
particular gene encodes is known as gene expression or activity.
Many of the proteins inside a cell participate in a series of
receptor interactions and chemical reactions to form what are
known as molecular pathways that enable a cell to
perform its various metabolic functions. The improper expression
of proteins by one or more genes can alter these pathways and
affect a cells normal function, frequently resulting in
disease. The interaction of therapeutic agents with proteins in
these pathways is known as targeted therapy.
Targeted therapies are believed to be more precise in their
action and have less potential for undesirable side effects.

In recent years, scientists have made significant
progress toward understanding the nature of the complete set of
human genes, which is referred to as the human genome, and
evaluating the role that genes and the proteins they express
play in both normal and disease states. Academic and
governmental initiatives have sequenced a large number of the
genes that comprise the human genome. As new genes are
discovered and decoded within this sequence, scientists are
identifying and understanding their functions and interactions
within these pathways. These discoveries provide opportunities
to develop targeted therapeutic applications for individual
genes and the proteins they express, including treatment and
prevention of disease.



| |                                                           
| | ----------------------------------------------------------
| | Gene Therapy and Gene-Induced Protein
    Therapy Products

The common use of the term gene
therapy relates to the application of genes to regulate
cellular function or to correct cellular dysfunction. In this
context, gene therapy processes involve the replacement or
repair of genes to restore missing gene functions, correct
aberrant gene functions, augment normal gene activity,
neutralize the activity of defective genes or induce cell death.
These applications generally contemplate a permanent or at least
long lasting functioning of the administered gene, including a
permanent integration into the patients DNA.

Our gene-based products function differently from
this model. Instead of replacing or repairing genes, our
products use the proteins expressed by certain genes as
therapeutic agents to selectively kill cancer cells while not
harming normal cells. Under this approach, the genes expressing
the therapeutic proteins do not integrate into the
patients DNA and are cleared from the body after
administration. The result is pharmacologic

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intervention using the proteins produced by
genes, such as p53 and mda-7, to create biopharmaceuticals with
targeted, drug-like functionality. In some cases, the
therapeutic protein expressed by the gene will simply act to
replace a missing or dysfunctional protein or to augment the
level of a protein that is otherwise inadequate to prevent
disease or ameliorate an existing disease or dysfunction. In
other cases, the therapeutic protein produced by the gene will
act to eliminate the diseased cells through a process that
scientists refer to as apoptosis. Apoptosis, or programmed cell
death, is a normal process that the body uses to eliminate
damaged cells and cells that are no longer necessary. In some
circumstances, genes such as mda-7 send a signal for further
proteins to be produced in cells beyond those in which the gene
was initially expressed. This process is referred to as cytokine
activity, which potentially results in an increased number of
diseased tissue cells being addressed by gene-based therapy. The
genes used to provide the protein for disease treatment are
typically a normal human gene that is either being silenced in
the disease tissue or is otherwise being expressed at too low a
level to achieve the desired pharmacologic effect. Diseases like
cancer come about by altering the function and expression of
many genes which would otherwise act to protect the body.


In order to perform these processes, a gene for
disease treatment, or therapeutic gene, is often combined with a
delivery system, referred to as a vector, which enables the gene
to enter the target cell and deliver the therapeutic protein it
produces. The vector must be able to deliver a sufficient dose
of the genes and the proteins they produce to cause a
therapeutic effect. The most common delivery systems currently
in use are modified versions of viruses such as adenoviruses.
Scientists often use viruses as delivery systems because viruses
have the ability to efficiently infect cells and carry their
genetic material, or genome, into the cells. Scientists can
modify these viruses by deleting pieces of the viral genome that
are necessary for viral reproduction and replacing the deleted
pieces with an additional gene which can cause the manufacture
of a desired therapeutic protein. The resulting viral
vector retains the ability of the virus to efficiently
deliver the additional gene into cells, while losing the ability
to reproduce itself and spread to other cells. While viruses are
the most efficient means of introducing such genes into cells,
scientists have also developed synthetic substances such as
liposomes, which are structures made of fatty materials that
have no viral pieces. The synthetic systems that lack any viral
pieces, or non-viral systems, can also deliver genetic material
to host cells. Scientists have developed these systems to mimic
the characteristics of viral vector systems in order to expand
the disease targets that can be treated with gene and their
resulting proteins.

Many gene delivery systems in use today are based
on adenoviral vectors. Scientists create adenoviral vectors
using adenoviruses, which are among several common cold viruses.
These vectors have been modified so that their ability to
reproduce and spread will be inhibited in a human host. The DNA
of adenoviral vectors rarely becomes incorporated into the cell
genome. Instead, it remains as an independent genetic unit and
eventually disintegrates. This feature protects normal cells
that might have taken up the viral vector. For cancer treatment,
where the goal is to rapidly kill or repair the cancer cells,
the relatively short life of the adenoviral vector and its
ability to carry sufficient genes for disease treatment makes
its use particularly appropriate.



| |                          
| | -------------------------
| | Cancer, a Genetic Disease

Cancer is the second leading cause of death in
the United States, surpassed only by heart disease. In the
United States, approximately 1.3 million people are newly
diagnosed with cancer and over 557,000 people die from the
disease each year. Although the prevalence of specific cancers
varies among different populations, we believe that the overall
incidence of cancer worldwide is similar to that experienced in
the United States. The American Cancer Society estimates the
annual direct cost of treating cancer patients in the United
States is approximately $61.0 billion.

Cancer is a group of diseases in which the
bodys normal self-regulatory mechanisms no longer control
the growth of some kinds of cells. Cells are frequently exposed
to a variety of agents, from both external and internal sources,
which damage DNA. Even minor DNA damage can have profound
effects, causing certain genes to become overactive, to undergo
partial or complete inactivation, or to function abnormally.
Genes control a number of protective pathways in cells that
prevent cells from becoming cancerous. For example, pathways
that transmit signals for a cell to divide have on-off switches
that control cell division. Cells also

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have mechanisms that allow them to determine if
their DNA has been damaged, and they have pathways to repair
that damage or eliminate the cell.


The failure of any of these protective pathways
can lead to the development of cancer. Cancer is one of the more
attractive initial applications for gene-induced protein
therapies, because in contrast to more complex genetic
disorders, which may require long-term function of the
transferred gene, the treatment for cancer provides those
functions that will lead to the destruction of the cancer cell.
The introduction of normal tumor suppressor genes and the
proteins they produce, such as p53 and mda-7, into cancer cells
is a promising approach to treating cancer.



| |                       
| | ----------------------
| | Tumor Suppressor Genes

Tumor suppressor genes and the proteins they
produce are one class of genes that play a crucial role in
preventing cancer and its spread. This class of genes includes
the p53, mda-7, BAK and FUS-1 genes, among others.

The best known and most studied of the tumor
suppressor genes is the p53 gene. The p53 gene is one of the
most potent members of a group of naturally occurring tumor
suppressor genes, which act to kill cancer cells, arrest cancer
cell growth and protect cells from becoming cancerous. The p53
gene is involved in multiple cellular processes, including
control of cell division, DNA repair, cell differentiation,
genome integrity, apoptosis, and inhibition of blood vessel
growth, or anti-angiogenesis. Angiogenesis refers to the process
by which new blood vessels are formed, such as those that supply
blood and nutrients to tumors to feed their growth. The p53 gene
is capable of such wide-ranging effects because it orchestrates
the activity of a host of other genes and proteins. If a cell
suffers DNA damage, p53 responds to the damage by initiating a
cascade of protective processes to either repair the DNA damage
or to destroy the damaged cell through apoptosis. These
p53-mediated processes prevent damaged cells from multiplying
and progressing towards cancer.



| |                            
| | ---------------------------
| | Current Treatment of Cancer

Conventional therapeutic approaches, including
surgery, chemotherapy and radiation therapy, are ineffective or
only partially effective in treating many types of cancer.
Surgery is inadequate for many patients because the cancer is
inaccessible or impossible to remove completely. Surgery,
although applicable to over half of all cancer cases, is also
inadequate where the cancer has spread, or metastasized. For
certain cancers such as head and neck cancer, surgery can be an
effective treatment of the cancer, but may result in severe
disfigurement of and disability to the patient. Radiation
therapy and chemotherapy are, by their nature, toxic procedures
that damage both normal and cancerous tissue. Physicians must
carefully control administration of these therapies to avoid
life-threatening side effects, and many patients are unable to
withstand the most effective doses due to toxicity. These
conventional therapies typically cause debilitating side effects
such as bone marrow suppression, nausea, vomiting and hair loss,
often requiring additional and costly medications to ameliorate
such side effects. Further, the usefulness of certain
chemotherapies may be limited in tumors that have developed
mechanisms to evade the action of the drugs, a phenomenon known
as multi-drug resistance.

Due to the various limitations of most cancer
therapies currently utilized, the treatment of cancer remains
complex. Physicians refer to the first treatment regimen for a
newly-diagnosed cancer, usually surgery if possible, or
radiation therapy, as primary treatment. If the primary
treatment is not successful, the cancer will re-grow or continue
to grow, which is referred to as recurrent disease. In most
cases, recurrent cancer is not curable, with secondary treatment
regimens, usually chemotherapy, only providing marginal benefits
for a limited period of time. Physicians consider recurrent
cancer that has proven resistant to a secondary treatment to be
refractory. Most new cancer treatments are tested initially in
patients with either recurrent or refractory disease because
there are no standard therapies likely to provide them with
clinical benefit.

Given that established cancer therapies often
prove to be incomplete, ineffective or toxic to the patient,
there is a need for additional new treatment modalities that
either complement established therapies or replace them by
offering better therapeutic outcomes. For example, in a limited
number of cancers, immunotherapy, which seeks to stimulate a
patients own immune system to kill cancer cells, has
rapidly become widely accepted by improving on the shortcomings
of existing therapy. However, for a broad range of cancers,

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additional approaches, especially more specific
ones that target specific dysfunctional pathways in the cancer
cell, are needed to reduce the toxicity and improve upon
marginal benefits common to current cancer treatments.
Gene-induced protein therapy applications are designed to
address the cellular dysfunction that causes cancer, compared
with small molecule drugs or immunotherapeutic agents, which may
act indirectly.


The Introgen Approach

Our primary approach for the treatment of cancers
is to deliver genes that increase production of normal
cancer-fighting proteins. Rather than acting to repair or
replace aberrant or missing genes and thereby creating a
long-term or permanent change to the patients genome, our
products work in a different manner by acting as templates for
the transient in vivo production of proteins that have
pharmacologic properties. The resultant proteins engage
disease-related molecular targets or receptors to produce a
specific therapeutic effect.

We believe that using genes that do not integrate
into the patients genome and are cleared from the body
after administration in order to induce the production of
biopharmaceutical proteins, is an emerging field that presents a
new approach for treating many cancers without the toxic side
effects common to traditional therapies. We have developed
significant expertise in identifying therapeutic genes, which
are genes that may be used to treat disease, and in using what
we believe are safe and effective delivery systems to transport
these genes to the cancer cells. We believe that we are able to
treat a number of cancers in a way that kills cancer cells
without harming normal cells.

Because most cancers are amenable to local
treatment, we generally administer therapeutic proteins directly
into a patients cancerous tumor by hypodermic syringe. We
have initially focused on advanced cancers that lack effective
treatments and in which local tumor growth control, where the
tumor stops growing or shrinks, is likely to lead to measurable
benefit. We believe our clinical trials have shown that our
gene-induced protein therapies can be used alone and in
combination with conventional treatments such as surgery,
radiation therapy and chemotherapy. To date, doctors at clinical
sites in North America, Europe and Japan have treated hundreds
of patients with our lead product candidate, ADVEXIN therapy,
establishing a large safety database.

We have developed ADVEXIN therapy by combining
the p53 gene with the adenoviral delivery system we have
developed and extensively tested. Evidence from laboratory,
pre-clinical and clinical trials suggests that proteins produced
by the p53 tumor suppressor gene are sufficient to slow, stop or
kill many cancer cell types without the gene being integrated
into the patients genome. We believe that ADVEXIN therapy
holds promise as an effective anti-cancer therapeutic that kills
cancer cells without harming normal cells, both in combination
with conventional cancer treatment and as a stand-alone
treatment for patients who are resistant to or unable to receive
conventional therapies. In addition, data obtained from a
Phase 1 clinical trial in patients with advanced cancer
provide evidence that systemic, or intravenous, administration
of ADVEXIN therapy is safe and well tolerated. We have also
developed INGN 241 by inserting the mda-7 gene into the
adenoviral delivery system we have developed and extensively
tested, and believe it also holds promise as an effective
anti-cancer therapeutic.

The Introgen Strategy

Our objective is to be the leader in the
development of gene-induced protein therapies and other products
for the treatment of cancer and other diseases that, like
cancer, result from cellular dysfunction and uncontrolled cell
growth. To accomplish this objective, we are pursuing the
following strategies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Develop and Commercialize ADVEXIN therapy and
    INGN 241 for Multiple Cancer
    Indications.We plan to continue
    developing ADVEXIN therapy using the p53 gene and our INGN 241
    product using the mda-7 gene in multiple cancer indications.                                                                                                                                                                        
|
| |  | Develop Our Portfolio of Gene-Induced Protein
    Therapy and Other Drug Products.Utilizing our significant research, clinical, and regulatory
    expertise, we are evaluating development of additional
    gene-induced protein therapies, such as FUS-1, and other drug
    products for various cancers. We have established an efficient
    process for evaluating new drug candidates and advancing them
    from pre-

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | clinical to clinical development. We have
    identified and licensed multiple technologies, which we intend
    to combine with our adenoviral and non-viral vector systems and
    which we believe are attractive development targets for the
    treatment of various cancers. We are also evaluating the
    development of mebendazole (INGN 601), our first small molecule
    product candidate. We intend to evaluate additional
    opportunities to in-license or acquire new technologies.                                       
|
| |  | Establish Targeted Sales and Marketing
    Capabilities.Because the oncology
    market is characterized by a concentration of specialists in
    relatively few major cancer centers, it can be effectively
    addressed by a small, focused sales force. We believe we can
    address this market by building a direct sales force as part of
    the ADVEXIN therapy commercialization process and by pursuing
    marketing and distribution agreements with corporate partners
    for ADVEXIN therapy as well as additional products.
|
| |  | Expand Our Market Focus to Non-Cancer
    Indications.We plan to leverage our
    scientific, research and process competencies in gene function
    and vector development to pursue gene-based protein therapies
    for a variety of other diseases and conditions. We believe these
    therapies could hold promise for diseases such as cardiovascular
    disease and rheumatoid arthritis, which, like cancer, result
    from cellular dysfunction or uncontrolled cell growth.                                                     

Product Development Programs

The following table summarizes the status of our
product development programs.

|                                               |  |                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Product (Gene)**                               |  | Cancer Indication                                                                                                                                                                                                                                                     |  | Development Status                                                                                                                                                                                                                             
|                                               |  |                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                
|ADVEXIN Therapy (p53)                          |  | Head and Neck
    Non-Small Cell Lung
    Breast
    Perioperative (and surgery)
    Esophageal
    Prostate
    Intravenous Administration
    Ovarian
    Oral Cancer (mouthwash)
    Bladder
    Bronchoalveolar
    Brain (glioblastoma)
    Rheumatoid Arthritis |  | Phase 3
    Phase 2 completed
    Phase 2
    Phase 1-2
    Phase 1-2
    Phase 1 completed*
    Phase 1 completed*
    Phase 1 completed*
    Phase 1-2*
    Phase 1 completed*
    Phase 1 completed*
    Phase 1 completed*
    Pre-clinical
|INGN 225 (p53 vaccine)                         |  | Small Cell Lung
    Breast                                                                                                                                                                                                                                            |  | Phase 1-2
    Phase 1-2                                                                                                                                                                                                                        
|INGN 241 (mda-7)                               |  | Various (solid tumors)
    Melanoma
    Pancreatic
    Breast                                                                                                                                                                                                         |  | Phase 1-2
    Phase 1-2
    Pre-clinical
    Pre-clinical                                                                                                                                                                                      
|INGN 401 (FUS-1 program)                       |  | Lung                                                                                                                                                                                                                                                                  |  | Phase 1                                                                                                                                                                                                                                        
|INGN 007 (Replication-competent viral therapy) |  | Various (solid tumors)                                                                                                                                                                                                                                                |  | Pre-clinical                                                                                                                                                                                                                                   



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|   |                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------
|*  | Conducted in conjunction with the National Cancer
    Institute.                                        
|  
|** | We hold the worldwide commercial rights to the
    product candidates related to each of these programs.



| |                                          
| | -----------------------------------------
| | Indications for
    ADVEXIN®Therapy (p53)

ADVEXIN therapy combines the p53 gene with an
adenoviral vector for delivery in order to introduce the
therapeutic protein or gene. The p53 gene works through multiple
mechanisms of action including apoptosis, or programmed cell
death, cancer cell growth arrest, and reducing the blood supply
to tumors through a process known as anti-angiogenesis.
Molecular pathways normally controlled by the p53 gene are
abnormal in the vast majority of cancers. Patients may receive
multiple doses of ADVEXIN therapy, and

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some patients have received ongoing ADVEXIN
treatments for several years. Physicians typically inject
ADVEXIN therapy directly into the tumor. The importance of the
protein produced by the p53 gene in controlling tumor growth
suggests that ADVEXIN therapy is applicable to multiple cancers.
Our initial development strategy for ADVEXIN therapy is to
obtain approval for cancer indications, such as head and neck
and lung cancer, which have near-term clinical endpoints and
where current treatment is inadequate.




| |                     
| | --------------------
| | Head and Neck Cancer

In the United States, the annual incidence of
squamous cell cancer, a cancer of cells that line the oral
cavity, pharynx and larynx, is approximately 40,000. The
worldwide annual incidence of head and neck cancer, encompassing
squamous cell cancer, as well as cancers of the tongue, mouth,
vocal cords and tissues surrounding them, is approximately
400,000 new cases. Head and neck cancer is frequently fatal,
with most patients dying from local and regional disease, rather
than from metastasis to other organs. Primary treatments for
head and neck cancer are generally surgery and radiation
therapy. However, these treatments are debilitating and have
permanent side effects, including loss of teeth, loss of voice
or disfigurement. Moreover, a large number of patients with head
and neck cancer experience recurrence. Patients with recurrent
cancer do not typically respond well to further therapies, which
may typically include chemotherapy, and extended patient
survival is rare.

We are developing ADVEXIN therapy as a treatment
for squamous cell cancer of the head and neck. Based on clinical
results from our Phase 1 and Phase 2 clinical trials,
we have commenced patient enrollment in two multi-national,
multi-site Phase 3 clinical trials which we refer to as our
301 and 302 trials. The design of our two Phase 3 clinical
trials was agreed to by the FDA under its Special Protocol
Assessment program. If these trials are successful, we expect to
use the resulting data, along with other data, to apply for
regulatory approval.

Clinical trial 301 is a Phase 3 clinical
trial that compares the efficacy of ADVEXIN therapy to a
standard chemotherapy treatment in patients with recurrent
squamous cell cancer of the head and neck in whom standard
treatment of surgery and radiation therapy have not been
effective. Clinical trial 301 is planned to enroll approximately
240 patients with recurrent disease. Patients in the
control group receive weekly treatments of methotrexate, a
standard chemotherapy treatment for this condition, while
patients in the treatment group receive twice weekly
intratumoral injections of ADVEXIN therapy. The clinical
trials primary endpoint is survival.

Clinicial trial 302 is a Phase 3 clinical
trial that compares the efficacy of ADVEXIN therapy when it is
used in combination with a standard chemotherapy treatment to
that of standard chemotherapy treatment used alone in patients
with recurrent disease. Clinical trial 302 is planned to enroll
approximately 255 patients with recurrent squamous cell
head and neck cancer. These patients will not have previously
been treated with chemotherapy. Patients in the control group
receive the chemotherapy drugs cisplatin and 5-fluorouracil,
while the patients in the treatment group receive the same drugs
plus intratumoral ADVEXIN therapy. Each treatment is repeated
every four weeks, which is a standard interval for chemotherapy.
The clinical trials primary endpoint is time to
progression of the treated lesions as measured by a
patients tumor growth beyond the patients baseline,
or tumor size at the beginning of the trial. Survival is the
secondary endpoint. The 301 and 302 trials are designed to be
complementary, with the primary endpoint in each serving as a
secondary endpoint, or result that we will evaluate secondarily,
in the other. Both of these studies are randomized, and are
being conducted at numerous cancer centers in the United States,
Canada and Europe.

ADVEXIN therapy was previously studied in three
independent, multi-national, multi-site Phase 2 clinical
trials of ADVEXIN therapy in 217 patients with recurrent
squamous cell head and neck cancers. Starting in 2001 with the
restructuring of our collaboration with Aventis, we began
collecting and analyzing clinical data from three Phase 2
clinical trials conducted by Aventis. We and Aventis previously
reported interim findings by Aventis from two of those
Phase 2 clinical trials comprising approximately
112 patients. Additional Phase 2 clinical trial data
from over 100 patients had not been previously included in
a combined analysis of the ADVEXIN therapy Phase 2
clinicial trials for head and neck cancer. The case report forms
and data from all three, independent, multi-institutional and
multi-national studies were collected by us during the

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past several years and have provided us with the
opportunity to closely examine the clinical trial information.
We obtained independent confirmation of the Aventis Phase 2
clinicial trial response data. In addition, we have obtained and
are continuing to obtain expert analysis from statistical,
clinical, regulatory and oncology specialists.


All of the 217 patients in the Phase 2
head and neck cancer clinical trials had failed initial
treatments with surgery, radiation or chemotherapy. Many
patients had also been treated with subsequent additional
chemotherapy. These patients typically do not respond well to
further therapies. The 217 patients were treated with
ADVEXIN therapy alone as monotherapy. After treatment with
ADVEXIN therapy, many patients received subsequent chemotherapy.

In the combined analysis of the three
multi-national, multi-site Phase 2 clinical trials, the
overall tumor growth control rate was 59%. Tumor growth control
rate represents the percentage of treated tumors where there was
disappearance of the tumor, shrinkage of the tumor or the
absence of additional tumor growth beyond 25% of pre-treatment
measurements. In 10% of the treated lesions, there was either
complete tumor regression or a reduction of tumor size greater
than or equal to 50% of the pre-treatment size. These clinical
findings are consistent with the results of earlier analysis of
112 patients and earlier clinical trials where tumor growth
control was observed. These encouraging clinical findings are
consistent with the results of multiple pre-clinical and
clinical trials where tumor growth control was observed.

As in all of our previous clinical trials,
ADVEXIN therapy was well tolerated without the significant side
effects common to conventional cancer treatments. Side effects
were consistent with those experienced in the Phase 1
clinical trial discussed below.

Previously, ADVEXIN therapy was tested in a
Phase 1 safety clinical trial in patients with recurrent
squamous cell head and neck cancer. In this trial,
33 patients received a total of 429 doses. We believe this
trial demonstrates that physicians can safely inject ADVEXIN
therapy into head and neck tumors repetitively over many months.
Side effects were minimal, consisting of pain at the site of the
injection and flu-like symptoms that could be readily treated
without disrupting the administration of the drug. No patient
had treatment stopped or reduced because of toxicity, even at
the maximum dose. In 15 of these patients, we showed that
surgery could be safely combined with ADVEXIN therapy without
increasing the risk of wound infections or inhibiting healing.



| |                           
| | --------------------------
| | Non-Small Cell Lung Cancer

Lung cancer is the most common cause of
cancer-related death in the United States, with an estimated
172,000 new cases diagnosed annually. An estimated 157,000
people die from the disease annually. The five-year survival
rate for patients diagnosed with lung cancer is 15%. Non-small
cell, or NSC, lung cancer comprises approximately 80% of all
lung cancer cases. Surgery can be an effective treatment in the
early stages of disease, but only a minority of patients are
eligible because early-stage diagnosis is uncommon. Up to 70% of
NSC lung cancer patients have disease that is too far advanced
for complete surgical resection. The remaining patients
typically undergo a combination of surgery, radiation and
chemotherapy. This combination treatment is only effective in a
small percentage of cases. Clinical data has shown that of
patients who have unresectable disease, approximately 80% will
again have active cancer cells three months after completing a
full course of radiation. Due to the ineffective treatment of
NSC lung cancer in many patients, a significant, unmet need for
better treatments exists, particularly if it can be combined
with existing treatments without increasing the toxicity of
those treatments.

We have completed a Phase 2 clinical trial
of ADVEXIN therapy in combination with radiotherapy as the
primary treatment for patients who had newly-diagnosed,
inoperable NSC lung cancer and who could not tolerate
chemotherapy. Radiotherapy is the standard treatment for
patients in this condition. All patients in this trial received
three ADVEXIN therapy injections into their tumors during a
five-to-six week course of radiotherapy. These patients were
evaluated for the efficacy, safety and side effects of the
treatment to ascertain whether the combination of ADVEXIN
therapy with radiation was tolerated. Other objectives of this
trial were to determine if the addition of ADVEXIN therapy
injected directly into the tumor and in

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combination with standard radiotherapy improved
the response rate of the injected tumor in patients with
inoperable NSC lung cancer, and to evaluate the tolerability of
the combination treatment.


We conducted an analysis of 19 patients that
the investigators treated and evaluated in the Phase 2
clinical trial of ADVEXIN therapy. This analysis included both
radiographs to assess the size of the treated tumor mass
supplemented by tumor biopsies to assess for living cancer cells
within the tumor at the site of treatment. The patients were
then followed without further treatment for clinical evidence of
disease progression. The results of this analysis established an
acceptable safety profile and showed evidence of local tumor
growth control and reductions in tumor size. Twelve of the
19 patients that the investigators treated and evaluated,
or 63%, had radiographic evidence of local tumor growth control,
including 12 complete or partial responses of the tumor that the
investigators injected. Furthermore, the preliminary analysis
showed that nine of these 12 patients had no living tumor
cells in the biopsy that the investigator took from the site of
the injection. This study was published in the January 2003
issue of Clinical Cancer Research.

We conducted a Phase 1 safety clinical trial
of ADVEXIN therapy in 53 patients with end-stage NSC lung
cancer who had failed surgery, radiation and chemotherapy. In
one arm of the trial, 29 patients received ADVEXIN therapy
injected into a single tumor site. In the other arm,
24 patients received ADVEXIN therapy in combination with
cisplatin, a commonly used chemotherapeutic agent. The patients
in this trial tolerated the ADVEXIN therapy well, and the most
severe side effects noted were consistent with those experienced
with the use of cisplatin alone.



| |              
| | -------------
| | Breast Cancer

Physicians diagnose an estimated 213,000 new
cases of breast cancer annually in the United States, and
approximately 40,000 people are estimated to die from the
disease each year. We are conducting a Phase 2 clinical
trial using ADVEXIN therapy administered in combination with
systematic chemotherapy in women who have newly diagnosed,
locally advanced breast cancers. Interim results of this trial
were published in June 2003 at the annual meeting of the
American Society of Clinical Oncology. Data from this clinical
trial indicated that objective clinical responses (complete
tumor regression or greater than 50% reduction in tumor size)
were documented in 83% of the patients that received ADVEXIN
therapy combined with systematic chemotherapy. The resectability
rate was 100% at mastectomy. This clinical trial is part of our
ADVEXIN therapy development plan, which is to administer ADVEXIN
therapy in the setting of primary, multi-modality local therapy
of cancer in conjunction with surgery, chemotherapy and
radiation therapy. In addition, the NCI has concluded a
Phase 1 clinical trial using ADVEXIN therapy in patients
with locally recurrent breast cancer involving the chest wall.



| |                
| | ---------------
| | Prostate Cancer

Prostate cancer is one of the most common forms
of cancer. Approximately 221,000 new cases occur annually in the
United States and approximately 29,000 people are estimated to
die from the disease each year. Most prostate cancer patients
are treated with either surgery or radiation therapy. Because
newer and simpler methods of diagnosis that detect the disease
at an earlier stage exist today, a significant number of
patients who are diagnosed with prostate cancer before it has
metastasized may benefit from local treatment therapies such as
ADVEXIN therapy.

We have completed enrollment and treatment in a
Phase 1 clinical trial of 30 patients with prostate
cancer where investigators injected ADVEXIN therapy into the
prostate gland with a subsequent surgical resection of the
gland. The patients tolerated the ADVEXIN therapy well. In a
preliminary analysis, 27% of the patients showed measurable
evidence of tumor shrinkage following ADVEXIN therapy injections.



| |              
| | -------------
| | Other Cancers

There are several other cancer indications for
which ADVEXIN therapy is in earlier stages of clinical
development. To evaluate the possible use of ADVEXIN therapy in
these indications, we collaborate with the NCI under a
Cooperative Research and Development Agreement, or CRADA. Under
this program the NCI has conducted and is conducting clinical
trials with ADVEXIN therapy at leading cancer centers using

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clinical protocols that we have developed with
the NCI. These protocols are designed to demonstrate the safety
of ADVEXIN therapy in these indications and by various routes of
administration.


Ovarian Cancer.There are an estimated 25,000 new cases of ovarian cancer and
14,000 deaths attributed to ovarian cancer in the United States
each year. Approximately 80% of patients with advanced disease
can be treated with simple intraperitoneal administration, that
is, administration of gene therapeutic agents into the abdominal
cavity. The NCI has conducted a Phase 1 clinical trial of
ADVEXIN therapy in this population.

Bladder Cancer.There are an estimated 57,000 new cases of bladder cancer each
year in the United States. The annual number of deaths from this
indication in the United States is estimated to be 12,000. The
anatomy of the bladder allows delivery of gene therapeutic
agents via catheter. The NCI has conducted a Phase 1
clinical trial using ADVEXIN therapy in this indication.

Brain Cancer
(Glioblastoma).An estimated 13,000
people die from cancers of the brain and central nervous system
in the United States each year. Glioblastoma multiforme, or GBM,
is a particularly deadly form of primary brain cancer and
represents approximately 30% of all brain cancer cases in the
United States. GBM is not effectively treated with conventional
therapies because the lesions are deep within the brain, are
often large and grow rapidly. The NCI has conducted a
Phase 1 clinical trial using ADVEXIN therapy in recurrent
GBM.

Bronchoalveolar
Cancer.We estimate that
10,000 new cases of bronchoalveolar cancer in the United
States each year. Bronchoalveolar cancer is a form of non-small
cell lung cancer that typically spreads throughout the airspaces
in the lungs, but does not spread elsewhere in the body. Current
treatments are not effective for this condition. The NCI is
conducting a Phase 1 clinical trial in bronchoalveolar
cancer with ADVEXIN therapy administered by directly bathing the
airway leading to the diseased lung segments. Data from this
study was published in the June 2003 Proceedings of the
American Society for Clinical Oncologydemonstrating that
the therapy was well-tolerated in all 26 patients treated,
that there was an improved ability to breathe in 20% of the
patients who were able to be evaluated and that the disease
stabilized and did not continue to grow in some of these
patients.

Premalignant Oral
Lesions.Through a Clinical Trials
Agreement we and the NCI are conducting a Phase 1/early
Phase 2 clinical trial in which ADVEXIN therapy is
administered in the form of an oral rinse or mouthwash. This
trial is the first to investigate the effect of ADVEXIN therapy
on non-malignant, oral lesions that are at high risk for
developing into cancer. Currently, there are no such cancer
prevention treatments approved by the FDA for head and neck
malignancies.

Esophageal Cancer.Esophageal cancer is a major health problem in Japan. We are
conducting a Phase 1/early Phase 2 study of ADVEXIN
therapy for the treatment of advanced unresectable squamous cell
esophageal cancer. The study protocol was developed and is
sponsored by investigators at Chiba University in Japan. The
purpose of the study is to determine the safety and biological
and therapeutic activity of ADVEXIN therapy in esophageal
cancer. Preliminary results demonstrating safety and positive
biological effect resulting from the expression of the p53
protein were published in June 2003 at the meeting of the
American Society of Clinical Oncology. Of the first eight
patients evaluated to date, one patient was observed to have
minor tumor regression following ADVEXIN therapy injection.



| |                                     
| | ------------------------------------
| | Indications for INGN 241
    (mda-7)

Our second product candidate, INGN 241, uses the
mda-7 gene, a promising tumor suppressor gene that we believe,
like p53, has broad potential to induce apoptosis or cell deaths
in many types of cancer. We have combined the mda-7 gene product
with our adenoviral gene delivery system to form INGN 241. Our
pre-clinical trials have shown that the protein produced by INGN
241 suppresses the growth of many cancer cells, including those
of the breast, lung, ovaries, colon, prostate and the central
nervous system, while not affecting growth of normal cells.
Because INGN 241 kills cancer cells, even if other tumor
suppressor genes, including p53 or p16, are not functioning
properly, it appears that mda-7 functions via a novel mechanism
of tumor suppression.

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We have conducted pre-clinical work indicating
that in addition to its known activity as a tumor suppressor
gene, the protein produced by the mda-7 gene may also stimulate
the bodys immune system to kill metastatic tumor cells and
to protect the body against cancer, thereby offering the
potential of providing an added advantage in treating various
cancers because it may attack cancer using two different
mechanisms. Because the mda-7 gene product may act as a
cytokine, or immune system modulator, it is also known as
interleukin-24, or IL-24. The mda-7 gene and the protein it
produces may also work as a radiation sensitizer to make several
types of human cancer cells more susceptible to radiation
therapy, and we have seen evidence of this effect in our
pre-clinical work. We have also published the results of a
pre-clinical trial indicating INGN 241 may suppress the growth
in vivo of non-small cell lung cancer through apoptosis in
combination with anti-angiogenesis.

We have completed enrollment of a
Phase 1/early Phase 2 clinical trial using INGN 241 to
evaluate safety, mechanism of action and efficacy in
approximately 25 patients with solid tumors. This trial has
indicated that in patients with solid tumors, INGN 241 was well
tolerated, was biologically active and displayed minimal
toxicity associated with its use. We are planning to initiate a
Phase 1/early Phase 2 clinical trial using INGN 241 in
melanoma.

Also, pre-clinical studies in INGN 241 in breast
cancer cell lines have shown that treatment with a combination
of INGN 241 plus Herceptin induces cell death in Her-2/neu
positive breast cancer cells at a rate above that seen with
either agent alone. In these studies, it was also noted that
while Herceptin exhibited no activity on Her-2/neu negative
cells, INGN 241 did induce cell death in these cells.

We have an exclusive license to the mda-7 gene
for our therapeutic applications from Corixa Corporation. Our
pre-clinical program with INGN 241 has included research at The
University of Texas M. D. Anderson Cancer Center, Columbia
University and Corixa Corporation.



| |                                           
| | ------------------------------------------
| | Indications for INGN 225 (p53
    vaccine)

As a supplement to our gene-induced therapeutic
protein programs, we are developing INGN 225 using ADVEXIN
therapy to create a highly specific therapeutic cancer vaccine
that stimulates a particular type of immune system cell known as
a dendritic cell. Recently published research in Current
Opinion in Drug Discovery & Developmentconcluded
that ADVEXIN therapy can be used with a patients isolated
dendritic cells as an antigen delivery and immune enhancing
therapeutic strategy. Pre-clinical testing has shown that the
immune system can recognize and kill tumors after treatment with
dendritic cells stimulated by ADVEXIN therapy, which suggests a
vaccine consisting of ADVEXIN therapy stimulated dendritic cells
(INGN 225) could have broad utility as a treatment for
progression of solid tumors. We are conducting a
Phase 1/early Phase 2 trial, performed in
collaboration with the University of South Florida and the
Moffitt Cancer Center, in patients with small-cell lung cancer
and are initiating a Phase 1/early Phase 2 trial in
patients with breast cancer both using INGN 225 after treatment
with standard chemotherapy.



| |                                     
| | ------------------------------------
| | Indications for INGN 401
    (FUS-1)

Pre-clinical studies have shown that gene
delivery of FUS-1, which we exclusively license from The
University of Texas M. D. Anderson Cancer Center, significantly
inhibits the growth of tumors and greatly reduces the metastatic
spread of lung cancer in animals when delivered to tumor cells
via either an adenoviral or a non-viral delivery system. A
Phase 1 trial is ongoing at The University of Texas M. D.
Anderson Cancer Center testing INGN 401 in patients with
advanced non-small cell lung cancer who have previously been
treated with chemotherapy.

Research and Development Programs

In addition to our ongoing clinical programs, we
are conducting a number of pre-clinical and research programs
involving a variety of therapeutic genes for the treatment of
cancer. These programs involve genes that act through diverse
mechanisms to inhibit the growth of or kill cancer cells.

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We are conducting research on additional genes,
including BAK, which hold promise as therapeutic candidates. BAK
is a pro-apoptotic gene that kills cancer cells. We are working
with our collaborators at M. D. Anderson Cancer Center to
identify and develop both viral and non-viral vectors containing
this gene. We had exclusive rights to use the BAK gene under a
license with LXR Biotechnology, Inc., the rights of which were
subsequently sold to Tanox, Inc. We have licensed the adenoviral
vector containing the p16 gene, a widely known tumor suppressor
gene, from M. D. Anderson Cancer Center and have demonstrated
that the gene inhibits tumor growth in animal models.

We license from M. D. Anderson Cancer Center a
group of genes known as the 3p21.3 family of genes. Pre-clinical
research performed on these genes by collaborators at The
University of Texas Southwestern Medical Center and M. D.
Anderson Cancer Center suggests that the 3p21.3 genes play a
critical role in the suppression of tumor growth in lung and
other cancers. This family of genes includes the FUS-1 gene that
we are testing as INGN 401 in a Phase 1 study. We are
working with M. D. Anderson Cancer Center to further evaluate
other 3p21.3 genes as clinically relevant therapeutics.

As a supplement to our gene-induced protein
therapy product programs, we are evaluating the development of
mebendazole, our first small molecule candidate, which we refer
to as INGN 601, for treatment of cancer and other
hyperproliferative diseases. The use of the mebendazole compound
is approved by the FDA for the oral treatment of parasitic
diseases. Pre-clinical trials suggest that mebendazole may also
be an effective treatment of cancer. The results of pre-clinical
trials involving mebendazole and lung cancer are published in
the October 2002 edition of Clinical Cancer Researchand
the January 2003 edition of Molecular Cancer
Therapeutics. We are working with M. D. Anderson Cancer
Center to further evaluate this molecule as a cancer treatment.

We are investigating vector technologies for
delivering gene-based products into targeted cells. Through our
strategic collaboration with VirRx, Inc., we are developing INGN
007, a replication-competent viral therapy that over-expresses
an adenoviral gene and thereby causes rapid disruption of tumor
cells in which the adenovirus replicates. Pre-clinical testing
indicates that INGN 007 can eradicate human tumors in animal
models. We anticipate pursuing clinical confirmation of this
therapeutic candidate. We are also evaluating whether this
replicating viral construct could form the basis of a
self-amplifying delivery system, which could complement our
existing replication-disabled, adenoviral gene delivery system
in selected therapeutic scenarios.

We believe our research and development expertise
gained from our gene-induced protein therapies for cancer is
also applicable to other diseases that, like cancer, result from
cellular dysfunction and uncontrolled cell growth. As a result,
we are conducting research in collaboration with medical
institutions to understand the safety and effectiveness of our
gene-induced protein therapy product candidates in the treatment
of other diseases.

Introgen Enabling Technologies

We have a portfolio of technologies, referred to
as enabling technologies, for administering gene-based products
to patients and for enhancing the effects of these products,
which we plan to exploit to develop additional gene-based
products to treat cancer and other diseases which, like cancer,
result from cellular dysfunction and uncontrolled cell growth.



| |                       
| | ----------------------
| | Viral Delivery Systems

Adenoviral Systems.We have demonstrated that ADVEXIN therapy and INGN 241, which
use our adenoviral vector system, enter tumor cells and express
their proteins despite the bodys natural immune response
to the adenoviral vector. While the adenoviral vector system
used appears to be appropriate for the treatment of cancer by
local administration, we have developed a number of additional
systems that utilize modified adenoviral vectors for gene
delivery. These systems also may be applicable to indications
where activity of the gene for disease treatment is required for
longer periods of time or where systemic administration may be
necessary.

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Replication-Competent
Systems.Through our strategic
collaboration with VirRx, Inc., we are developing INGN 007, a
replication-competent viral therapy in which viruses bind
directly to cancer cells, replicate in those cells, and cause
those cancer cells to die. Pre-clinical testing indicates that
INGN 007 over-expresses a gene that allows the vector to
saturate the entire tumor and to suppress tumor growth in animal
models. We anticipate pursuing clinical confirmation as to
whether this self-amplifying delivery system can complement our
existing adenoviral gene delivery system, which is replication
disabled, in selected therapeutic scenarios.



| |                           
| | --------------------------
| | Non-Viral Delivery Systems

We have in-licensed and are developing a
non-viral delivery platform as a potential alternative to viral
delivery for certain types of cancers, or clinical indications,
particularly those that require systemic administration. We are
currently using this technology to deliver the FUS-1 gene in a
Phase 1 clinical study in collaboration with The University
of Texas M. D. Anderson Cancer Center.



| |                                     
| | ------------------------------------
| | Additional Enabling
    Technologies

Our research activities include a number of
additional technologies that expand our capabilities. These
activities include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multi-Gene Vector
    System.This technology is designed to
    combine multiple genes with a vector. This has the potential to
    be used with both viral and non-viral delivery systems to allow
    the activity of more than one gene for disease treatment at a
    time.                                                                                                
|
| |  | Pro-Apoptotic Gene Delivery
    System.This technology is designed to
    allow the activity of pro-apoptotic, or apoptosis-inducing,
    genes during treatment only, while temporarily suppressing the
    ability of the gene for disease treatment to kill producer cells
    during production. This will facilitate higher volume production
    of pro-apoptotic agents.
|
| |  | Tissue-Specific Targeting
    Systems.This technology is designed
    to limit the activity of the gene for disease treatment to
    particular cell types. It is intended to be applied to both
    viral and non-viral vectors.                                                                                                                                              

Manufacturing and Process
Development

Commercialization of a gene-based product
requires process methodologies, formulations and quality release
assays in order to produce high quality materials at a large
scale. We believe that the expertise we have developed in the
areas of manufacturing and process development represents a
competitive advantage. We have developed scale-up methodologies
for both upstream and downstream production processes,
formulations that are safe and stable, and product release
assays that support product quality control.

We own and operate a state-of-the-art, validated
manufacturing facility that we believe complies with the
FDAs current Good Manufacturing Practices requirements,
commonly known as CGMP requirements. We produce ADVEXIN therapy
in this facility for use in our Phase 1, 2 and 3 clinical
trials. The design and processes of this facility have been
reviewed with the FDA. The validation of our manufacturing
processes is ongoing. We plan to use this facility for our
market launch of ADVEXIN therapy. To date, we have produced over
20 batches of ADVEXIN therapy clinical material, including all
clinical material used in the Phase 2 and Phase 3
clinical trials for this product candidate. In addition, we have
entered into agreements with third parties under which we have
provided process development and manufacturing services related
to products they are developing. We also have produced in a
separate facility INGN 241 for use in our Phase 1/early
Phase 2 clinical trial.

Business and Collaborative
Arrangements



| |            
| | -----------
| | VirRx, Inc.

We are working with VirRx, Inc. (VirRx) to
investigate other vector technologies, specifically
replication-competent viral therapies, for delivering gene-based
products into targeted cells. We have an agreement with VirRx,
which began in 2002, to purchase shares of VirRxs
Series A Preferred Stock. We purchased

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$1,125,000 of this stock for cash through
December 31, 2003, which we have recorded as research and
development expense. We have agreed to purchase an additional
$150,000 of this stock for cash on the first day of each quarter
through January 1, 2006. VirRx is required to use the
proceeds from these stock sales in accordance with the terms of
a collaboration and license agreement between us and VirRx for
the development of VirRxs technologies. We may
unilaterally terminate this collaboration and license agreement
with 90 days prior notice, which would also terminate the
requirement for us to make any additional stock purchases.
Provided the collaboration and license agreement remains in
place, we are required to make additional milestone stock
purchases, either for cash or through the issuance of our common
stock, upon the completion of Phase 1, Phase 2 and
Phase 3 clinical trials involving technologies licensed
under this agreement and we are required to make a
$5.0 million cash milestone payment to VirRx, for which we
receive no VirRx stock, upon approval by the FDA of a Biologics
License Application for the first collaboration product based on
these technologies. To the extent we have already made cash
milestone payments, we may receive a credit of 50% of the
Phase 2 clinical trial milestone payments and 25% of the
Phase 3 clinical trial milestone payments against this
$5.0 million cash milestone payment. The additional
milestone stock purchases and cash payment are not anticipated
to be required in the near future. We have an option to purchase
all outstanding shares of VirRx at any time until March 2007.




| |                  
| | -----------------
| | Aventis Pharma AG

In October 1994, we entered into two
collaboration agreements with Rhône-Poulenc Rorer
Pharmaceuticals Inc., which ultimately became part of Aventis
Pharma, or Aventis, a global pharmaceutical company. In June
2001, we restructured this collaborative relationship and
assumed responsibility for the worldwide development of all p53
and K-ras products, and acquired all marketing and
commercialization rights with respect to those products. We also
assumed the control and performance of ongoing clinical trials
for p53-and K-ras-based products and full responsibility for all
pre-clinical research and development and clinical trials for
new products involving these genes. In connection with this
restructuring and pursuant to a stock purchase agreement
executed on June 30, 2001, Aventis purchased
$25.0 million of non-voting preferred stock from us. During
the quarter ended September 30, 2001, we made a one-time
payment of $2.0 million to Aventis in consideration for
internal costs it incurred in facilitating the transition of
control and performance of these clinical trials from Aventis to
us. We are also obligated to reimburse Aventis for amounts paid
by Aventis to non-affiliate third parties or government entities
pursuant to those third party agreements extant at the time of
the restructured agreement, including royalties, license fees,
milestone or other payments.

Under the restructured p53 and K-ras
collaboration agreement, we have the exclusive, worldwide right
to market and manufacture the products developed under each of
the prior collaboration agreements, as well as any new p53- or
K-ras-based products. Aventis licensed or transferred to us all
of its patents covering the manufacture, sale, offering for
sale, importation or use of ADVEXIN therapy and other K-ras
patents, delivery patents and targeting technologies, as well as
all trademarks and goodwill associated with ADVEXIN therapy.
Aventis also agreed, for a period of seven years, not to conduct
any activities directed to the development or commercialization
of any gene-based products using the p53 or K-ras genes. We are
not pursuing any research and development programs with respect
to the K-ras genes at this time.

Prior to the restructuring of the collaboration
agreements, Aventis provided us with approximately
$57.2 million in the form of funding for early-stage
development programs and purchases of ADVEXIN therapy product
for later-stage clinical development and purchased over
$39.4 million of preferred stock from us. These purchases
of preferred stock were made upon the achievement of the
milestones contemplated in our stock purchase agreement with
Aventis.

Academic and Other Collaborations

Academic collaboration agreements have been a
cost-effective way of expanding our intellectual property
portfolio, generating data necessary for regulatory submissions,
accessing industry expertise and finding new technology
in-license candidates, all without building a large internal
scientific and administrative infrastructure.

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| |                                                         
| | --------------------------------------------------------
| | The University of Texas M. D. Anderson
    Cancer Center

Many of our core technologies were developed by
scientists at The University of Texas M. D. Anderson Cancer
Center in Houston, Texas, one of the largest academic cancer
centers in the world. We sponsor research conducted at M. D.
Anderson Cancer Center to further the development of
technologies that have potential commercial viability. Through
these sponsored research agreements, we have access to M. D.
Anderson Cancer Centers resources and expertise for the
development of our technology. In addition, we have the right to
include certain patentable inventions arising from these
sponsored research agreements under our exclusive license with
M. D. Anderson Cancer Center.

We entered into this license agreement with The
Board of Regents of the University of Texas System and
M. D. Anderson Cancer Center in 1994. It terminates on
July 20, 2009 (if no patent rights are applicable) or upon
the last to expire of the relevant patents. The agreement is
also terminable upon our insolvency, either partys breach
or upon our notice on a patent-by-patent basis. The technologies
we have licensed from M. D. Anderson Cancer Center,
under the exclusive license agreement, relate to p53 and the
3p21.3 family of genes. Under the agreement, we have agreed to
pay M. D. Anderson Cancer Center royalties on sales of
products utilizing these technologies. We are obligated to
reimburse any of M. D. Anderson Cancer Centers
costs that may be incurred in connection with obtaining patents
related to the licensed technologies. Our strategy for product
development is designed to take advantage of the significant
multidisciplinary resources available at
M. D. Anderson Cancer Center. These efforts have
resulted in our becoming a significant corporate sponsor of
activities at M. D. Anderson Cancer Center in recent
years and have yielded to us exclusive patent and licensing
rights to numerous technologies.



| |                          
| | -------------------------
| | National Cancer Institute

We have a cooperative research and development
agreement, or CRADA, with the NCI. The CRADA has a flexible
duration, but is terminable upon the mutual consent of the
parties or upon 30 days notice of either party. Under the
CRADA, NCI agreed to sponsor and conduct pre-clinical and human
clinical trials to evaluate the effectiveness and potential
superiority to other treatments of ADVEXIN therapy against a
range of designated cancers, including breast cancer, ovarian
cancer, bladder cancer and brain cancer. To date, NCI has
conducted or is conducting numerous Phase 1 clinical trials
for ADVEXIN therapy. NCI provided most of the funding for these
activities. We supplied NCI with ADVEXIN therapy product to be
administered in these trials. We have exclusive rights to all
pre-clinical and clinical data accumulated under the CRADA.



| |                   
| | ------------------
| | Corixa Corporation

We have a research and license agreement with
Corixa Corporation pursuant to which we acquired an exclusive,
worldwide license to the mda-7 gene for the therapeutic
applications we are pursuing. The agreement is effective until
the last to expire of the subject patents. It is terminable upon
the breach or insolvency of either party, or upon our notice on
a patent-by-patent or product-by-product basis. Under the
agreement, we paid Corixa an initial license fee and have agreed
to make additional payments upon the achievement of development
milestones, as well as royalty payments on product sales. We
also made research payments to Corixa in connection with
research it performed involving the mda-7 gene. Corixa
originally licensed the mda-7 gene from Columbia University.

Marketing and Sales

We currently have no sales or marketing
infrastructure. We are focusing our current product development
and commercialization efforts on the oncology market. This
market is characterized by its concentration of specialists in
relatively few major cancer centers, which we believe can be
effectively addressed by a small, focused sales force. We will
likely address this market by building a direct sales force as
part of the ADVEXIN therapy commercialization process and by
pursuing marketing and distribution arrangements with corporate
partners for ADVEXIN therapy as well as additional products.

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Patents and Intellectual Property



| |              
| | -------------
| | Our Portfolio

Our success will depend in part on our ability to
develop and maintain proprietary aspects of our technology. To
this end, we have an intellectual property program directed at
developing proprietary rights in technology that we believe may
be important to our success. We also rely on a licensing program
to ensure continued strong technology development and technology
transfer from companies and research institutions with whom we
work. We have entered into a number of exclusive license
agreements or options with companies and institutions, including
M. D. Anderson Cancer Center, Sidney Kimmel Cancer Center,
Corixa, Aventis, Columbia University, VirRx, Inc. and LXR
Biotechnology, Inc., with the LXR rights being subsequently sold
to Tanox, Inc. In addition to patents, we rely on trade secrets
and proprietary know-how, which we seek to protect, in part,
through confidentiality and proprietary information agreements.

We currently own or have an exclusive license to
a large number of issued and pending United States and foreign
patents and patent applications. If we do not seek a patent term
extension, the currently issued United States patents that we
own or have exclusively licensed will expire between the years
2010 and 2017. The exclusive licenses that give us rights on the
patents, and applications that such licenses cover, will expire
no earlier than the life of any patent covered under the license.



| |                                              
| | ---------------------------------------------
| | Adenoviral p53 Compositions and
    Therapies

In developing our patent portfolio, we have
focused our efforts in part on seeking protection for our
potential products and how they will be used in the clinical
trials. Arising out of our work with M. D. Anderson Cancer
Center, we currently have an exclusive license to a number of
United States and corresponding international patent
applications directed to adenoviruses that contain the p53 gene,
referred to as adenoviral p53, adenoviral p53 pharmaceutical
compositions and the use of adenoviral p53 compositions in
various cancer therapies and protocols. One of these
applications, directed to the clinical use of adenoviral p53 to
treat cancer, has issued as a United States patent.
Additionally, two other United States patents have issued to
which we have licensed exclusive rights, which are directed to
adenoviral p53 compositions in general, as well as a patent
covering the DNA core of adenoviral p53. We have also
exclusively licensed from Aventis a patent application directed
to adenoviral p53 and its clinical applications. We also have an
exclusive license to a United States patent application and
corresponding international applications directed to the use of
the p53 gene in the treatment of cancer patients whose tumors
express a normal p53 protein.



| |                                          
| | -----------------------------------------
| | Combination Therapy with the p53
    Gene

We have also focused our portfolio development on
seeking protection for clinical therapeutic strategies that
combine the use of the p53 gene with traditional cancer
therapies. In this regard, also arising out of our work with M.
D. Anderson Cancer Center, we have an exclusive license to two
issued United States patents, with corresponding international
applications, directed to cancer therapy using the p53 gene in
combination with DNA-damaging agents such as conventional
chemotherapy or radiotherapy. This patent and corresponding
international applications concern the therapeutic application
of the p53 gene before, during or after chemotherapy or
radiotherapy. We have also exclusively licensed from Aventis a
United States patent and corresponding international
applications directed to therapy using the p53 gene together
with taxanes such as Taxol® or Taxotere®. Furthermore,
we have exclusively licensed a United States patent application,
and corresponding international applications, directed to the
use of the p53 gene in combination with surgical intervention in
cancer therapy.



| |                                                        
| | -------------------------------------------------------
| | Adenovirus Production, Purification and
    Formulation

Another focus of our research has involved the
development of procedures for the commercial scale production of
our potential adenoviral-based products, including that of
ADVEXIN therapy. In this regard, we own an issued United States
patent as well as a number of pending United States
applications, and corresponding international applications,
directed to commercial scale processes for producing adenoviral
gene-based compositions having a high level of purity, as well
as to storage-stable formulations. These

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applications include procedures for preparing
commercial quantities of recombinant adenoviruses for gene-based
products and include procedures applicable to the p53 gene, as
well as any of the other of our potential gene-based products.
We have also licensed from Aventis a United States application
and corresponding international applications directed to
processes for the production of purified adenoviruses, which are
useful for gene-based applications. With respect to
formulations, we were recently issued a United States patent
directed to compositions and methods concerning improved,
storage-stable adenovirus formulations. This patent is not
limited to our ADVEXIN product candidate and may eventually
replace formulations currently in use.




| |                             
| | ----------------------------
| | Other Tumor Suppressor Genes

We either own or have exclusively licensed rights
in a number of other patents and applications directed to the
clinical application of various tumor suppressor genes other
than the p53 gene, including the p16, mda-7, BAK, the 3p21.3
gene family (FUS-1) and anti-sense K-ras genes. We have
exclusively licensed or optioned rights in two issued United
States patents covering the use of the BAK and mda-7 genes, a
United States patent relating to the PTEN gene and a United
States patent directed to the use of the adenoviral p16 in
cancer therapy.



| |                                                            
| | -----------------------------------------------------------
| | Other Therapeutic, Composition and Process
    Technologies

We also own or have exclusively licensed a number
of United States and international patent applications on a
range of additional technologies. These include various
applications relating to the p53 gene, combination therapy with
2-methoxyestradiol, anti-proliferative factor technologies,
retroviral delivery systems, stimulation of anti-p53, screening
and product assurance technologies, as well as second-generation
p53 gene molecules. We have exclusively licensed a number of
United States and international applications directed to various
improved vectors for use in gene-based protocols, gene-based
applications employing more than one gene for disease treatment,
as well as applications directed to the delivery of genes for
disease treatment without the use of a vector, or
non-viral therapy. For example, a United States
patent, exclusively licensed to Introgen, was recently issued
that is directed to adenoviruses that exhibit tissue specific
replication. We also have exclusive rights in an issued United
States patent and corresponding international applications
directed to a low toxicity analogue of IL-2, also called F42K.



| |                                                        
| | -------------------------------------------------------
| | Benzimidazole Small Molecule Cancer Therapy
    Program

We also have exclusively licensed a United States
and a corresponding international patent application directed to
the use of a family of known anti-helminthic benzimidazole
molecules, most notably mebendazole, in the treatment of cancer.
These applications are directed generally to the use of small
molecules of the benzimidazole family to induce apoptosis in
cancers, as well as to treat cancer patients, particularly those
having p53-related cancers. Both of these therapeutic actions
are based on the discovery by our scientists and their
collaborators that members of the benzimidazole family will
actively induce apoptosis in cancer cells, particularly in
conjunction with the action of endogenous or exogenously added
p53.



| |              
| | -------------
| | Trade Secrets

We rely on trade secrets law to protect
technology where we believe patent protection is not appropriate
or obtainable. However, trade secrets are difficult to protect.
In addition, we generally require employees, academic
collaborators and consultants to enter into confidentiality
agreements. Despite these measures, we may not be able to
adequately protect our trade secrets or other proprietary
information. We are a party to various license agreements that
give us rights to use specified technologies in our research and
development processes. If we are not able to continue to license
this technology on commercially reasonable terms, our product
development and research may be delayed. In addition, in the
case of technologies that we have licensed, we do not have the
ability to make the final decisions on how the patent
application process is managed, and accordingly are unable to
exercise the same degree of control over this intellectual
property as we exercise over our internally developed
technology. Our research collaborators and scientific advisors
have rights to publish data and information in which we have
rights. If we cannot maintain the confidentiality of our

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technology and other confidential information in
connection with our collaborations, then our ability to receive
patent protection or protect our proprietary information will be
diminished.


Government Regulation



| |                          
| | -------------------------
| | The Drug Approval Process

Prescription pharmaceutical products and
biologics are subject to extensive pre and post marketing
regulation by the FDA, including regulations that govern the
testing, manufacturing, safety, efficacy, labeling, storage,
recordkeeping, advertising and promotion of the products under
the Federal Food, Drug, and Cosmetics Act, and the Public Health
Services Act, and by comparable agencies in most foreign
countries. The process required by the FDA before a new drug, or
biologic may be marketed in the United States generally involves
the following; completion of preclinical laboratory and animal
testing; submission of an investigational new drug application,
or IND, which must become effective before clinical trials may
begin; performance of adequate and well controlled human
clinical trials to establish the safety and efficacy of the
proposed drug or biologics intended use; and in the case
of a new drug, approval by the FDA of a New Drug Application
(NDA) or of a Biologics License Application
(BLA) for a biologic. Our products will be regulated as
biologics.

Facilities used to manufacture drugs and
biologics are subject to periodic inspection by the FDA and
other authorities where applicable, and must comply with
FDAs Good Manufacturing Practice (GMP) regulations.
Manufacturers of biologics also must comply with FDAs
general biological product standard. Failure to comply with the
statutory and regulatory requirements subjects the manufacturer
to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product or voluntary recall of a
product.



| |                     
| | --------------------
| | Pre-Clinical Testing

Pre-clinical testing includes laboratory
evaluation of product chemistry and formulation as well as
animal trials to assess the potential safety and effectiveness
of the product. Compounds must be adequately manufactured and
pre-clinical safety tests must be conducted in compliance with
FDA Good Laboratory Practices regulations. The results of the
pre-clinical tests are submitted to the FDA as part of an IND
application to be reviewed by the FDA prior to the commencement
of human clinical trials. Submission of an IND application may
not result in FDA authorization to commence clinical trials, but
the IND becomes effective if not rejected by the FDA within
30 days. The IND application must indicate: the results of
previous testing; how, where and by whom the clinical trials
will be conducted; the chemical structure of the compound; the
method by which it is believed to work in the human body; any
toxic effects of the compound found in the animal trials; and
how the compound is manufactured.



| |                
| | ---------------
| | Clinical Trials

Clinical trials involve the administration of the
drug or biologic to healthy volunteers or to patients, under the
supervision of qualified principal investigators. All clinical
trials must be conducted in accordance with Good Clinical
Practices regulations, under protocols that detail the
objectives of the trial, the parameters to be used to monitor
safety and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA for review as part of the
IND application prior to commencing the trial. Further, each
clinical trial must be conducted under the auspices of an
independent review panel termed the Institutional Review Board,
or IRB, at the institution at which the trial will be conducted.
The IRB will consider, among other things, ethical factors, the
safety of human subjects, informed consent and the possible
liability of the institution. Progress reports detailing the
status of on-going clinical trials must be submitted at least
annually to the FDA.

Clinical trials are typically conducted in three
sequential phases, but the phases often overlap. In
Phase 1, the initial introduction of the drug into healthy
volunteers or patients, the drug is tested for safety or adverse
effects, dosage tolerance, absorption, distribution, metabolism,
excretion and clinical pharmacology. Phases 2 and 3 involve
clinical trials in patient populations to determine the
effectiveness of the drug for specific, targeted indications,
determine dosage tolerance and optimal dosage. Phase 3
clinical trials typically contain

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control groups and are undertaken to further
evaluate clinical effectiveness, to further test for safety
within an expanded patient population at geographically
dispersed clinical trial sites and may be utilized to seek
marketing approval by the FDA.




| |                              
| | -----------------------------
| | National Institutes of Health

The National Institutes of Health, or NIH,
publishes guidelines concerning gene-based and gene therapy
products. The NIH guidelines require that human gene-based and
gene therapy protocols subject to the guidelines, and involving
a novel product, disease indication, route of administration or
other component, be discussed at the quarterly meetings of the
NIH Recombinant DNA Advisory Committee. Companies involved in
clinical trials as sponsors generally are expected to report all
serious adverse events to the NIH.

We report to the FDA and the NIH serious adverse
events and deaths, whether treatment-related or not, that occur
in our clinical trials. Clinical trials we conduct include
cancer patients who have failed all conventional treatments
available to them, and who therefore have short life
expectancies and who sometimes die before completion of their
full course of treatment in our clinical trials.



| |                       
| | ----------------------
| | Marketing Applications

If the clinical data indicate that the drug is
safe and effective, a BLA or an NDA is filed with the FDA for
approval of the marketing and commercial shipment of the drug.
This marketing application must contain all of the information
on the drug gathered to that date, including data from the
clinical trials. It is often over 100,000 pages in length.

The FDA reviews all marketing applications
submitted to it before it accepts them for filing and may
request additional information, rather than accepting the
application for filing. In such event, the application must be
re-submitted with the additional information and the application
is again subject to review before filing. Once the submission is
accepted for filing, the FDA begins an in-depth review of the
BLA or NDA. Under the FDC Act, the FDA has 180 days in
which to review it and respond to the applicant. The review
process is often significantly extended by FDA requests for
additional information or clarification of information already
provided in the submission. The FDA may refer the application to
an appropriate advisory committee, typically a panel of
clinicians, for review, evaluation and a recommendation as to
whether the application should be approved. However, the FDA is
not bound by the recommendation of an advisory committee. If the
FDA evaluations of the marketing application and the
manufacturing facilities are favorable, the FDA may issue either
an approval letter or an approvable letter. An approvable letter
usually contains a number of conditions that must be met in
order to secure final approval of the application. When, and if,
those conditions have been met to the FDAs satisfaction,
the FDA will issue an approval letter, authorizing commercial
marketing of the drug for certain indications. Approvals may be
withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing. If
the FDAs evaluation of the submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the
BLA or NDA or issue a not-approvable letter.

If the FDA approves the BLA or NDA, the drug
becomes available for physicians to prescribe. Periodic reports
must be submitted to the FDA, including descriptions of any
adverse reactions reported. The FDA may request additional
trials, referred to as Phase 4 clinical trials, to evaluate
long-term effects. Phase 4 clinical trials and
post-marketing trials may also be conducted to explore new
indications and to broaden the application and use of the drug
and its acceptance in the medical community.

Satisfaction of FDA premarket approval
requirements for new drugs and biologics typically takes several
years and the actual time required may vary substantially based
upon the type, complexity and novelties of the product or
disease. Government regulation may delay or present marketing of
potential products for a considerable period of time and impose
costly procedures upon our activities. Success in early stage
clinical trials and on prior versions of the products does not
assure success in later stage clinical trials. Data obtained
from clinical activities is not always conclusive and may be
susceptible to varying interpretations that could delay, limit
or prevent regulatory approval.

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| |                
| | ---------------
| | Orphan Drug Act

We have received Orphan Drug designation for
ADVEXIN therapy for the treatment of head and neck cancer under
the Orphan Drug Act. This act provides incentives to
manufacturers to develop and market drugs for rare diseases and
conditions affecting fewer than 200,000 people in the United
States. The first developer to receive FDA marketing approval
for an Orphan Drug is entitled to a seven-year exclusive
marketing period in the United States following FDA approval of
that product. However, the FDA will allow the sale of a drug
clinically superior to or different from another approved Orphan
Drug, although for the same indication, during the seven-year
exclusive marketing period.

We may pursue Orphan Drug designation for other
products we are developing. We cannot be sure that any of those
potential products will ultimately receive Orphan Drug
designation, or that the benefits currently provided by such a
designation will not subsequently be amended or eliminated. The
Orphan Drug Act has been controversial, and legislative
proposals have from time to time been introduced in Congress to
modify various aspects of the Orphan Drug Act, particularly the
market exclusivity provisions. New legislation may be introduced
in the future that could adversely affect the availability or
attractiveness of Orphan Drug status for our potential products.
Orphan Drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval
process.



| |                
| | ---------------
| | Off-Label Use

Physicians may prescribe drugs for uses that are
not described in the products labeling that differ from
those tested by us and approved by the FDA. Such
off-label uses are common across medical specialties
and may constitute the best treatment for many patients in
various 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. Companies cannot actively promote FDA-approved
drugs for off-label uses. However, new regulations, if followed,
provide a safe harbor from FDA enforcement action that would
allow us to disseminate to physicians articles published in
peer-reviewed journals, like the New England Journal of
Medicine,that discuss off-label uses of approved products.
We cannot disseminate articles concerning drugs that have not
been approved for any indication.



| |                    
| | -------------------
| | Fast Track Products

Fast track
designation.FDAs fast track
program is intended to facilitate the development and expedite
the review of drugs that are intended for the treatment of a
serious or life-threatening condition for which there is no
effective treatment and that demonstrates the potential to
address unmet medical needs for their condition. Under the fast
track program, the sponsor of a new drug may request the FDA to
designate the drug for a specific indication as a fast track
product at any time during the clinical development of the
product. The FDA must determine if the product qualifies for
fast track designation within 60 days of receipt of the
sponsors request.

If fast track designation is obtained, the FDA
may initiate review of sections of an NDA or BLA before the
applicant is complete. This rolling review is available if the
applicant provides a schedule for the submission of the
remaining information and pays applicable user fees. However,
the time period specified in the Prescription Drug User Fees
Act, which governs the time period goals the FDA has committed
to reviewing an application, does not begin until the complete
application is submitted. Additionally, the fast track
designation may be withdrawn by the FDA if the FDA believes that
the designation is no longer supported by data emerging in the
clinical trial process.

In some cases, a fast track designated product
may also qualify for one or more of the following programs:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Priority review.Under FDA policies, a product is eligible for priority review,
    or review within a six-month time frame from the time an NDA or
    BLA is accepted for filing, if the product provides a
    significant improvement compared to marketed products in the
    treatment, diagnosis, or prevention of a disease. A fast-track
    designated product would ordinarily meet the FDAs criteria
    for priority review.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | We cannot guarantee any of our products will
    receive a priority review designation, or if a priority
    designation is received, that review or approval will be faster
    than conventional FDA procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Accelerated
    approval.Under the FDAs
    accelerated approval regulations, the FDA is authorized to
    approve products that have been studied for their safety and
    effectiveness in treating serious or life-threatening illnesses
    and that provide meaningful therapeutic benefit to patients over
    existing treatments based upon either a surrogate endpoint that
    is reasonably likely to predict clinical benefit or on the basis
    of an effect on a clinical endpoint other than patient survival.
    In clinical trials, surrogate endpoints are alternative
    measurements of the symptoms of a disease or condition that are
    substituted for measurements of observable clinical symptoms.
    Accelerated approval of an application will be subject to
    Phase 4 or post-approval studies to validate the surrogate
    endpoint or confirm the effect on the clinical endpoint. Failure
    to validate a surrogate endpoint or confirm a clinical benefit
    during post-marketing studies will allow the product to be
    withdrawn from the market by the FDA on an expedited basis. All
    promotional materials for drugs approved under accelerated
    regulations are subject to prior review by the FDA.

Although we have obtained a fast track
designation for ADVEXIN therapy from the FDA, we cannot
guarantee a faster development process, review process or
approval compared to conventional FDA procedures. We also may
elect not to seek or we may be prevented from seeking approval
under the accelerated approval process for any of our products.

When appropriate, we also intend to seek fast
track designation for our other products. We cannot predict the
ultimate impact, if any, of the fast track process on the timing
or likelihood of FDA approval of any of our other potential
products.

ADVEXIN therapy is designated as a Fast Track
product by the FDA for its effect on prolonging survival and the
time to loco-regional disease progression in patients with
recurrent, unresectable squamous cell carcinoma of the head and
neck. By designating ADVEXIN therapy as a Fast Track Drug
Product, the FDA will take actions to expedite the evaluation
and review of the application for approval of ADVEXIN therapy.

We will continue to seek fast track designation
to secure expedited review of additional appropriate products.
It is uncertain whether we will obtain fast track designation.
We cannot predict the ultimate effect, if any, of the new fast
track process on the timing or likelihood of FDA approval of any
of our potential products.



| |              
| | -------------
| | International

Steps similar to those in the United States must
be undertaken in virtually every other country comprising the
market for our products before any such product can be
commercialized in those countries. The approval procedure and
the time required for approval vary from country to country and
may involve additional testing. We cannot be sure that approvals
will be granted on a timely basis, or at all. In addition,
regulatory approval of prices is required in most countries,
other than the United States. There can be no assurance that the
resulting prices would be sufficient to generate an acceptable
return to us.

Competition

The biotechnology and pharmaceutical industries
are subject to rapid and intense technological change. We face,
and will continue to face, competition in the development and
marketing of our product candidates from academic institutions,
government agencies, research institutions and biotechnology and
pharmaceutical companies. Competition may arise from other drug
development technologies, methods of preventing or reducing the
incidence of disease, including vaccines, and new small molecule
or other classes of therapeutic agents. Developments by others
may render our product candidates or technologies obsolete or
non-competitive.

We compete with pharmaceutical and biotechnology
companies, including Canji, Inc. and Genvec, Inc., which are
pursuing forms of treatment for the diseases ADVEXIN therapy and
our other product candidates target. We are aware that Canji,
with its parent Schering-Plough Corporation, has in the past
been involved in research and/or development of adenoviral p53
products and owns or controls patents and patent applications

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directed to adenoviral p53 therapy. We
understand that Schering-Plough has stopped its adenoviral p53
clinical trials, and it is unknown whether these parties are
continuing their adenoviral p53 research and/or development
efforts. We are also aware that a Chinese pharmaceutical
company, SiBioNo GeneTech, Inc., has recently announced that it
has received regulatory approval from the Chinese drug
regulatory agency to market an adenoviral p53 product only in
China. There are many other companies, both publicly and
privately held, including well-known pharmaceutical companies,
engaged in developing products for human therapeutic
applications. We also compete with universities and other
research institutions in the development of products,
technologies and processes. In many instances, we compete with
other commercial entities in acquiring products or technologies
from universities and other research institutions.


We expect that competition among products
approved for sale will be based, among other things, on product
efficacy, safety, reliability, availability, price, patent
position and sales, marketing and distribution capabilities. Our
competitive position also depends upon our ability to attract
and retain qualified personnel, obtain patent protection or
otherwise develop proprietary products or processes, and secure
sufficient capital resources for the often substantial period
between technological conception and commercial sales.

Human Resources

As of March 1, 2004, we had approximately 72
employees and contracted personnel engaged in research and
development, regulatory affairs, clinical affairs, manufacturing
and quality, finance and corporate development activities. Our
employees include eight holders of a Ph.D. or M.D. degree. Many
of our employees have extensive experience in pharmaceutical and
biotechnology industries.

Scientific
Advisory Board

We receive guidance on a broad range of
scientific, clinical and technical issues from our Scientific
Advisory Board. Members of our Scientific Advisory Board are
recognized experts in their respective fields of research and
clinical medicine related to molecular oncology. The members of
the Scientific Advisory Board are:

Jack A.
Roth, M.D., Chairman of the
Scientific Advisory Board, is Chairman of the Department of
Thoracic and Cardiovascular Surgery at M. D. Anderson Cancer
Center. Dr. Roth was one of our founders and is our Chief
Medical Advisor. Dr. Roth is a widely-recognized pioneer in
the application of genes to the treatment of cancer. He is the
primary inventor of the technology supporting our gene-based
products. He received his M.D. from The Johns Hopkins University
School of Medicine.

Carol L. Prives,
Ph.D., is a professor of biology at
Columbia University. She is the Chair of the NIH Experimental
Virology Trial Section, a member of the NCI Intramural
Scientific Advisory Board, and a member of the Advisory Board of
the Dana-Farber Cancer Center in Boston. Dr. Prives is an
editor of the Journal of Virology and serves on the editorial
boards of three other prominent journals. She received her Ph.D.
in biochemistry from McGill University.

Daniel D. Von
Hoff, M.D., is the Director of
the Arizona Cancer Center in Tucson, Arizona, and a professor of
medicine in the Department of Medicine of the University of
Arizona. Dr. Von Hoff is a past President of the American
Association for Cancer Research. Dr. Von Hoff is certified
in medical oncology by the American Board of Internal Medicine.
He received his M.D. from The Columbia College of Physicians and
Surgeons.

Elizabeth Grimm,
Ph.D., is a professor of tumor biology
at M. D. Anderson Cancer Center. Dr. Grimm has served as
Cancer Expert, Surgical Branch of the NCI. She received her
Ph.D. in microbiology from the University of California, Los
Angeles School of Medicine.

Michael J. Imperiale,
Ph.D., is the Director of Cancer
Biology Training Programs at the University of Michigan Cancer
Center and holds a concurrent position in the Department of
Microbiology and Immunology at the University of Michigan.
Dr. Imperiale earned his Ph.D. degree in biological
sciences from Columbia University and received postdoctoral
training at the Rockefeller University Laboratory of Molecular
Cell Biology, where he studied the regulation of early
adenovirus gene expression.

23



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|        |           
|------- | ----------
|Item 2. | Properties

We lease from TMX Realty Corporation, our
wholly-owned subsidiary, facilities in Houston, Texas, totaling
approximately 42,000 square feet in two buildings. These
buildings consist of a 12,000 square foot CGMP production
facility designed to support an ADVEXIN therapy product launch,
as well as support multiple vector manufacturing, and a
30,000 square foot building which contains our research and
development laboratories and administrative offices. We sublease
to M. D. Anderson Cancer Center approximately 10,000 square
feet of space in our Houston research and development facility
at prevailing market rates under a lease with an initial term
expiring in 2009. Our corporate offices are located in Austin,
Texas. We expect our current facilities to satisfy our
requirements for the foreseeable future.

TMX Realty Corporation leases the land for these
facilities from a third party. The buildings are financed under
mortgage notes, and such buildings are pledged as collateral for
the notes. Certain equipment in the buildings is financed under
leases, and such equipment is pledged as collateral for the
leases. See the discussion under Liquidity and Capital
Resources in this Report for a summary of our obligations
under these mortgage notes and leases.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are involved from time to time in legal
proceedings relating to claims arising out of our operation in
the ordinary course of business, including actions relating to
intellectual property rights.

We do not believe that the outcome of any
present, or all litigation in the aggregate, other than our
opposition of three European patents controlled by Canji
discussed under Risk Factors will have a material
effect on our business. You can read the discussion of our
opposition of the patents under Risk Factors.






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

No matter was submitted to a vote of security
holders during the fourth quarter of the fiscal year covered by
this Report.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Market and Equityholder Information

Our common stock has been quoted on the Nasdaq
National Market under the symbol INGN since our
initial public offering in October 2000. Prior to October 2000,
there was no established public trading market for our common
stock. The following table sets forth, for the periods
indicated, the high and low sale prices reported on the Nasdaq
National Market.

|                                     |                       |      |   |       |  |  |   |      | 
|------------------------------------ | --------------------- | ---- | - | ----- |  |  | - | ---- | 
|                                     |                       | High |   | Low  
|                                     |                       |      |   |      
|Fiscal Year Ended December 31, 2002: |                       |      |   |       |  |  |   |     
|                                     | First Fiscal Quarter  |      | $ | 5.59  |  |  | $ | 3.56 | 
|                                     | Second Fiscal Quarter |      |   | 4.97  |  |  |   | 1.80 | 
|                                     | Third Fiscal Quarter  |      |   | 2.80  |  |  |   | 1.35 | 
|                                     | Fourth Fiscal Quarter |      |   | 2.58  |  |  |   | 1.48 | 
|Fiscal Year Ended December 31, 2003: |                       |      |   |       |  |  |   |     
|                                     | First Fiscal Quarter  |      | $ | 3.36  |  |  | $ | 1.97 | 
|                                     | Second Fiscal Quarter |      |   | 10.16 |  |  |   | 2.00 | 
|                                     | Third Fiscal Quarter  |      |   | 11.24 |  |  |   | 5.26 | 
|                                     | Fourth Fiscal Quarter |      |   | 10.20 |  |  |   | 6.95 | 

24



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##### Table of Contents



At December 31, 2003, there were
26,539,529 shares of our common stock issued and
outstanding held by 154 stockholders of record. We estimate we
have approximately 4,049 beneficial stockholders.

Dividend Policy

We have never declared or paid any dividends on
our capital stock. We currently expect to retain all of our
future earnings, if any, to support the development of our
business and do not anticipate paying any cash dividends in the
foreseeable future.

25



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##### Table of Contents








|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

The selected consolidated statement of operations
data for the years ended December 31, 2003 and 2002, the
six months ended December 31, 2001 and the year ended
June 30, 2001 and the consolidated balance sheet data as of
December 31, 2003 and 2002 are derived from the audited
consolidated financial statements of Introgen Therapeutics, Inc.
and our subsidiaries, which appear in Part IV of this
Report. The selected consolidated statement of operations data
for the year ended June 30, 2000 and the consolidated
balance sheet data as of December 31, 2001, June 30,
2001 and 2000 are derived from the audited consolidated
financial statements of Introgen Therapeutics, Inc. not included
in this Report. The selected consolidated statement of
operations data for the year ended December 31, 2001 and
the six months ended December 31, 2000 are derived
from the unaudited consolidated financial statements of Introgen
Therapeutics, Inc. The selected consolidated financial data set
forth below is qualified in its entirety by, and should be read
in conjunction with, the Consolidated Financial Statements and
Notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this Report.

|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | --------------------------------------- | ------ | ---------------- |  | ----------------------- | ------- | ---- |  | ----------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |     
|                                                                   |  |                                         |        | Six Months Ended |  |                        
|                                                                   |  | Year Ended June 30,                     |        | December 31,     |  | Year Ended December 31,
|                                                                   |  |                                         |        |                  |  |                        
|                                                                   |  | 2000                                    |        | 2001             |  | 2000                    |         | 2001 |  | 2001        |        | 2002 |  | 2003
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |     
|                                                                   |  |                                         |        |                  |  | (Unaudited)             |         |      |  | (Unaudited) |        |      |  |     
|                                                                   |  |                                        
|                                                                   |  | (In thousands except per share amounts)
|Statement of Operations Data:                                      |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Contract services, grants and other revenue                        |  | $                                       | 97     |                  |  | $                       | 684     |      |  | $           | 391    |      |  | $    | 298     |   |  | $ | 591     |   |  | $ | 1,173   |   |  | $ | 304     |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Collaborative research and development revenues
    from affiliate |  |                                         | 6,204  |                  |  |                         | 3,016   |      |  |             | 3,016  |      |  |      |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Product sales to Affiliate                                         |  |                                         | 2,087  |                  |  |                         | 1,500   |      |  |             | 1,500  |      |  |      |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Cost of product Sales                                              |  |                                         | 1,476  |                  |  |                         | 2,488   |      |  |             | 2,488  |      |  |      |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Gross margin on product Sales                                      |  |                                         | 611    |                  |  |                         | (988    | )    |  |             | (988   | )    |  |      |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Operating costs and expenses:                                      |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Research and development                                           |  |                                         | 10,075 |                  |  |                         | 15,014  |      |  |             | 5,153  |      |  |      | 10,063  |   |  |   | 19,923  |   |  |   | 21,512  |   |  |   | 14,973  |  
|General and administrative                                         |  |                                         | 4,701  |                  |  |                         | 4,875   |      |  |             | 2,040  |      |  |      | 3,526   |   |  |   | 6,361   |   |  |   | 6,722   |   |  |   | 6,102   |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Total operating costs and expenses                                 |  |                                         | 14,776 |                  |  |                         | 19,889  |      |  |             | 7,193  |      |  |      | 13,589  |   |  |   | 26,284  |   |  |   | 28,234  |   |  |   | 21,075  |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Loss from operations                                               |  |                                         | (7,864 | )                |  |                         | (17,177 | )    |  |             | (4,774 | )    |  |      | (13,291 | ) |  |   | (25,693 | ) |  |   | (27,061 | ) |  |   | (20,771 | )
|Interest income (expense), net                                     |  |                                         | 140    |                  |  |                         | 381     |      |  |             | 403    |      |  |      | (445    | ) |  |   | 423     |   |  |   | (207    | ) |  |   | 393     |  
|Other income                                                       |  |                                         |       |                  |  |                         | 354     |      |  |             |       |      |  |      | 518     |   |  |   | 871     |   |  |   | 1,140   |   |  |   | 1,052   |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Net loss                                                           |  | $                                       | (7,724 | )                |  | $                       | (16,442 | )    |  | $           | (4,371 | )    |  | $    | (12,328 | ) |  | $ | (24,399 | ) |  | $ | (26,128 | ) |  | $ | (19,326 | )
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Net loss per share, basic and diluted                              |  | $                                       | (1.89  | )                |  | $                       | (1.02   | )    |  | $           | (0.39  | )    |  | $    | (0.58   | ) |  | $ | (1.14   | ) |  | $ | (1.22   | ) |  | $ | (0.84   | )
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Shares used in computing basic and diluted net
    loss per share  |  |                                         | 4,096  |                  |  |                         | 16,163  |      |  |             | 11,121 |      |  |      | 21,440  |   |  |   | 21,440  |   |  |   | 21,471  |   |  |   | 22,902  |  
|                                                                   |  |                                         |        |                  |  |                         |         |      |  |             |        |      |  |      |         |   |  |   |         |   |  |   |         |   |  |   |         |  

|                                                                         |  |                |         |              |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | -------------- | ------- | ------------ |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                         |  |                |         |             
|                                                                         |  | June 30,       |         | December 31,
|                                                                         |  |                |         |             
|                                                                         |  | 2000           |         | 2001         |  | 2001 |         | 2002 |  | 2003
|                                                                         |  |                |         |              |  |      |         |      |  |     
|                                                                         |  |               
|                                                                         |  | (In thousands)
|Balance Sheet Data:                                                      |  |                |         |              |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash, cash equivalents, and short-term investments                       |  | $              | 11,765  |              |  | $    | 34,977  |      |  | $    | 48,825  |   |  | $ | 23,467  |   |  | $ | 36,397  |  
|Working capital                                                          |  |                | 10,263  |              |  |      | 54,296  |      |  |      | 43,175  |   |  |   | 18,852  |   |  |   | 31,091  |  
|Total assets                                                             |  |                | 24,855  |              |  |      | 72,347  |      |  |      | 60,424  |   |  |   | 33,316  |   |  |   | 44,483  |  
|Long-term debt and capital lease obligations, net
    of current portion |  |                | 8,021   |              |  |      | 9,798   |      |  |      | 9,037   |   |  |   | 7,435   |   |  |   | 6,714   |  
|Accumulated deficit                                                      |  |                | (18,744 | )            |  |      | (35,186 | )    |  |      | (47,515 | ) |  |   | (73,643 | ) |  |   | (92,969 | )
|Stockholders equity                                                     |  |                | 13,592  |              |  |      | 56,069  |      |  |      | 44,566  |   |  |   | 19,835  |   |  |   | 31,285  |  

26



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

The following discussion and analysis should
be read in conjunction with our condensed consolidated financial
statements and the related notes thereto included in this Report
on Form 10-K. The discussion and analysis contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements include the statements below under Risk
Factors. These forward-looking statements are based on our
current expectations and entail various risks and uncertainties.
Our actual results could differ materially from those projected
in the forward-looking statements as a result of various
factors, including those set forth below under Risk
Factors.

Overview

Introgen Therapeutics, Inc. was incorporated in
Delaware in 1993. We are a biopharmaceutical company focused on
the discovery, development and commercialization of targeted
therapies for the treatment of cancer and other diseases. We are
developing product candidates to treat a wide range of cancers
using non-integrating gene agents. These agents are designed to
increase production of normal cancer-fighting proteins that act
to overpower cancerous cells. Our lead product candidate,
ADVEXIN therapy, combines the p53 gene with a non-replicating,
non-integrating adenoviral gene delivery system that we have
developed and extensively tested. The p53 gene is one of the
most potent members of a group of naturally occurring tumor
suppressor genes, which act to kill cancer cells, arrest cancer
cell growth and protect cells from becoming cancerous.

In order to commercialize our product candidates,
we must obtain certain regulatory approvals. Satisfaction of
regulatory requirements typically takes many years, and involves
compliance with requirements covering research and development,
testing, manufacturing, quality control, labeling and promotion
of drugs for human use. To obtain regulatory approvals, we must,
among other requirements, complete clinical trials demonstrating
that our product candidates are safe and effective for a
particular cancer type or other disease.

Since our inception in 1993, we have used our
resources primarily to conduct research and development
activities for ADVEXIN therapy and, to a lesser extent, for
other product candidates. At December 31, 2003, we had an
accumulated deficit of $93.0 million. We anticipate that we
will incur losses in the future that may be greater than losses
incurred in prior periods. At December 31, 2003, we had
cash and cash equivalents of $36.4 million. During the year
ended December 31, 2003, we used $14.9 million of cash
for operating activities. We expect to incur substantial
additional operating expenses and losses over the next several
years as our research, development, pre-clinical testing and
clinical trial activities increase, and as we expand our
operations and develop systems to support commercialization of
our product candidates, these losses, among other things, have
caused and may cause our stockholders equity and working
capital to decrease. Currently, we earn revenue or income from
federal research grants, contract services and process
development activities, the lease of a portion of our facilities
to M. D. Anderson Cancer Center and interest income on cash
placed in short-term, investment grade securities. In order to
fund our operating losses, we will need to raise additional
funds through public or private equity offerings, debt
financings or additional corporate collaboration and licensing
arrangements. We do not know whether such additional financing
will be available when needed, or on terms favorable to us or
our stockholders.

In October 1994, we entered into two
collaboration agreements with Rhône-Poulenc Rorer
Pharmaceuticals Inc., which ultimately became part of Aventis
Pharma, or Aventis, for technology relating to p53 and K-ras
pathway inhibition. Aventis funded the clinical trials under
these programs. In June 2001, we and Aventis restructured our
relationship whereby we assumed responsibility for the worldwide
development of all p53 and K-ras products, including funding,
control and performance of ongoing clinical trials.

In June 2003, we sold 2.0 million shares of
our common stock for an aggregate purchase price of
$11.5 million to selected institutional investors through a
private placement pursuant to Regulation D promulgated
under the Securities Act of 1933, as amended. Our net proceeds
from this transaction, after related fees and expenses, were
$10.8 million. In connection with this sale, we issued
warrants to purchase 400,000 shares of our common stock at
$7.89 per share. These warrants are exercisable at any time
by the warrant holders through June 2008. Beginning in June
2005, we may force the exercise of these warrants if the

27



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average closing market price of our common stock
during any 20 consecutive trading days is greater than
$15.78 per share. The shares of common stock issued and
issuable upon the exercise of the warrants issued in this
transaction were registered on a registration statement on
Form S-3, effective August 7, 2003 (Commission File
No. 333-107028).


In December 2003, we sold approximately
2.9 million shares of our common stock in a direct equity
offering pursuant to a shelf registration for an aggregate
purchase price of approximately $20.0 million. Our net
proceeds from this transaction, after related fees and expenses,
were approximately $18.5 million. The shares of common
stock issued in this transaction were registered pursuant to a
registration statement on Form S-3, effective
August 25, 2003 (Commission File No. 333-107799)
registering shares of our common stock with an aggregate
offering price of $100.0 million. We may sell additional
shares of our common stock pursuant to this registration
statement in the future.

Summary of Significant Accounting
Policies

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

Cash and Cash
Equivalents.Our cash and cash
equivalents include investments in short-term, investment grade
securities, which currently consist primarily of United States
federal government obligations. These investments are classified
as held-to-maturity and are carried at amortized cost. At any
point in time, amortized costs may be greater or less than fair
value. If investments are sold prior to maturity, we could incur
a realized gain or loss based on the fair market value of the
investments at the date of sale. We could incur future losses on
investments if the investment issuer becomes impaired or the
investment is downgraded.

Research and Development
Costs.In conducting our clinical
trials of ADVEXIN therapy and other product candidates, we
procure services from numerous third-party vendors. The cost of
these services constitutes a significant portion of the cost of
these trials and of our research and development expenses in
general. These vendors do not necessarily provide us billings
for their services on a regular basis and, accordingly, are
often not a timely source of information to determine the costs
we have incurred relative to their services for any given
accounting period. As a result, we make significant accounting
estimates as to the amount of costs we have incurred relative to
these vendors in each accounting period. These estimates are
based on numerous factors, including, among others, costs set
forth in our contracts with these vendors, the period of time
over which the vendor will render the services and the rate of
enrollment of patients in our clinical trials. Using these
estimates, we record expenses and accrued liabilities in each
accounting period that we believe fairly represent our
obligations to these vendors. Actual results could differ from
these estimates, resulting in increases or decreases in the
amount of expense recorded and the related accrual. Our
experience has been that our estimates have reasonably reflected
the expenses we actually incur.

Results of Operations



| |                                                         
| | --------------------------------------------------------
| | Comparison of Years Ended December 31,
    2003 and 2002



| |         
| | --------
| | Revenues

Contract Services, Grant and Other
Revenue.We earn contract services
revenues from third parties under agreements to provide
manufacturing process development services and to produce
products for them. We earned contract research services revenue
from Aventis Pharmaceuticals Products, Inc., one of our
stockholders, under an agreement through which Aventis provided
funding for the conduct of a Phase 2 clinical trial of
ADVEXIN therapy in breast cancer. We earn grant revenue under
research grants from U.S. Government agencies. Total
contract services, grant and other revenue was $304,000 in 2003
and $1.2 million in 2002, a decrease of 75%. This decrease
was primarily due to (1) a decline in the level of our
contract manufacturing activity due to the completion of work
under services agreements with certain third

28



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##### Table of Contents



parties during 2003, which was not replaced with
new contract manufacturing work due to our focus during 2003 on
the preparation of regulatory filings for ADVEXIN therapy and
development of our other product candidates, and (2) a
decrease in contract services revenue earned from Aventis as the
initial portion of the Phase 2 clinical trial of ADVEXIN
therapy in breast cancer approached completion.




| |                   
| | ------------------
| | Costs and Expenses

Research and
Development.Research and development
expenses were $15.0 million in 2003, compared to
$21.5 million in 2002. This expense included compensation
related to the issuance of stock options of $242,000 in 2003 and
$399,000 in 2002. This 30% decrease in research and development
expense was primarily due to cost control programs implemented
during 2003 that reduced the rate at which we used cash for
operations.

General and
Administrative.General and
administrative expenses were $6.1 million in 2003 and were
$6.7 million in 2002. This expense included compensation
related to the issuance of stock options of $1.1 million in
2003 and $978,000 in 2002. This 9% decrease in general and
administrative expense was primarily due to cost control
programs implemented during 2003 that reduced the rate at which
we used cash for operations.

Compensation Related to the Issuance of Stock
Options.Compensation related to the
issuance of stock options was $1.4 million in 2003 and
$1.4 million in 2002. Even though compensation expense
related to certain stock options granted in previous periods
declined due to deferred compensation related to those stock
options becoming fully amortized during 2003, total stock option
compensation expense was relatively unchanged between years due
to stock options granted in 2003 to (1) certain members of
our Board of Directors for which some of the options have
exercise prices below the market value of our common stock at
the date of grant and were fully vested upon issuance, and
(2) our corporate secretary, who is not a director or
employee and for whom options grants are subject to fair value
accounting. The amount of compensation expense related to stock
options to be recorded in future periods may increase if
additional options are issued at a price below the market price
of common stock at the date of grant or are issued to
individuals or entities other than employees or directors and
may decrease if unvested options for which deferred compensation
has been recorded are subsequently forfeited or as previously
recorded deferred compensation becomes fully amortized.



| |                                                       
| | ------------------------------------------------------
| | Interest Income, Interest Expense and Other
    Income

Interest income was $1.0 million in 2003
compared to $596,000 in 2002, an increase of 68%. Included in
the 2003 amount is $775,000 we received from the settlement of
litigation related to a decline in the market value of certain
commercial paper we held as an investment in 2000 and 2001.
Excluding the amount from this settlement, interest income for
2003 was $225,000, which decreased 62% compared to interest
income for 2002, due to our lower average cash and cash
equivalents balances during 2003 and declining interest rates.

Interest expense was $624,000 in 2003 compared to
$803,000 in 2002, a decrease of 22%. This decrease was a result
of lower principal amounts upon which interest was incurred in
2003 compared to 2002 as a result of continuing debt service
payments on notes payable and capital lease obligations.

Other income was $1.1 million in both 2003
and 2002. This income consists primarily of rental income
related to our sublease of research laboratories in our
facilities to M. D. Anderson Cancer Center, which is activity
that was relatively unchanged between years.



| |                                                                     
| | --------------------------------------------------------------------
| | Comparison of Years Ended December 31,
    2002 and 2001 (Unaudited)



| |         
| | --------
| | Revenues

Contract Services, Grant and Other
Revenue.This revenue was
$1.2 million in 2002 and $591,000 in 2001. This 103%
increase was due to a higher level of manufacturing and process
development contract services activity for third parties in 2002
compared to 2001 and funding received from Aventis in 2002 to
support a Phase 2 clinical trial of ADVEXIN therapy in
breast cancer.

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| |                   
| | ------------------
| | Costs and Expenses

Research and
Development.Research and development
expenses were $21.5 million in 2002 and $19.9 million
in 2001. This expense included amortization of deferred stock
compensation of $399,000 in 2002 and $462,000 in 2001. This 8%
increase in research and development expense was primarily due
to our assumption in the third quarter of 2001 and thereafter of
responsibility for conducting, managing and funding the
Phase 2 and Phase 3 clinical trials activities for
ADVEXIN therapy under the terms of the restructuring of our
collaboration with Aventis. In 2002, we incurred $525,000 of
research and development expenses in conjunction with our
collaboration and license agreement with VirRx.

General and
Administrative.General and
administrative expenses were $6.7 million in 2002 and
$6.4 million in 2001. This expense included amortization of
deferred stock compensation of $978,000 in 2002 and
$1.2 million in 2001. This 5% increase in general and
administrative expense was due primarily to the additional cost
of providing administrative support for our conduct and
management of the Phase 2 and Phase 3 clinical trials
activities for ADVEXIN therapy, the responsibility for which we
assumed in the third quarter of 2001 under the terms of the
restructuring of our collaboration with Aventis.

Amortization of Deferred
Compensation.Amortization of deferred
stock compensation was $1.4 million in 2002 and
$1.7 million in 2001. This 18% decrease was due primarily
to deferred compensation for certain options becoming fully
amortized during 2002.

Interest Income and Interest
Expense.Interest income was $596,000
in 2002 and $1.4 million in 2001. This 57% decrease was due
to lower average cash balances and interest rates during 2002
compared to 2001. Interest expense was $803,000 in 2002 and
$936,000 in 2001. This 14% decrease was due primarily to lower
average principal balances outstanding under mortgage notes
payable and capital leases as principal was amortized through
normal debt service and lease payments.

Other Income.Other
income was $1.1 million in 2002 compared to $871,000 in
2001. This 26% increase was due to 2002 being the first full
year in which we earned rental income related to our sublease of
research laboratories in our facilities to M. D. Anderson Cancer
Center.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Comparison of Six-Month Periods Ended
    December 31, 2001 and 2000 (Unaudited)



| |         
| | --------
| | Revenues

Revenue from
Collaborations.Collaborative research
and development revenues from Aventis were zero for the
six-month period ended December 31, 2001 and
$3.0 million for the six-month period ended
December 31, 2000. This decrease was due to the
restructuring of our collaboration with Aventis, which resulted
in our not receiving payments from Aventis subsequent to
December 31, 2000 for early-stage research and development
related to p53-based gene therapy products. Prior to this
restructuring, we earned revenue for the early-stage research
and development we performed under our collaboration agreements
with Aventis.

Revenue from Product Sales to
Affiliate.Revenues from product sales
to Aventis were zero for the six-month period ended
December 31, 2001 and $1.5 million for the six-month
period ended December 31, 2000. This decrease was due to
the restructuring of our collaboration with Aventis, which
resulted in no product sales subsequent to December 31,
2000. The restructuring eliminated our product sales to Aventis
since we are using the product internally for the future
development of ADVEXIN therapy.

Other Revenue.Other
revenue was $298,000 for the six-month period ended
December 31, 2001 and $391,000 for the six-month period
ended December 31, 2000. This decrease was due to a decline
in amounts earned under research grants from
U.S. Government agencies and contract manufacturing work
for third parties.



| |                   
| | ------------------
| | Costs and Expenses

Cost of Product
Sales.Cost of product sales was zero
for the six-month period ended December 31, 2001 and
$2.5 million for the six-month period ended
December 31, 2000. This decrease was due to the

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restructuring of our collaboration with Aventis,
which resulted in no product sales subsequent to
December 31, 2000, thereby eliminating our cost of product
sales.


Research and
Development.Research and development
expenses were $10.1 million for the six-month period ended
December 31, 2001, and $5.1 million for the six-month
period ended December 31, 2000. This expense included
amortization of deferred stock compensation of $229,000 for the
six-month period ended December 31, 2001 and $209,000 for
the six-month period ended December 31, 2000. The 98%
increase in research and development expense in 2001 compared to
2000 was primarily due to our assumption of responsibility for
conducting, managing and funding the Phase 2 and
Phase 3 clinical trials activities for ADVEXIN therapy
under the terms of the restructuring of our collaboration with
Aventis.

General and
Administrative.General and
administrative expenses were $3.5 million in 2001 and
$2.0 million in 2000. This expense included amortization of
deferred stock compensation of $570,000 for the six-month period
ended December 31, 2001 and $537,000 for the six-month
period ended December 31, 2000. The 75% increase in general
and administrative expense in 2001 was due primarily to the
additional, ongoing costs associated with operating as a public
company, subsequent to our initial public offering in October
2000, and the cost of providing administrative support for our
conduct and management of the Phase 2 and Phase 3
clinical trials activities for ADVEXIN therapy, the
responsibility for which we assumed under the terms of the
restructuring of our collaboration with Aventis.

Amortization of Deferred
Compensation.Amortization of deferred
stock compensation was $799,000 for the six-month period ended
December 31, 2001 and $746,000 for the six-month period
ended December 31, 2000. The 7% increase in 2001 was due
primarily to deferred compensation arising from the issuance to
an officer in April 2001 of an option to purchase shares of our
common stock.

Interest Income and Interest
Expense.Interest income was $912,000
for the six-month period ended December 31, 2001 and
$783,000 for the six-month period ended December 31, 2000.
The 16% increase was primarily due to higher average cash and
investment balances in 2001 on which interest was earned as a
result of our initial public offering in October 2000. Interest
expense was $467,000 for the six-month period ended
December 31, 2001 and $380,000 for the six-month period
ended December 31, 2000. The 23% increase in 2001 was
primarily due to higher balances under notes payable in 2001
compared to 2000 as a result of borrowings to finance tenant
improvements to our facility related to our sublease of space to
M. D. Anderson Cancer Center.

Other Income.Other
income was $518,000 for the six-month period ended
December 31, 2001 compared to zero for the six-month period
ended December 31, 2000 due to 2001 being the first year in
which we earned rental income related to our sublease of
research laboratories in our facilities to M. D. Anderson Cancer
Center.



| |                                
| | -------------------------------
| | Liquidity and Capital Resources

We have incurred annual operating losses since
our inception, and at December 31, 2003, we had an
accumulated deficit of $93.0 million. From inception
through December 31, 2003, we have financed our operations
using $49.7 million of collaborative research and
development payments from Aventis, $32.2 million of net
proceeds from our initial public offering in October 2000,
$39.4 million of private equity sales to Aventis,
$26.0 million of private equity sales, net of offering
costs, to others (including $10.8 million from the private
sale of our common stock in June 2003), $18.5 million of
equity sales in a registered direct offering under a shelf
registration in December 2003, $7.5 million of sales of
ADVEXIN therapy product to Aventis for use in later-stage
clinical trials, $9.2 million in mortgage financing from
banks for our facilities, $4.5 million in leases from
commercial leasing companies to acquire equipment pledged as
collateral for those leases and $12.2 million from contract
services, grants, interest and other income.

At December 31, 2003, we had cash and cash
equivalents of $36.4 million, compared with
$23.5 million at December 31, 2002. This increase was
primarily a result of the use of $14.9 million of cash to
fund our operations offset by the sale of 4.9 million
shares of our common stock in June and December 2003 for net
proceeds of $29.3 million. For at least the next two years,
we expect to focus our activities primarily on

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conducting Phase 3 and other clinical
trials, conducting data analysis, preparing regulatory
documentation submissions to the FDA and conducting
pre-marketing activities for ADVEXIN therapy. We also expect to
continue our research and development of various other
gene-based technologies. The majority of our expenditures over
this two-year period will most likely relate to the clinical
trials of ADVEXIN therapy and the preparation of regulatory
filings for ADVEXIN therapy. These activities may increase the
rate at which we use cash in the future as compared to the cash
we used for operating activities during 2003. We believe our
existing working capital can fund our operations for the next 18
to 24 months, although unforeseen events could shorten that
time period. Our existing resources may not be sufficient to
support the commercial introduction of any of our product
candidates. In order to fund our operating losses, we will need
to raise additional funds through public or private equity
offerings, debt financings or additional corporate collaboration
and licensing arrangements. We do not know whether such
additional financing will be available when needed, or on terms
favorable to us or our stockholders.


Net cash used in operating activities was
$14.9 million in 2003 compared to $23.6 million in
2002. In general, this decrease was primarily due to cost
control programs implemented during 2003 that reduced the rate
at which we used cash for operations. Specifically, the decrease
in cash used was primarily the result of a lower net loss in
2003 compared to 2002, after considering adjustments for
depreciation and compensation related to the issuance of stock
options, further affected by (1) a larger decrease in other
assets in 2003 compared to 2002 primarily due to an increased
use of previously prepaid expenses to fund operations,
(2) a smaller increase in accounts payable in 2003 compared
to 2002 and a decrease in accrued liabilities in 2003 compared
to an increase in accrued liabilities in 2002, both as a result
of cost control programs implemented in 2003 resulting in a
lower level of obligations to vendors and services providers,
and (3) a smaller increase in deferred revenue in 2003
compared to 2002 due to funding received in 2002 for contract
manufacturing process development and contract research that was
subsequently earned and not replaced by additional funding for
similar services.

Net cash used in investing activities was
$233,000 in 2003 compared to net cash provided by investing
activities of $11.3 million in 2002. The absence of
activity related to short-term investments in 2003 as compared
to 2002 was due to our not having any short-term investments in
2003. Our purchases of property and equipment in 2003 compared
to 2002 was relatively unchanged as our need for additional
property and equipment did not vary significantly between the
periods. While we have no obligations at this time to purchase
significant amounts of additional property or equipment, our
needs may change. It may be necessary for us to purchase larger
amounts of property and equipment to support our clinical
programs and other research, development and manufacturing
activities. We may need to obtain debt or lease financing to
facilitate such purchases. If that financing is not available,
we may need to use our existing resources to fund those
purchases, which could result in a reduction in the cash and
cash equivalents available to fund operating activities.

Net cash provided by financing activities was
$28.1 million in 2003 compared to net cash used in
financing activities of $1.6 million in 2002. The 2003
amount includes $10.8 million of net proceeds from the sale
of 2.0 million shares of our common stock in June 2003 and
$18.5 million of net proceeds from the sale of
2.9 million shares of our common stock in December 2003.
Excluding the proceeds from those sales of common stock, the
remaining use of $1.2 million for financing activities in
2003 is lower than the comparable amount for 2002 due to the
receipt of proceeds under a lease line of credit during 2003 for
which there was no similar activity in 2002, offset by higher
principal payments on notes payable and capital leases as those
obligations continue to amortize.

We have an agreement with VirRx, Inc. (VirRx)
that began in 2002 to purchase $150,000 of VirRx Series A
Preferred Stock on the first day of each quarter through
January 1, 2006. We purchased $600,000 and $525,000 of this
stock for cash in 2003 and 2002, respectively. We record these
purchases as research and development expense. VirRx is required
to use the proceeds from these stock sales in accordance with
the terms of a collaboration and license agreement between VirRx
and us for the development of VirRxs technologies. We may
unilaterally terminate this collaboration and license agreement
with 90 days prior notice, which would also terminate our
requirement to make any additional stock purchases. Provided the
collaboration and license agreement remains in place, we are
required to make additional milestone stock

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purchases, either for cash or through the
issuance of our common stock, upon the completion of
Phase 1, Phase 2 and Phase 3 clinical trials
involving technologies licensed under this agreement and we are
required to make a $5.0 million cash milestone payment to
VirRx, for which we receive no VirRx stock, upon FDA approval of
a biologics license application involving these technologies. To
the extent we have already made cash milestone payments, we may
receive a credit of 50% of the Phase 2 clinical trial
milestone payments and 25% of the Phase 3 clinical trial
milestone payments against this $5.0 million cash milestone
payment. The additional milestone stock purchases and cash
payment are not anticipated to be required in the near future.
We have an option to purchase all outstanding shares of VirRx at
any time until March 2007.


We have fixed debt service and lease payment
obligations under notes payable and capital leases for which the
liability is reflected on our balance sheet. We used the
proceeds from these notes payable and leases to finance
facilities and equipment. Aggregate payments due under these
obligations are as follows (in thousands):

|                                                                                                               |                                                                           |  |        |        |  
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- |  | ------ | ------ | -
|Total debt service and lease payments due
    during the year ending December 31:                              |                                                                           |  |        |       
|                                                                                                               | 2004                                                                      |  | $      | 1,516  |  
|                                                                                                               | 2005                                                                      |  |        | 1,388  |  
|                                                                                                               | 2006                                                                      |  |        | 911    |  
|                                                                                                               | 2007                                                                      |  |        | 537    |  
|                                                                                                               | 2008                                                                      |  |        | 537    |  
|Thereafter                                                                                                     |                                                                           |  | 8,597  |       
|                                                                                                               |                                                                           |  |        |       
|Total debt service and lease payments                                                                          |                                                                           |  | 13,486 |       
|                                                                                                               | Less portion representing interest                                        |  |        | (5,769 | )
|                                                                                                               |                                                                           |  |        |       
|                                                                                                               | Total principal balance at December 31, 2003                              |  | $      | 7,717  |  
|                                                                                                               |                                                                           |  |        |       
|Principal balance presented on the
    December 31, 2003 balance sheet as liabilities in these
    categories: |                                                                           |  |        |       
|                                                                                                               | Current portion of obligations under capital
    leases and notes payable |  | $      | 1,003  |  
|                                                                                                               | Capital lease obligations, net of current portion                         |  |        | 172    |  
|                                                                                                               | Notes payable, net of current portion                                     |  |        | 6,542  |  
|                                                                                                               |                                                                           |  |        |       
|                                                                                                               | Total principal balance at December 31, 2003                              |  | $      | 7,717  |  
|                                                                                                               |                                                                           |  |        |       

We have a fixed rent obligation under a ground
lease for the land on which we built our facilities. Since this
is an operating lease, there is no liability reflected on our
balance sheet for this item, which is in accordance with
generally accepted accounting principles. We make total annual
rent payments of $144,000 under this lease which will continue
until the expiration of the initial term of this lease in
September 2026. We have other operating leases expiring in 2003
with significantly smaller rent payments that we also account
for as operating leases. Future annual rental payments due under
all operating leases are as follows (in thousands):

|                                                        |            |   |       |       | 
|------------------------------------------------------- | ---------- | - | ----- | ----- | 
|Year ending December 31, 2004                           |            | $ | 325   |      
|                                                        | 2005       |   |       | 206   | 
|                                                        | 2006       |   |       | 144   | 
|                                                        | 2007       |   |       | 144   | 
|                                                        | 2008       |   |       | 144   | 
|                                                        | Thereafter |   |       | 2,563 | 
|                                                        |            |   |       |      
|Total minimum lease payments under operating
    leases |            | $ | 3,526 |      
|                                                        |            |   |       |      

In the normal course of business, we enter into
various long-term agreements with vendors to provide services to
us. Some of these agreements require up-front payment prior to
services being rendered, some require periodic monthly payments
and some provide for the vendor to bill us for their services as
they are

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rendered. In substantially all cases, we may
cancel these agreements at any time with minimal or no penalty
and pay the vendor only for services actually rendered.
Regardless of the timing of the payments under these agreements,
we record the expenses incurred in the periods in which the
services are rendered.


Pursuant to a consulting agreement, we pay
consulting fees of approximately $175,000 per annum to EJ
Financial Enterprises, Inc., a company owned by the Chairman of
our Board of Directors and that formerly employed one of our
directors. EJ Financial Enterprises, Inc. provides us guidance
on strategic product development, business development and
marketing activities. We are obligated to continue paying this
fee until we terminate the services of that company at our
option.

We have a consulting agreement with Jack A.
Roth, M.D., Chairman of the Department of Thoracic Surgery
and Director of the Keck Center for Gene Therapy at The
University of Texas M. D. Anderson Cancer Center. Dr. Roth
is the primary inventor of the technology upon which our ADVEXIN
therapy is based and numerous other technologies we utilize. We
licensed Dr. Roths inventions from M. D. Anderson
Cancer Center. Dr. Roth is our Chief Medical Advisor and
chairman of our scientific advisory board. His duties involve
the regular interaction and consultation with our scientists and
others on our behalf. As compensation for his services and
responsibilities, this consulting agreement provides for
payments to Dr. Roth of $200,000 per annum through the
end of its term on September 30, 2009, with such future
payments subject to adjustment for inflation. We may terminate
this agreement at our option upon one years advance
notice. If we had terminated this agreement as of
December 31, 2003, we would have been obligated to make
final payments totaling $200,000. Dr. Roth is one of our
stockholders.

We sublease a portion of our facilities to M.D.
Anderson Cancer Center under a lease with a non-cancelable term
that expires in 2009. M.D. Anderson Cancer Center is obligated
to pay us rent of approximately $76,000 per month until
February 2006 and $13,053 per month thereafter.



| |                                                                     
| | --------------------------------------------------------------------
| | Comparison of Years Ended December 31,
    2002 and 2001 (Unaudited)

At December 31, 2002, we had cash and
short-term investments of $23.5 million, compared with
$48.8 million at December 31, 2001. This decrease was
primarily a result of the use of cash to fund our operations.

Net cash used in operating activities was
$23.6 million for the year ended December 31, 2002,
compared with $17.4 million for the year ended
December 31, 2001. In general, this increase in cash used
was due to our having responsibility for conducting the
Phase 2 and Phase 3 clinical trials for ADVEXIN
therapy throughout 2002 whereas we did not have this
responsibility in 2001 until June of that year. Specifically,
the increase in cash used was primarily the result of a higher
net loss in 2002 compared to 2001, after considering adjustments
for depreciation and compensation related to the issuance of
stock options, offset primarily by (1) a decrease in
receivables and inventory that was smaller in 2002 than in 2001
due to the primary activity in these accounts in 2001 being
related to the restructuring of the Aventis collaboration in
2001, (2) a decrease in accounts payable and accrued
liabilities in 2002 compared to an increase in these accounts in
2001 because the 2001 increase included $2.0 million
related to expenses we agreed to pay Aventis in connection with
the restructuring of the Aventis collaboration in 2001, and
(3) an increase in deferred revenue in 2002 compared to a
decrease in this amount in 2001 due to (a) the deferral of
the recognition of income under the lease of space to
M. D. Anderson Cancer Center, which was in effect for
the entire 2002 period but for only a portion of the 2001 period
and (b) a decrease in deferred revenue in 2001 relating to
the earning of revenue on sales of inventory to Aventis, an
activity that no longer exists due to the restructuring of the
Aventis collaboration in June 2001.

Net cash provided by investing activities was
$11.3 million for the year ended December 31, 2002,
compared to net cash provided by investing activities of
$45.6 million for the year ended December 31, 2001.
The change in the amounts of purchases and maturities of
short-term investments 2002 compared to 2001 was due to a
significant portion of our investment activity in the 2001
period being in short-term investments, followed by a period
subsequent to September 11, 2001, during which we
concentrated our investments in cash and cash equivalents, which
was then followed in the 2002 period by more investments in
short-term securities. The costs associated with purchases of
property and equipment declined in 2002 compared to 2001

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because 2001 included costs related to the
completion of tenant improvements to the space leased to M. D.
Anderson Cancer Center, for which there were no similar costs in
2002.


Net cash used in financing activities was
$1.6 million for the year ended December 31, 2002, and
net cash provided by financing activities was $25.3 million
for the year ended December 31, 2001. This change between
periods is due to the 2001 period including the receipt of
proceeds from (1) the purchase of preferred stock by
Aventis in connection with the restructuring of our
collaboration agreement with them and (2) a note payable
used to finance tenant improvements for the lease of space to
M. D. Anderson Cancer Center, whereas there were no
similar events in 2002. Offsetting these items were higher
principal payments under notes payable and capital lease
obligations in 2002 compared to 2001 due to debt service
payments on the note payable for tenant improvements being made
for all of 2002, but for only a portion of 2001, and a larger
portion of debt service payments on all mortgage notes and
capital lease obligations applying to principal as the principal
balances under these obligations continue to be amortized.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Comparison of Six-Month Periods Ended
    December 31, 2001 and 2000 (Unaudited)

At December 31, 2001, we had cash and
short-term investments of approximately $48.8 million,
compared with $36.4 million at December 31, 2000. Net
cash used by operating activities was $10.4 million and
$1.7 million for the six-month period ended
December 31, 2001 and the six-month period ended
December 31, 2000, respectively. This increase in cash used
by operating activities was primarily due to a higher net loss
from operations and payment of accrued liabilities, offset
partially by a smaller increase in accounts receivable and the
absence of a decrease in inventory during 2001 as compared to
2000. The payment of accrued liabilities was higher due to the
increased level of activity associates with our Phase 3
clinical trials of ADVEXIN therapy. The smaller increase in
accounts receivable and the absence of the decrease in inventory
was due to the elimination of sales of ADVEXIN therapy to
Aventis as a result of the restructuring of our collaboration
with them.

Net cash provided by investing activities was
$9.2 million for the six-month period ended
December 31, 2001, and net cash used in investing
activities was $30.0 million for the six-month period ended
December 31, 2000. During the six-month period ended
December 31, 2000, we invested a portion of our cash in
short-term investments with maturities in excess of
90 days. During the six-month period ended
December 31, 2001, we modified our investment policy and
concentrated our investing activities in instruments with
maturities shorter than 90 days. This change in policy
resulted in a decrease in cash used by investing activities. We
also purchased less property and equipment in the 2001 period
compared to the 2000 period since the 2000 period included our
activities related to the finish-out of a portion of our
facilities for lease to M. D. Anderson Cancer Center.

Net cash provided by financing activities was
$24.3 million for the six-month period ended
December 31, 2001 and $34.6 million for the six-month
period ended December 31, 2000. This decline was primarily
due to the proceeds from our initial public offering of common
stock in October 2000 being greater than the proceeds from our
sale of preferred stock to Aventis in July 2001, and a decline
in the amount of new notes payable in 2001 compared to 2000 due
to the leasehold improvements related to our sublease of space
to M. D. Anderson Cancer Center being completed and all
financing related thereto in place in early 2001. At
December 31, 2001, we had $8.8 million outstanding
under notes payable for our facilities and $1.8 million
outstanding under capital leases to finance the purchase of
equipment.

Quarterly Results of Operations

The following table sets forth certain unaudited
quarterly financial data for the years ended December 31,
2002 and 2003. This information has been prepared on the same
basis as the Consolidated Financial Statements and all necessary
adjustments have been included in the amounts stated below to
present fairly the

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selected quarterly information when read in
conjunction with the Consolidated Financial Statements and Notes
thereto. Historical quarterly financial results and trends may
not be indicative of future results.


|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |       | 
|----------------------------------------------------------------- | -------------------------- | -------------------------------------- | ------ | -------- |  | ------------- | ------ | ------------ |  | --------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                  |                            |                                       
|                                                                  |                            | Three Months Ended                    
|                                                                  |                            |                                       
|                                                                  |                            | March 31,                              |        | June 30, |  | September 30, |        | December 31, |  | March 31, |        | June 30, |  | September 30, |        | December 31,
|                                                                  |                            | 2002                                   |        | 2002     |  | 2002          |        | 2002         |  | 2003      |        | 2003     |  | 2003          |        | 2003        
|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |             
|                                                                  |                            |                                       
|                                                                  |                            | (Unaudited)                           
|                                                                  |                            |                                       
|                                                                  |                            | In thousands, except per share amounts
|Statement of Operations Data:                                     |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Contract services, grant and other revenue                        |                            |                                        | 229    |          |  |               | 322    |              |  |           | 453    |          |  |               | 170    |              |  |   | 150    |       |  |   | 143    |       |  |   | 9      |       |  |   | 2      |      
|Operating expenses:                                               |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Research and development   |                                        |        | 6,699    |  |               |        | 5,805        |  |           |        | 4,633    |  |               |        | 4,375        |  |   |        | 4,342 |  |   |        | 2,957 |  |   |        | 3,572 |  |   |        | 4,102 | 
|                                                                  | General and administrative |                                        |        | 1,755    |  |               |        | 1,679        |  |           |        | 1,729    |  |               |        | 1,559        |  |   |        | 1,387 |  |   |        | 1,808 |  |   |        | 1,404 |  |   |        | 1,503 | 
|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Loss from operations                                              |                            |                                        | (8,225 | )        |  |               | (7,162 | )            |  |           | (5,909 | )        |  |               | (5,764 | )            |  |   | (5,579 | )     |  |   | (4,622 | )     |  |   | (4,976 | )     |  |   | (5,603 | )    
|Interest income (expense), net                                    |                            |                                        | (28    | )        |  |               | (38    | )            |  |           | (45    | )        |  |               | (96    | )            |  |   | (108   | )     |  |   | 314    |       |  |   | 249    |       |  |   | (62    | )    
|Other income                                                      |                            |                                        | 316    |          |  |               | 333    |              |  |           | 261    |          |  |               | 229    |              |  |   | 248    |       |  |   | 254    |       |  |   | 292    |       |  |   | 258    |      
|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Net loss                                                          |                            | $                                      | (7,937 | )        |  | $             | (6,867 | )            |  | $         | (5,693 | )        |  | $             | (5,631 | )            |  | $ | (5,439 | )     |  | $ | (4,054 | )     |  | $ | (4,426 | )     |  | $ | (5,407 | )    
|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Basic and diluted net Loss per share                              |                            | $                                      | (0.37  | )        |  | $             | (0.32  | )            |  | $         | (0.27  | )        |  | $             | (0.26  | )            |  | $ | (0.25  | )     |  | $ | (0.19  | )     |  | $ | (0.19  | )     |  | $ | (0.21  | )    
|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|Shares used in computing basic and diluted net
    loss per share |                            |                                        | 21,450 |          |  |               | 21,463 |              |  |           | 21,465 |          |  |               | 21,471 |              |  |   | 21,525 |       |  |   | 21,851 |       |  |   | 23,650 |       |  |   | 21,562 |      
|                                                                  |                            |                                        |        |          |  |               |        |              |  |           |        |          |  |               |        |              |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      

Contractual Obligations

The following table summarizes our contractual
obligations as of December 31, 2003:

|                          |  |                |        |          |  |             |       |            |  |           |       |  |  |   |       |  |  |   |        | 
|------------------------- |  | -------------- | ------ | -------- |  | ----------- | ----- | ---------- |  | --------- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                          |  |                |        |          |  |             |       |            |  | More     
|                          |  |                |        | One Year |  | Two to      |       | Four to    |  | Than Five
|                          |  | Total          |        | or Less  |  | Three Years |       | Five Years |  | Years    
|                          |  |                |        |          |  |             |       |            |  |          
|                          |  |               
|                          |  | (In thousands)
|Long-Term Debt            |  | $              | 13,046 |          |  | $           | 1,268 |            |  | $         | 2,109 |  |  | $ | 1,074 |  |  | $ | 8,595  | 
|Capital Lease Obligations |  |                | 439    |          |  |             | 248   |            |  |           | 191   |  |  |   |      |  |  |   |       | 
|Operating Leases          |  |                | 3,526  |          |  |             | 325   |            |  |           | 350   |  |  |   | 288   |  |  |   | 2,563  | 
|Employment Agreements     |  |                | 1,230  |          |  |             | 476   |            |  |           | 754   |  |  |   |      |  |  |   |       | 
|Consulting Agreements     |  |                | 1,150  |          |  |             | 200   |            |  |           | 400   |  |  |   | 400   |  |  |   | 150    | 
|                          |  |                |        |          |  |             |       |            |  |           |       |  |  |   |       |  |  |   |        | 
|Total                     |  | $              | 19,391 |          |  | $           | 2,517 |            |  | $         | 3,804 |  |  | $ | 1,762 |  |  | $ | 11,308 | 
|                          |  |                |        |          |  |             |       |            |  |           |       |  |  |   |       |  |  |   |        | 

Risk Factors

If
we are unable to commercialize ADVEXIN therapy in various
markets for multiple indications, particularly for the treatment
of head and neck cancer, our business will be
harmed.

Our ability to achieve and sustain operating
profitability depends in large part on our ability to commence,
execute and complete clinical programs and obtain regulatory
approvals for ADVEXIN therapy and other drug candidates. In
particular, our ability to achieve and sustain profitability
will depend in large part on our ability to commercialize
ADVEXIN for the treatment of head and neck cancer in the United
States. We cannot assure you that we will receive approval for
ADVEXIN for the treatment of head and neck cancer or other types
of cancer or indications in the United States or in other
countries or if approved that we will achieve significant level
of sales. If we are unable to do so, our business will be harmed.

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If
we fail to comply with FDA requirements or encounter delays or
difficulties in clinical trials for our product candidates, we
may not obtain regulatory approval of some or all of our product
candidates on a timely basis, if at all.

In order to commercialize our product candidates,
we must obtain certain regulatory approvals. Satisfaction of
regulatory requirements typically takes many years, and involves
compliance with requirements covering research and development,
testing, manufacturing, quality control, labeling and promotion
of drugs for human use. To obtain regulatory approvals, we must,
among other requirements, complete clinical trials demonstrating
that our product candidates are safe and effective for a
particular cancer type or other disease. Regulatory approval of
a new drug is never guaranteed. The FDA has substantial
discretion in the approval process. Despite the time and
experience exerted, failure can occur at any stage, and we could
encounter problems that could cause us to abandon clinical
trials.

We have completed three Phase 2 clinical
trials and are conducting two Phase 3 clinical trials of
our lead product candidate, ADVEXIN therapy, for the treatment
of head and neck cancer. In addition, we have completed a
Phase 2 clinical trial of ADVEXIN therapy for the treatment
of non-small cell lung cancer and are conducting a Phase 2
clinical trial of ADVEXIN therapy for the treatment of breast
cancer. We also are conducting or have conducted several
Phase 1 and Phase 2 clinical trials of ADVEXIN therapy
for other types of cancer. Current or future clinical trials may
demonstrate that ADVEXIN therapy is neither safe nor effective.

While we have completed enrollment in a
Phase 1/early Phase 2 clinical trial of INGN 241,
a product candidate based on the mda-7 gene, our most
significant clinical trial activity and experience has been with
ADVEXIN therapy. We will need to continue conducting significant
research and animal testing, referred to as pre-clinical
testing, to support performing clinical trials for our other
product candidates. It will take us many years to complete
pre-clinical testing and clinical trials, and failure could
occur at any stage of testing. Current or future clinical trials
may demonstrate that INGN 241 or our other product
candidates are neither safe nor effective.

Any delays or difficulties we encounter in our
pre-clinical research and clinical trials, in particular the
Phase 3 clinical trials of ADVEXIN therapy for the
treatment of head and neck cancer, may delay or preclude
regulatory approval. Our product development costs will increase
if we experience delays in testing or regulatory approvals or if
we need to perform more or larger clinical trials than planned.
Any delay or preclusion could also delay or preclude the
commercialization of ADVEXIN therapy or any other product
candidates. In addition, we or the FDA might delay or halt any
of our clinical trials of a product candidate at any time for
various reasons, including:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the product candidate is less effective and/or
    more toxic than current therapies;                       
|
| |  | the presence of unforeseen adverse side effects
    of a product candidate, including its delivery system;  
|
| |  | a longer than expected time required to determine
    whether or not a product candidate is effective;      
|
| |  | the death of patients during a clinical trial,
    even if the product candidate did not cause those deaths;
|
| |  | the failure to enroll a sufficient number of
    patients in our clinical trials;                           
|
| |  | the inability to produce sufficient quantities of
    a product candidate to complete the trials; or        
|
| |  | the inability to commit the necessary resources
    to fund the clinical trials.                            

We cannot be certain that the results we observed
in our pre-clinical testing will be confirmed in clinical trials
or that the results of any of our clinical trials will support
FDA approval. Pre-clinical and clinical data can be interpreted
in many different ways, and FDA officials could interpret data
that we consider promising differently, which could halt or
delay our clinical trials or prevent regulatory approval.

Despite the FDAs designation of ADVEXIN
therapy as a Fast Track product, we may encounter delays in the
regulatory approval process due to additional information
requirements from the FDA, unintentional omissions in our
Biologics License Application for ADVEXIN therapy, or other
delays in the FDAs review

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process. We may encounter delays or rejections in
the regulatory approval process because of additional government
regulation from future legislation or administrative action or
changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review.




| |                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Even if our products are approved by
    regulatory authorities, if we fail to comply with on-going
    regulatory requirements, or if we experience unanticipated
    problems with our products, these products could be subject to
    restrictions or withdrawal from the market.

Any product for which we obtain marketing
approval, along with the manufacturing processes, post-approval
clinical data and promotional activities for such product, will
be subject to continual review and periodic inspections by FDA
and other regulatory bodies. Even if regulatory approval of a
product is granted, the approval may be subject to limitations
on the indicated uses for which the product may be marketed or
certain requirements for costly post-marketing testing and
surveillance to monitor the safety or efficacy of the product.
Later discovery of previously unknown problems with our
products, including unanticipated adverse events of
unanticipated severity or frequency, manufacturer or
manufacturing processes or failure to comply with regulatory
requirements, may result in restrictions on such products or
manufacturing processes, withdrawal of the products from the
market, voluntary or mandatory recall, fines, suspension of
regulatory approvals, product seizures or detention, injunctions
or the imposition of civil or criminal penalties.



| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to comply with foreign regulatory
    requirements governing human clinical trials and marketing
    approval for drugs could prevent us from selling our products in
    foreign markets, which may adversely affect our operating
    results and financial conditions.

For marketing drugs and biologics outside the
United States, the requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement
vary greatly from country to country and may require additional
testing. The time required to obtain approvals outside the
United States may differ from that required to obtain FDA
approval. We may not obtain foreign regulatory approval on a
timely basis, if at all. Approval by the FDA does not ensure
approval by regulatory authorities in other countries, and
approval by one foreign regulatory authority does not ensure
approval by regulatory authorities in other countries or by the
FDA. Failure to comply with these regulatory requirements or to
obtain required approvals could impair our ability to develop
these markets and could have a material adverse effect on our
results of operations and financial condition.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | We have a history of operating losses,
    expect to incur significant additional operating losses and may
    never become profitable.

We have generated operating losses since we began
operations in June 1993. As of December 31, 2003, we had an
accumulated deficit of approximately $93.0 million. We
expect to incur substantial additional operating expenses and
losses over the next several years as our research, development,
pre-clinical testing and clinical trial activities increase. As
we expand our operations and develop systems to support
commercialization of our product candidates, these losses, among
other things, have had, and are expected to continue to have, an
adverse impact on our total assets, stockholders equity
and working capital.

We have no products that have generated any
commercial revenue. Presently, we earn minimal revenue from
contract services activities, grants, interest income and rent
from the lease of a portion of our facilities to The University
of Texas M. D. Anderson Cancer Center. We do not expect to
generate revenues from the commercial sale of products in the
near future, and we may never generate revenues from the
commercial sale of products.



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we continue to incur operating losses
    for a period longer than we anticipate and fail to obtain the
    capital necessary to fund our operations, we will be unable to
    advance our development program and complete our clinical
    trials.

Developing a new drug and conducting clinical
trials is expensive. Our product development efforts may not
lead to commercial products, either because our product
candidates fail to be found safe or effective in

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clinical trials or because we lack the necessary
financial or other resources or relationships to pursue our
programs through commercialization. Our capital and future
revenues may not be sufficient to support the expenses of our
operations, the development of commercial infrastructure and the
conduct of our clinical trials and pre-clinical research.


We expect that we will fund our operations over
approximately the next 18 to 24 months with our current
working capital, which we accumulated primarily from sale of
equity securities, income from contract services and research
grants, debt financing of equipment acquisitions, the lease of a
portion of our facilities to M. D. Anderson Cancer Center and
interest on invested funds. We may need to raise additional
capital sooner, however, under various circumstances, including
if we experience:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an acceleration of the number, size or complexity
    of our clinical trials;                                                                                                             
|
| |  | slower than expected progress in developing
    ADVEXIN therapy, INGN 241 or other product candidates;                                                                                    
|
| |  | higher than expected costs to obtain regulatory
    approvals;                                                                                                                            
|
| |  | higher than expected costs to pursue our
    intellectual property strategy;                                                                                                              
|
| |  | higher than expected costs to further develop and
    scale up our manufacturing capability;                                                                                              
|
| |  | higher than expected costs to develop our sales
    and marketing capability;                                                                                                             
|
| |  | the rate of progress and cost of our research and
    development and clinical trial activities;                                                                                          
|
| |  | the amount and timing of milestone payments we
    receive from collaborators;                                                                                                            
|
| |  | the costs of preparing an application for FDA
    approval of ADVEXIN therapy;                                                                                                            
|
| |  | the costs of developing the processes and systems
    to support FDA approval of ADVEXIN therapy;                                                                                         
|
| |  | our timetable and costs for the development of
    marketing operations and other activities related to the
    commercialization of ADVEXIN therapy and our other product
    candidates;
|
| |  | our degree of success in our Phase 3
    clinical trial of ADVEXIN therapy and in the clinical trials of
    our other products;                                                          
|
| |  | the emergence of competing technologies and other
    adverse market developments; and                                                                                                    
|
| |  | changes in or terminations of our existing
    collaboration and licensing arrangements.                                                                                                  

We do not know whether additional financing will
be available when needed, or on terms favorable to us or our
stockholders. We may need to raise any necessary funds through
public or private equity offerings, debt financings or
additional corporate collaboration and licensing arrangements.
To the extent we raise additional capital by issuing equity
securities, our stockholders will experience dilution. If we
raise funds through debt financings, we may become subject to
restrictive covenants. To the extent that we raise additional
funds through collaboration and licensing arrangements, we may
be required to relinquish some rights to our technologies or
product candidates, or grant licenses on terms that are not
favorable to us. If we are not able to raise additional funds,
we may have to delay, reduce or eliminate our clinical trials
and our development programs.

If
we cannot maintain our existing corporate and academic
arrangements and enter into new arrangements, we may be unable
to develop products effectively, or at all.

Our strategy for the research, development and
commercialization of our product candidates may result in our
entering into contractual arrangements with corporate
collaborators, academic institutions and others. We have entered
into sponsored research, license and/or collaborative
arrangements with several entities, including M. D. Anderson
Cancer Center, the National Cancer Institute, Chiba University
in Japan, VirRx and Corixa Corporation, as well as numerous
other institutions that conduct clinical trials work for us. Our
success depends upon our collaborative partners performing their
responsibilities under these arrangements

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and complying with the regulations and
requirements governing clinical trials. We cannot control the
amount and timing of resources our collaborative partners devote
to our research and testing programs or product candidates, or
their compliance with regulatory requirements which can vary
because of factors unrelated to such programs or product
candidates. These relationships may in some cases be terminated
at the discretion of our collaborative partners with only
limited notice to us. We may not be able to maintain our
existing arrangements, enter into new arrangements or negotiate
current or new arrangements on acceptable terms, if at all. Some
of our collaborative partners may also be researching competing
technologies independently from us to treat the diseases
targeted by our collaborative programs.


If
we are not able to create effective collaborative marketing
relationships, we may be unable to market ADVEXIN therapy
successfully or in a cost-effective manner.

To effectively market our products, we will need
to develop sales, marketing and distribution capabilities. In
order to develop or otherwise obtain these capabilities, we may
have to enter into marketing, distribution or other similar
arrangements with third parties in order to sell, market and
distribute our products successfully. To the extent that we
enter into any such arrangements with third parties, our product
revenues are likely to be lower than if we directly marketed and
sold our products, and any revenues we receive will depend upon
the efforts of such third parties. We have no experience in
marketing or selling pharmaceutical products and we currently
have no sales, marketing or distribution capability. We may be
unable to develop sufficient sales, marketing and distribution
capabilities to commercialize our products successfully.

Serious
and unexpected side effects attributable to gene therapy may
result in governmental authorities imposing additional
regulatory requirements or a negative public perception of our
products.

ADVEXIN therapy and our other product candidates
under development could be broadly described as gene therapies.
A number of clinical trials are being conducted by other
pharmaceutical companies involving gene therapy, including
compounds similar to, or competitive with, our product
candidates. The announcement of adverse results from these
clinical trials, such as serious unwanted and unexpected side
effects attributable to treatment, any response by the FDA to
such clinical trials, may impede the timing of our clinical
trials, delay or prevent us from obtaining regulatory approval
or negatively influence public perception of our product
candidates, which could harm our business and results of
operations and depress the value of our stock.

For example, in 2002, the FDA placed a clinical
hold on gene therapy clinical trials using retroviral vectors to
transduce hematopoietic stem cells after two participants in
such a trial for the X-linked form of severe combined immune
deficiency disease (X-SCID), being conducted in Europe,
developed what appeared to be a leukemia-like illness. This
clinical hold requires a case-by-case review of the use of
retroviral vectors in these European trials before consideration
of the removal of this clinical hold for these trials. We do not
use retroviral vectors in our ongoing clinical trials and are
not developing products using the production process used in
those clinical trials. We have received no communications from
the FDA to indicate this clinical hold will affect our clinical
trials, and we anticipate no future negative effects on our
clinical trials from this event but we cannot assure you that
the FDA or any other regulatory authority will not issue a
clinical hold with respect to any of our clinical trials in the
future. In accordance with our pharmacovigilance procedures and
regulatory procedures, we monitor every patient in our clinical
trials for safety and report all side effects to the FDA and the
National Institutes of Health, or NIH.

The United States Senate has held hearings
concerning the adequacy of regulatory oversight of gene therapy
clinical trials, as well as the adequacy of research subject
education and protection in clinical research in general, and to
determine whether additional legislation is required to protect
healthy volunteers and patients who participate in such clinical
trials. The Recombinant DNA Advisory Committee, or RAC, which
acts as an advisory body to the NIH has expanded its public role
in evaluating important public and ethical issues in gene
therapy clinical trials. Implementation of any additional review
and reporting procedures or other additional regulatory measures
could increase the costs of or prolong our product development
efforts or clinical trials.

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We report to the FDA and other regulatory
agencies serious adverse events, including those that we believe
may be reasonably related to the treatments administered in our
clinical trials. Such serious adverse events, whether
treatment-related or not, could result in negative public
perception of our treatments and require additional regulatory
review or measures, which could increase the cost of or prolong
our clinical trials.

To date the FDA has not approved any gene therapy
product or gene-induced product for sale in the United States.
The commercial success of our products will depend in part on
public acceptance of the use of gene therapy products or
gene-induced products, which are a new type of disease treatment
for the prevention or treatment of human diseases. Public
attitudes may be influenced by claims that gene therapy products
or gene-induced products are unsafe, and these treatment
methodologies may not gain the acceptance of the public or the
medical community. Negative public reaction to gene therapy
products or gene-induced products could also result in greater
government regulation and stricter clinical trial oversight.

We
cannot predict the safety profile of the use of ADVEXIN therapy
when used in combination with other therapeutics.

Many of our trials involve the use of ADVEXIN
therapy in combination with other drugs or therapies. While the
data we have evaluated to date suggest that ADVEXIN therapy does
not increase the adverse effects of other therapies, we cannot
predict if this will continue to be true or whether possible
adverse side effects not directly attributable to the other
drugs will compromise the safety profile of ADVEXIN therapy when
used in certain combination therapies.

If
we fail to adequately protect our intellectual property rights,
our competitors may be able to take advantage of our research
and development efforts to develop competing
drugs.

Our commercial success will depend in part on
obtaining patent protection for our products and other
technologies and successfully defending these patents against
third-party challenges. Our patent position, like that of other
biotechnology and pharmaceutical companies, is highly uncertain.
One uncertainty is that the United States Patent and Trademark
Office, or PTO, or the courts, may deny or significantly narrow
claims made under patents issued to us or patent applications we
file. This is particularly true for patent applications or
patents that concern biotechnology and pharmaceutical
technologies, such as ours, since the PTO and the courts often
consider these technologies to involve unpredictable sciences.
Another uncertainty is that any patents that may be issued or
licensed to us may not provide any competitive advantage to us
because they may not effectively preclude others from developing
and marketing products like ours. Also, our patents may be
successfully challenged, invalidated or circumvented in the
future. In addition, our competitors, many of which have
substantial resources and have made significant investments in
competing technologies, may seek to apply for and obtain patents
that will prevent, limit or interfere with our ability to make,
use and sell our potential products either in the United States
or in international markets.

Our ability to develop and protect a competitive
position based on our biotechnological innovations, innovations
involving genes, gene-induced therapeutic protein agents,
viruses for delivering the genes to cells, formulations, gene
therapy delivery systems that do not involve viruses, and the
like, is particularly uncertain. Due to the unpredictability of
the biotechnological sciences, the PTO, as well as patent
offices in other jurisdictions, has often required that patent
applications concerning biotechnology-related inventions be
limited or narrowed substantially to cover only the specific
innovations exemplified in the patent application, thereby
limiting their scope of protection against competitive
challenges. Similarly, courts have invalidated or significantly
narrowed many key patents in the biotechnology industry. Thus,
even if we are able to obtain patents that cover commercially
significant innovations, our patents may not be upheld or our
patents may be substantially narrowed.

Through our exclusive license from The University
of Texas System for technology developed at M. D. Anderson
Cancer Center, we have obtained and are currently seeking
further patent protection for adenoviral p53, including ADVEXIN
therapy, and its use in cancer therapy. Further, the PTO issued
us a United States patent for our adenovirus production
technology. We also control, through licensing arrangements,
four issued United States patents for combination therapy
involving the p53 gene and conventional chemotherapy or

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radiation, one issued United States patent
covering the use of adenoviral p53 in cancer therapy, one issued
United States patent covering adenoviral p53 as a product and an
issued United States patent covering the core DNA of adenoviral
p53. We have recently been notified by the PTO that additional
applications relating to our adenoviral p53, purified adenoviral
composition and mda-7 technology have been allowed. We cannot
assure you these allowed applications will actually issue as
United States patents. Our competitors may challenge the
validity of one or more of our patents in the courts or through
an administrative procedure known as an interference, in which
the PTO determines the priority of invention where two or more
parties are claiming the same invention. The courts or the PTO
may not uphold the validity of our patents, we may not prevail
in such interference proceedings regarding our patents and none
of our patents may give us a competitive advantage. In this
regard, we have recently been notified by the PTO that an
unidentified third party is attempting to provoke an
interference with one of our patents directed to adenoviral p53
therapy. We do not at present know the identity of this party,
and cannot assess the likelihood that an interference will
actually be declared. Should that party prevail in an
interference proceeding, a patent may issue to that party that
is infringed by, and therefore potentially preclude our
commercialization of, products like ADVEXIN therapy that are
used for adenoviral p53 therapy.


Schering-Plough has filed with the European
Patent Office, or EPO, an opposition against our European patent
directed to combination therapy with p53 and conventional
chemotherapy and/or radiation. An opposition is an
administrative proceeding instituted by a third party and
conducted by the EPO to determine whether a patent should be
maintained or revoked in part or in whole, based on evidence
brought forth by the party opposing the patent. The EPO held an
initial oral proceeding on October 20, 2003 and determined
that our patent should be maintained as amended. Schering-Plough
can appeal this decision. Resolution of such an appeal, if
taken, will require that we expend time, effort and money. If
Schering-Plough ultimately prevails in having our European
patent revoked on appeal, then the scope of our protection for
our product in Europe will be reduced. We would not expect,
however, such a result to have a significant impact on our
commercialization efforts in Europe.

Third-party
claims of infringement of intellectual property could require us
to spend time and money to address the claims and could limit
our intellectual property rights.

The biotechnology and pharmaceutical industry has
been characterized by extensive litigation regarding patents and
other intellectual property rights, and companies have employed
intellectual property litigation to gain a competitive
advantage. We are aware of a number of issued patents and patent
applications that relate to gene therapy, the treatment of
cancer and the use of the p53 and other tumor suppressor genes.
Schering-Plough Corporation, including its subsidiary Canji,
Inc., controls various United States patent applications and a
European patent and applications, some of which are directed to
therapy using the p53 gene, and others to adenoviruses that
contain the p53 gene, or adenoviral p53, and to methods for
carrying out therapy using adenoviral p53. Adenoviral p53
technology underlies our ADVEXIN therapy product candidate. In
addition, Canji controls an issued United States patent and its
international counterparts, including a European patent,
involving a method of treating mammalian cancer cells lacking
normal p53 protein by introducing a p53 gene into the cancer
cell. Furthermore, we are aware of a United States patent
directed to replication-deficient recombinant adenoviral vectors
apparently controlled by Transgene SA. While we believe that the
claims of the Canji p53 patents or the Transgene adenoviral
vector patent are invalid or not infringed by our products,
Transgene, Canji or Schering-Plough could assert a claim against
us.

One of the foregoing patent applications directed
to p53 therapy, which we understand is owned by The Johns
Hopkins University and controlled by Schering-Plough, is
involved in a PTO interference proceeding with a patent owned by
Canji. We further understand that this Johns Hopkins application
is the United States counterpart to the European patent that was
recently revoked in its entirety by the EPO (see below). We have
now learned that priority of invention in this interference has
been awarded by the PTO to the Johns Hopkins application, and
the Canji patent has been found unpatentable. We cannot at
present assess whether any patent might ultimately issue on the
Johns Hopkins application or the potential impact, if any, of
this PTO ruling on our business. If this application issues as a
patent, Schering-Plough or Johns Hopkins may assert that our
ADVEXIN therapy, which uses p53 therapy, infringes the claims of
such patent. While we believe

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that we would have an invalidity defense against
such an assertion, in the United States an issued patent enjoys
a presumption of validity, which can be overcome only through
clear and convincing evidence. We cannot assure you that such a
defense would prevail.


We may also become subject to infringement claims
or litigation arising out of other patents and pending
applications of our competitors, if they issue, or additional
interference proceedings declared by the PTO to determine the
priority of inventions. The defense and prosecution of
intellectual property suits, PTO interference proceedings and
related legal and administrative proceedings are costly and
time-consuming to pursue, and their outcome is uncertain.
Litigation may be necessary to enforce our issued patents, to
protect our trade secrets and know-how or to determine the
enforceability, scope and validity of the proprietary rights of
others. An adverse determination in litigation or interference
proceedings to which we may become a party could subject us to
significant liabilities, require us to obtain licenses from
third parties, or restrict or prevent us from selling our
products in certain markets. Although patent and intellectual
property disputes are often settled through licensing or similar
arrangements, costs associated with such arrangements may be
substantial and could include ongoing royalties. Furthermore,
the necessary licenses may not be available to us on
satisfactory terms, if at all. In particular, if we were found
to infringe a valid claim of the Transgene adenoviral vector
United States patent, Canji p53 issued United States patent or a
claim that may issue from a currently pending application, such
as the Johns Hopkins application discussed above or other
patents that might issue with similar claims, our business could
be materially harmed.

We are currently involved in opposing three
European patents in proceedings before the EPO, in which we are
seeking to have the EPO revoke three different European patents
owned or controlled by Canji/ Schering-Plough. These European
patents relate to the use of a p53 gene, or the use of tumor
suppressor genes, in the preparation of therapeutic products. In
one opposition involving a European patent directed to the use
of a tumor suppressor gene, the EPO revoked the European patent
in its entirety. Canji has appealed this revocation. A hearing
to determine the outcome of this appeal is scheduled for late
April 2004. In the second opposition, involving a patent that is
directed to therapeutic and other applications of the p53 gene
and that is owned by Johns Hopkins and, we understand,
controlled by Schering-Plough, the EPO recently revoked the
patent in its entirety. The patent owner has appealed this
decision. In a third case involving the use of a p53 gene, the
European patent at issue was upheld following an initial
hearing. A second hearing to determine whether this patent
should be revoked will be held in late April 2004. If we do not
ultimately prevail in one or more of these oppositions, our
competitors could seek to assert by means of litigation any
patent surviving opposition against European commercial
activities involving our potential products. If our competitors
are successful in any such litigation, it could have a
significant detrimental effect on our ability to commercialize
our potential commercial products in Europe.

We
may be subject to litigation and infringement claims that may be
costly, divert managements attention, and materially harm
our business.

Extensive litigation regarding patents and other
intellectual property rights has been common in the
biopharmaceutical industry. Litigation may be necessary to
assert infringement claims, enforce patent rights, protect trade
secrets or know-how and determine the enforceability, scope and
validity of certain proprietary rights. The defense and
prosecution of intellectual property lawsuits, PTO interference
proceedings, and related legal and administrative proceedings in
the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are costly and
time-consuming to pursue and their outcome is uncertain.

Regardless of merit or outcome, our involvement
in any litigation, interference or other administrative
proceedings could cause us to incur substantial expense and
could significantly divert the efforts of our technical and
management personnel. An adverse determination may subject us to
the loss of our proprietary position or to significant
liabilities, or require us to seek licenses that may include
substantial cost and ongoing royalties. Licenses may not be
available from third parties, or may not be obtainable on
satisfactory terms. An adverse determination or a failure to
obtain necessary licenses may restrict or prevent us from
manufacturing and selling our products, if any. These outcomes
could materially harm our business, financial condition and
results of operations.

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If
we fail to meet our obligations under license agreements, we may
lose our rights to key technologies on which our business
depends.

Our business depends in part on patents licensed
from third parties. Those third-party license agreements impose
obligations on us, such as payment obligations and obligations
to diligently pursue development of commercial products under
the licensed patents. If a licensor believes that we have failed
to meet our obligations under a license agreement, the licensor
could seek to limit or terminate our license rights, which could
lead to costly and time-consuming litigation and, potentially, a
loss of the licensed rights. During the period of any such
litigation, our ability to carry out the development and
commercialization of products candidates could be significantly
and negatively affected. If our license rights were restricted
or ultimately lost, our ability to continue our business based
on the affected technology platform would be severely adversely
affected.

Competition
and technological change may make our product candidates and
technologies less attractive or obsolete.

We compete with pharmaceutical and biotechnology
companies, including Canji, Inc. and Genvec, Inc., which are
pursuing forms of treatment similar to ours for the diseases
ADVEXIN therapy and our other product candidates target. We are
aware that Canji, with its parent Schering-Plough Corporation,
has in the past been involved in research and/or development of
adenoviral p53 products and has numerous patents and patent
applications relating to adenoviral p53 therapy. We understand
that Schering-Plough has stopped its adenoviral p53 clinical
trials, and it is unknown whether these parties are continuing
their adenoviral p53 research and/or development efforts. We are
also aware that a Chinese pharmaceutical company, SiBioNo
GeneTech, Inc., has recently announced that it has received
regulatory approval from the Chinese drug regulatory agency to
market an adenoviral p53 product in China. We control an issued
Chinese patent covering adenoviral p53, and a number of pending
Chinese applications directed to p53 therapy and adenoviral
production. We do not at present know whether SiBioNos
adenoviral p53 product is covered by patent protection or
whether it infringes our Chinese patent or pending applications.
We understand that enforcement of patents in China is
unpredictable and we do not know if monetary damages could be
recovered from SiBioNo GeneTech if its product infringes our
patent or patent applications. Patent enforcement and respect of
international patent standards, rules and laws have not
historically been a key characteristic of the Chinese government
and patent system. Further, geopolitical developments, including
trade and tariff disputes that are currently ongoing between the
government of China and the United States Department of Commerce
could add additional uncertainty to any effort to enforce
patents, recover damages, if any, or engage in the sales and
marketing of patented products in China. We also may face
competition from companies that may develop internally or
acquire competing technology from universities and other
research institutions. As these companies develop their
technologies, they may develop competitive positions that may
prevent or limit our product commercialization efforts.

Some of our competitors are established companies
with greater financial and other resources than ours. Other
companies may succeed in developing products earlier than we do,
obtaining FDA approval for products more rapidly than we do or
developing products that are more effective than our product
candidates. While we will seek to expand our technological
capabilities to remain competitive, research and development by
others may render our technology or product candidates obsolete
or non-competitive or result in treatments or cures superior to
any therapy developed by us.

Even
if we receive regulatory approval to market ADVEXIN therapy,
INGN 241, INGN 225 or other product candidates, we may
not be able to commercialize them profitably.

Our profitability will depend on the
markets acceptance of ADVEXIN therapy, INGN 241,
INGN 225, if approved, and our other product candidates.
The commercial success of our product candidates will depend on
whether:



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | they are more effective than alternative
    treatments;      
|
| |  | their side effects are acceptable to patients and
    doctors;

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| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | insurers and other third-party healthcare payers
    will provide adequate reimbursement for them;
|
| |  | we produce and sell them at a profit; and                                                         
|
| |  | we market ADVEXIN therapy, INGN 241,
    INGN 225 and other product candidates effectively.       

Because
the target patient populations for the primary indication of
ADVEXIN therapy, our lead product candidate, are small, we must
achieve significant market share and obtain high per-patient
prices for our products to achieve profitability.

ADVEXIN therapy, our lead product candidate for
the treatment of recurrent squamous cell cancer of the head and
neck, targets diseases with small patient populations. As a
result, our per-patient prices must be relatively high in order
to recover our development costs and achieve profitability. We
estimate that the annual incidence for squamous cell cancer of
the head and neck is 40,000 patients in the United States. We
believe that we will need to market worldwide to achieve
significant market penetration. In addition, we are developing
other drug candidates to treat cancers with small patient
populations. Due to the expected costs of treatment for ADVEXIN
therapy, we may be unable to obtain sufficient market share for
our drug products at a price high enough to justify our product
development efforts.

If
we are unable to manufacture our products in sufficient
quantities or obtain regulatory approvals for our manufacturing
facility, or if our manufacturing process is found to infringe a
valid patented process of another company, then we may be unable
to meet demand for our products and lose potential
revenues.

To complete our clinical trials and commercialize
our product candidates, if approved, we will need access to, or
development of, facilities to manufacture a sufficient supply of
our product candidates. We have used a manufacturing facility in
Houston, Texas, which we constructed and own, to manufacture
ADVEXIN therapy, INGN 241 and other product candidates for
currently planned clinical trials. We anticipate that this
facility is suitable for the initial commercial launch of
ADVEXIN therapy. We have no experience manufacturing ADVEXIN
therapy, INGN 241 or any other product candidates in the volumes
that would be necessary to support commercial sales. If we are
unable to manufacture our product candidates in clinical or,
when necessary, commercial quantities, then we will need to rely
on third-party manufacturers to produce our products for
clinical and commercial purposes. These third-party
manufacturers must receive FDA approval before they can produce
clinical material or commercial product. Our products may be in
competition with other products for access to these facilities
and may be subject to delays in manufacture if third parties
give other products greater priority than ours. In addition, we
may not be able to enter into any necessary third-party
manufacturing arrangements on acceptable terms. There are very
limited contract manufacturers who currently have the capability
to produce ADVEXIN therapy, INGN 241 or our other product
candidates, and the inability of any of these contract
manufacturers to deliver our required quantities of product
candidates timely and at commercially reasonable prices would
negatively affect our operations.

Before we can begin commercially manufacturing
ADVEXIN therapy, INGN 241 or any other product candidate,
we must obtain regulatory approval of our manufacturing facility
and process. Manufacturing of our product candidates for
clinical and commercial purposes must comply with the FDAs
current Good Manufacturing Practices requirements, commonly
known as CGMP requirements, and foreign regulatory requirements.
The CGMP requirements govern quality control and documentation
policies and procedures. In complying with CGMP and foreign
regulatory requirements, we will be obligated to expend time,
money and effort in production, record keeping and quality
control to assure that the product meets applicable
specifications and other requirements. We must also pass a
pre-approval inspection prior to FDA approval.

Our current manufacturing facilities have not yet
been subject to an FDA or other regulatory dossier-related
inspection. Failure to pass a pre-approval inspection may
significantly delay FDA approval of our products. If we fail to
comply with these requirements, we would be subject to possible
regulatory action and may be limited in the jurisdictions in
which we are permitted to sell our products. Further, the FDA
and foreign regulatory authorities have the authority to perform
unannounced periodic inspections of our manufacturing facilities
to ensure compliance with CGMP and foreign regulatory
requirements. Our facility in Houston, Texas is our only
manufacturing facility. If this facility were to incur
significant damage or

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destruction, then our ability to manufacture
ADVEXIN therapy, INGN 241 or any other product candidates
would be significantly hampered, and our pre-clinical testing,
clinical trials and commercialization efforts would be delayed.


In order to produce our products in the
quantities that we believe will be required to meet anticipated
market demand, if our products are approved, we will need to
increase, or scale-up, our production process. If we
are unable to do so, or if the cost of this scale-up is not
economically viable to us, we may not be able to produce our
products in a sufficient quantity to meet the requirements of
future demand.

Canji controls a United States patent and the
corresponding international applications, including a European
counterpart, relating to the purification of viral or adenoviral
compositions. While we believe that our manufacturing process
does not infringe this patent, Canji could still assert a claim
against us. We may also become subject to infringement claims or
litigation if our manufacturing process infringes upon other
patents. The defense and prosecution of intellectual property
suits and related legal and administrative proceedings are
costly and time-consuming to pursue, and their outcome is
uncertain.

We
rely on only one supplier for some of our manufacturing
materials. Any problems experienced by any such supplier could
negatively affect our operations.

We rely on third-party suppliers for most of the
equipment, materials and supplies used in the manufacturing of
ADVEXIN therapy, INGN 241 and our other product candidates.
Some items critical to the manufacture of these product
candidates are available from only one supplier or vendor. We do
not have supply agreements with these key suppliers. To mitigate
the related supply risk, we maintain inventories of these items.
Any significant problem that one of our sole source suppliers
experiences could result in a delay or interruption in the
supply of materials to us until that supplier cures the problem
or until we locate an alternative source of supply. Such
problems would likely lead to a delay or interruption in our
manufacturing operations or could require a significant
modification to our manufacturing process, which could impair
our ability to manufacture our product candidates in a timely
manner and negatively affect our operations.

If
product liability lawsuits are successfully brought against us,
we may incur substantial damages and demand for our product
candidates may be reduced.

The testing and marketing of medical products is
subject to an inherent risk of product liability claims.
Regardless of their merit or eventual outcome, product liability
claims may result in:



| |   |                                                              
| | - | -------------------------------------------------------------
| |  | decreased demand for our product candidates;                 
|
| |  | injury to our reputation and significant media
    attention;
|
| |  | withdrawal of clinical trial volunteers;                     
|
| |  | substantial delay in FDA approval;                           
|
| |  | costs of litigation; and                                     
|
| |  | substantial monetary awards to plaintiffs.                   

We currently maintain product liability insurance
with coverage of $5.0 million per occurrence with a
$15.0 million annual aggregate limit. This coverage may not
be sufficient to protect us fully against product liability
claims. We intend to expand our product liability insurance
coverage beyond clinical trials to include the sale of
commercial products if we obtain marketing approval for any of
our product candidates. Our inability to obtain sufficient
product liability insurance at an acceptable cost to protect
against product liability claims could prevent or limit the
commercialization of our products.

We
use hazardous materials in our business, and any claims relating
to improper handling, storage or disposal of these materials
could harm our business.

Our business involves the use of a broad range of
hazardous chemicals and materials. Environmental laws impose
stringent civil and criminal penalties for improper handling,
disposal and storage of these materials. In

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addition, in the event of an improper or
unauthorized release of, or exposure of individuals to,
hazardous materials, we could be subject to civil damages due to
personal injury or property damage caused by the release or
exposure. A failure to comply with environmental laws could
result in fines and the revocation of environmental permits,
which could prevent us from conducting our business.


Our
stock price may fluctuate substantially.

The market price for our common stock will be
affected by a number of factors, including:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | progress and results of our pre-clinical and
    clinical trials;                                                              
|
| |  | announcement of technological innovations by us
    or our competitors;                                                        
|
| |  | developments concerning proprietary rights,
    including patent and litigation matters;                                       
|
| |  | publicity regarding actual or potential results
    with respect to products under development by us or by our
    competitors;
|
| |  | regulatory developments;                                                                                                       
|
| |  | the announcement of new products by us or our
    competitors;                                                                 
|
| |  | quarterly variations in our or our
    competitors results of operations;                                                     
|
| |  | failure to achieve operating results projected by
    securities analysts;                                                     
|
| |  | changes in earnings estimates or recommendations
    by securities analysts;                                                   
|
| |  | developments in our industry; and                                                                                              
|
| |  | general market conditions and other factors.                                                                                   

In addition, stock prices for many companies in
the technology and emerging growth sectors have experienced wide
fluctuations that have often been unrelated to the operating
performance of such companies.

Any
acquisition we might make may be costly and difficult to
integrate, may divert management resources or dilute stockholder
value.

As part of our business strategy, we may acquire
assets or businesses principally relating to or complementary to
our current operations, and we have in the past evaluated and
discussed such opportunities with interested parties. Any
acquisitions that we undertake will be accompanied by the risks
commonly encountered in business acquisitions. These risks
include, among other things:



| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | potential exposure to unknown liabilities of
    acquired companies;                               
|
| |  | the difficulty and expense of assimilating the
    operations and personnel of acquired businesses;
|
| |  | diversion of management time and attention and
    other resources;                                
|
| |  | loss of key employees and customers as a result
    of changes in management;                      
|
| |  | the incurrence of amortization expenses; and                                                       
|
| |  | possible dilution to our stockholders.                                                             

In addition, geographic distances may make the
integration of businesses more difficult. We may not be
successful in overcoming these risks or any other problems
encountered in connection with any acquisitions.

If
we do not progress in our programs as anticipated, our stock
price could decrease.

For planning purposes, we estimate the timing of
a variety of clinical, regulatory and other milestones, such as
when a certain product candidate will enter clinical
development, when a clinical trial will be completed or when an
application for regulatory approval will be filed. Some of our
estimates are included in this prospectus supplement. Our
estimates are based on present facts and a variety of
assumptions. Many of

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the underlying assumptions are outside of our
control. If milestones are not achieved when we expect them to
be, investors could be disappointed, and our stock price may
decrease.




| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we lose key personnel or are unable to
    attract and retain additional, highly skilled personnel required
    to develop our products or obtain new collaborations, our
    business will suffer.

We depend, to a significant extent, on the
efforts of our key employees, including senior management and
senior scientific, clinical, regulatory and other personnel. The
development of new therapeutic products requires expertise from
a number of different disciplines, some of which are not widely
available. We depend upon our scientific staff to discover new
product candidates and to develop and conduct pre-clinical
studies of those new potential products. Our clinical and
regulatory staff is responsible for the design and execution of
clinical trials in accordance with FDA requirements and for the
advancement of our product candidates toward FDA approval. The
quality and reputation of our scientific, clinical and
regulatory staff, especially the senior staff, and their success
in performing their responsibilities, are a basis on which we
attract potential funding sources and collaborators. In
addition, our Chief Executive Officer and other executive
officers are involved in a broad range of critical activities,
including providing strategic and operational guidance. The loss
of these individuals, or our inability to retain or recruit
other key management and scientific, clinical, regulatory and
other personnel, may delay or prevent us from achieving our
business objectives. We face intense competition for personnel
from other companies, universities, public and private research
institutions, government entities and other organizations.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Some of our insiders are parties to
    transactions with us that may cause conflicting
    obligations.

Dr. John N. Kapoor, the Chairman of our
Board of Directors, is also associated with EJ Financial
Enterprises, Inc., a health care investment firm which is wholly
owned by him, and therefore may have conflicts of interest in
allocating his time among us and his other business activities,
and he may have legal obligations to multiple entities. We have
entered into a consulting agreement with EJ Financial. The
consulting agreement provides that we will pay EJ Financial
$175,000 per year for certain management consulting services,
which is based on anticipated time spent by EJ Financial
personnel on the Companys affairs. EJ Financial is also
involved in the management of health care companies in various
fields, and Dr. Kapoor is involved in various capacities
with the management and operation of these companies. In
addition, EJ Financial is involved with other companies in
the cancer field. Although these companies are pursuing
different therapeutic approaches for the treatment of cancer,
discoveries made by one or more of these companies could render
our products less competitive or obsolete.

David Parker, Ph.D., J.D., our Vice
President, Intellectual Property, is a partner with the law firm
Fulbright & Jaworski LLP, which provides legal services
to us as our primary outside counsel for intellectual property
matters.

We are in negotiations with Dr. Robert
Sobol, our Senior Vice President, Medical and Scientific
Affairs, to acquire a company of which he is the sole
shareholder. The terms of the proposed transaction have not been
determined, but the purchase price is likely to be between
$1 million and $2 million and to be paid in shares of
our common stock. We believe the technology which is owned by
Dr. Sobols company will be a valuable addition to our
intellectual property portfolio. We have endeavored to conduct
the negotiations at arms length, and any transaction would
be subject to the approval of the independent members of our
Board of Directors.

In addition, we have relationships with
Jack A. Roth, M.D., and The University of Texas
M.D. Anderson Cancer Center, both of whom are affiliated
with The Board of Regents of the University of Texas System, one
of our stockholders. For more information concerning these
relationships, see the notes to our consolidated financial
statements.

We believe the foregoing transactions with
insiders were and are in our best interests; however, the
transactions may cause conflicts of interest with respect to
those insiders.

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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

Our exposure to market risk for changes in
interest rates relates primarily to our fixed rate long-term
debt and short-term investments in investment grade securities,
which consist primarily of federal and state government
obligations, commercial paper and corporate bonds. Investments
are classified as held-to-maturity and are carried at amortized
costs. We do not hedge interest rate exposure or invest in
derivative securities. A hypothetical 100-basis point decrease
in the interest rates of our investments at the investment
balances as of December 31, 2003 would decrease our
interest income by approximately $364,000.

At December 31, 2003, the fair value of our
fixed-rate debt approximated its carrying value based upon
discounted future cash flows using current market prices.






|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and
    Supplementary Data

The information required by this Item is set
forth in our Financial Statements and Notes thereto beginning at
page F-3 of this Report.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

On March 6, 2002, we dismissed Arthur
Andersen LLP as our independent public accountants, effective
upon completion of Arthur Andersen LLPs services in
connection with the filing of our Transition Report on
Form 10-KT for the six-month transition period ended
December 31, 2001.

Arthur Andersen LLPs reports on our
financial statements for each of the years ended June 30,
2000 and 2001 and for the six-month transition period ended
December 31, 2001 did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles.

The decision to change independent public
accountants was recommended by the Audit Committee of our Board
of Directors and was approved by our Board of Directors.

During each of the two years ended June 30,
2000 and 2001 and for the six-month transition period ended
December 31, 2001, and through March 20, 2002, there
were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make reference to the
subject matter of the disagreement in connection with its report.

During each of the two years ended June 30,
2000 and 2001 and for the six-month transition period ended
December 31, 2001, and through March 20, 2002, Arthur
Andersen LLP did not advise us of any reportable
events as described in Item 304(a)(1)(v) of
Regulation S-K under the Securities Act of 1933, as amended.

On March 6, 2002, we engaged
Ernst & Young LLP as our principal accountants to audit
our financial statements.

During each of the two years ended June 30,
2000 and 2001 and for the six-month transition period ended
December 31, 2001, and through March 6, 2002, we did
not consult Ernst & Young LLP on any matters described
in Items 304(a)(2)(i) or 304(a)(2)(ii) of
Regulation S-K.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of disclosure controls and
procedures.Our management evaluated,
with the participation of our Chief Executive Officer and our
Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by
this Annual Report on Form 10-K. Based on this evaluation,
our Chief Executive Officer and our Chief Financial Officer have
concluded that our disclosure controls and procedures are
effective to ensure that information we are required to disclose
in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange
Commission rules and forms.

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Changes in internal control over financial
reporting.There was no change in our
internal control over financial reporting that occurred during
the last fiscal quarter covered by this Annual Report on
Form 10-K that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item is
incorporated by reference to the information under the sections
captioned Election of Directors, Executive
Officers, Section 16(a) Beneficial Ownership
Reporting Compliance and Code of Ethics
contained in the 2004 Proxy Statement.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is
incorporated by reference to the information under the section
captioned Executive Compensation contained in the
2004 Proxy Statement.






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

The information required by this item related to
security ownership of certain beneficial owners and management
is incorporated by reference to the information under the
sections captioned Security Ownership contained in
the 2004 Proxy Statement.

Equity Compensation Plan Information

|                                                               |  |                   |       |                  |  |                      |      |  |  |  |       | 
|-------------------------------------------------------------- |  | ----------------- | ----- | ---------------- |  | -------------------- | ---- |  |  |  | ----- | 
|                                                               |  |                   |       |                  |  | (c)                 
|                                                               |  |                   |       |                  |  | Number of           
|                                                               |  | (a)               |       | (b)              |  | Securities          
|                                                               |  | Number of         |       | Weighted-        |  | Remaining Available 
|                                                               |  | Securities to be  |       | Average Exercise |  | for Future Issuance 
|                                                               |  | Issued Upon       |       | Price of         |  | Under Equity        
|                                                               |  | Exercise of       |       | Outstanding      |  | Compensation Plans  
|                                                               |  | Outstanding       |       | Options,         |  | (Excluding          
|                                                               |  | Options, Warrants |       | Warrants and     |  | Securities Reflected
|                                                               |  | and Rights        |       | Rights           |  | in Column (a))      
|                                                               |  |                   |       |                  |  |                     
|Plan Category                                                  |  | (In thousands)    |       |                  |  | (In thousands)      
|Equity compensation plans approved by security
    holders     |  |                   | 5,156 |                  |  | $                    | 3.30 |  |  |  | 1,484 | 
|Equity compensation plans not approved by
    security holders |  |                   |      |                  |  |                      |     |  |  |  |      | 
|                                                               |  |                   |       |                  |  |                      |      |  |  |  |       | 
|Total                                                          |  |                   | 5,156 |                  |  | $                    | 3.30 |  |  |  | 1,484 | 
|                                                               |  |                   |       |                  |  |                      |      |  |  |  |       | 






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference to the information under the sections
captioned Certain Relationships and Related
Transactions and Compensation Committee Interlocks
and Insider Participation contained in the 2004 Proxy
Statement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The information required by this Item related to
principal accountant fees and services as well as related
pre-approval policies is incorporated by reference to the
information under the sections captioned Fees Paid to
Ernst & Young LLP and Audit Committee
Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors contained in the 2004 Proxy Statement.

50



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K



|   |                                  
|-- | ---------------------------------
|1. | Consolidated Financial Statements

The following financial statements are filed as
part of this Report:

|                                                    |  |      |     | 
|--------------------------------------------------- |  | ---- | --- | 
|                                                    |  | Page
|                                                    |  |     
|Report of Independent Auditors                      |  |      | F-1 | 
|Report of Past Independent Auditors                 |  |      | F-2 | 
|Consolidated Balance Sheets                         |  |      | F-3 | 
|Consolidated Statements of Operations               |  |      | F-4 | 
|Consolidated Statements of Stockholders
    Equity |  |      | F-5 | 
|Consolidated Statements of Cash Flows               |  |      | F-6 | 
|Notes to Consolidated Financial Statements          |  |      | F-7 | 



|   |                              
|-- | -----------------------------
|2. | Financial Statement Schedules

All financial statement schedules are omitted
because they are not applicable or not required, or because the
required information is included in the consolidated financial
statements or notes thereto.



|   |         
|-- | --------
|3. | Exhibits

(a) Exhibits

|        |    |           |  |                         |  |                                                                                                                                                                                          |                                                                                               |    
|------- | -- | --------- |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---
|Exhibit |    |           |  |                        
|Number  |    |           |  | Description of Document
|        |    |           |  |                        
|        | 3  | .1(a)(6)  |  |                        |  | Certificate of Incorporation as currently in effect                                                                                                                                     
|        | 3  | .1(b)(6)  |  |                        |  | Amendment to Certificate of Incorporation, effective as of December 21, 2001                                                                                                            
|        | 3  | .2(4)     |  |                        |  | Bylaws of Introgen as currently in effect                                                                                                                                               
|        | 4  | .1(2)     |  |                        |  | Specimen Common Stock Certificate                                                                                                                                                       
|        | 4  | .2(5)     |  |                        |  | Certificate of Designations of Series A Non-Voting Convertible Preferred Stock                                                                                                          
|        | 4  | .3(9)     |  |                         |  | Form of Stock Purchase Warrant                                                                                                                                                          
|        | 10 | .1(1)     |  |                        |  | Form of Indemnification Agreement between Introgen and each of its directors and officers                                                                                               
|        | 10 | .2(1)     |  |                        |  | 1995 Stock Plan and form of stock option agreement Thereunder                                                                                                                           
|        | 10 | .3(3)     |  |                        |  | 2000 Stock Option Plan and forms of stock option agreements thereunder                                                                                                                  
|        | 10 | .4(3)     |  |                        |  | 2000 Employee Stock Purchase Plan and forms of agreements thereunder                                                                                                                    
|        | 10 | .5(1)     |  |                        |  |                                                                                                                                                                                          | Form of Series C Preferred Stock Purchase Agreement among Introgen and certain investors 10.6 | (1)
|        | 10 | .7(a)(1)  |  |                        |  | Assignment of Leases, dated November 23, 1998, by TMX Realty Corporation and Riverway Bank, and other related agreements                                                                
|        | 10 | .7(b)(1)  |  |                        |  | Lease Agreement, dated June 7, 1996, by and between Introgen and Plaza del Oro Business Center                                                                                          
|        | 10 | .7(c)(2)  |  |                        |  | Amendment No. 1 to Lease Agreement, effective as of May 9, 1997                                                                                                                         
|        | 10 | .7(d)(2)  |  |                        |  | Amendment No. 2 to Lease Agreement, effective as of July  31, 1998                                                                                                                      
|        | 10 | .7(e)(2)  |  |                        |  | Amendment No. 3 to Lease Agreement, effective as of June  29, 2000                                                                                                                      
|        | 10 | .8(a)(1) |  |                        |  | Patent and Technology License Agreement, effective as of July 20, 1994, by and between the Board of Regents of The University of Texas System, M. D. Anderson Cancer Center and Introgen
|        | 10 | .8(b)(1) |  |                        |  | Amendment No. 1 to Patent License Agreement, effective as of September 1, 1996                                                                                                          
|        | 10 | .9(3)    |  |                        |  | Sponsored Research Agreement for Clinical Trial, No. CS 93-27, dated February 11, 1993, between Introgen and M. D. Anderson, as amended                                                 

51



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|        |    |            |  |                         |  |                                                                                                                                    
|------- | -- | ---------- |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            |  |                        
|Number  |    |            |  | Description of Document
|        |    |            |  |                        
|        | 10 | .10        |  |                        |  | Reserved                                                                                                                           
|        | 10 | .11(3)    |  |                        |  | Sponsored Research Agreement No. SR 93-04,
    dated February 11, 1993 between M. D. Anderson and
    Introgen, as amended         
|        | 10 | .12        |  |                        |  | Reserved                                                                                                                           
|        | 10 | .13(3)    |  |                        |  | Sponsored Research Agreement No. SR 96-004
    between Introgen and M. D. Anderson, dated January 17,
    1996                     
|        | 10 | .14        |  |                        |  | Reserved                                                                                                                           
|        | 10 | .15(3)    |  |                        |  | License Agreement, dated March 29, 1996
    between Introgen and SKCC                                                              
|        | 10 | .16(1)     |  |                        |  | Consulting Agreement between Introgen and Jack A.
    Roth, M. D., effective as of October 1, 1994                                 
|        | 10 | .17(1)     |  |                        |  | Consulting Agreement between EJ Financial
    Enterprises, Inc. and Introgen, effective as of July 1, 1994                         
|        | 10 | .18(a)(1)  |  |                        |  | Employment Agreement dated as of August 1,
    1996 between Introgen and David G. Nance                                            
|        | 10 | .18(b)(1)  |  |                        |  | Amendment No. 1 to Employment Agreement,
    effective as of August 1, 1998                                                        
|        | 10 | .18(c)(1)  |  |                        |  | Amendment No. 2 to Employment Agreement,
    effective as of February 15, 2000                                                     
|        | 10 | .19(1)     |  |                        |  | Service Agreement, effective as of July 1,
    1994, between Introgen and Domecq Technologies, Inc.                                
|        | 10 | .20(a)(1) |  |                        |  | Collaboration Agreement (p53 Products), effective
    as of October 7, 1994, between Introgen and RPR, as amended                  
|        | 10 | .20(b)(3) |  |                        |  | Addendum No. 1 to Collaboration Agreement
    (p53 Products), dated January 23, 1996, between Introgen
    and RPR                 
|        | 10 | .20(c)(1) |  |                        |  | 1997 Agreement Memorandum, effective as of
    July 22, 1997, between Introgen and RPR                                             
|        | 10 | .20(d)(3) |  |                        |  | Letter Agreement, dated April 19, 1999, from
    Introgen to RPR regarding manufacturing process for ADVEXIN
    therapy           
|        | 10 | .21(a)(1) |  |                        |  | Collaboration Agreement (K-ras Products),
    effective as of October 7, 1994, between Introgen and RPR,
    as amended            
|        | 10 | .21(b)(1)  |  |                        |  | Amendment No. 1 to Collaboration Agreement
    (K-ras Products), effective as of September 27, 1995,
    between Introgen and RPR  
|        | 10 | .22(3)    |  |                        |  | Collaborative Research and Development Agreement
    dated October 30, 1998 between Introgen, RPR and NCI                          
|        | 10 | .23(1)    |  |                        |  | Non-Exclusive License Agreement, effective as of
    April 16, 1997, by Introgen and Iowa Research Foundation                      
|        | 10 | .24(3)    |  |                        |  | Option Agreement, effective as of June 1,
    1998, by Introgen and Imperial Cancer Research Technology
    Limited (ICRT)       
|        | 10 | .25(3)    |  |                        |  | Option Agreement, effective as of January 1,
    1999, by Introgen and ICRT                                                        
|        | 10 | .26(3)    |  |                        |  | Exclusive License Agreement, effective as of
    July 19, 1999, by Introgen and Corixa Corporation                                 
|        | 10 | .27(a)     |  |                        |  | Reserved                                                                                                                           
|        | 10 | .27(b)(1)  |  |                        |  | Letter dated January 28, 2000, from Introgen
    to LXR Biotechnology (LXR), notifying LXR of its
    exercise of its option     
|        | 10 | .27(c)(2) |  |                        |  | Exclusive License Agreement, effective as of
    May 16, 2000, by and between Introgen and LXR                                     
|        | 10 | .28(3)    |  |                        |  | Administrative Services and Management Agreement,
    effective as of January 1, 1999, by and between Introgen
    and Gendux, Inc.
|        | 10 | .29(3)    |  |                        |  | Research and Development Agreement, effective as
    of January 1, 1999, by and between Introgen and Gendux, Inc.                  
|        | 10 | .30(3)    |  |                        |  | Delivery Technology License Agreement, effective
    as of January 1, 1999, by and between Introgen and Gendux,
    Inc.           

52



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##### Table of Contents



|        |    |          |  |                         |  |                                                                                                                                                                                  
|------- | -- | -------- |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |          |  |                        
|Number  |    |          |  | Description of Document
|        |    |          |  |                        
|        | 10 | .31(3)  |  |                        |  | Target Gene License Agreement, effective as of
    January 1, 1999, by and between Introgen and Gendux, Inc.                                                                     
|        | 10 | .32(1)  |  |                        |  | Non-Exclusive License Agreement, effective as of
    August 17, 1998, by and between Introgen and National
    Institutes of Health                                              
|        | 10 | .33      |  |                        |  | Reserved                                                                                                                                                                         
|        | 10 | .34(2)   |  |                        |  | Master Lease Agreement, effective as of
    August 4, 1999, by and between Introgen and Finova Capital
    Corporation                                                           
|        | 10 | .35(2)   |  |                        |  | Construction Loan Agreement, effective as of
    July 24, 2000, by and between Introgen and Compass Bank                                                                         
|        | 10 | .36(5)  |  |                        |  | Restated p53 and K-ras Agreement, effective as of
    June 30, 2001, by and among Introgen, Aventis
    Pharmaceuticals Inc. (API) and Aventis Pharma
    S.A.
    (Aventis) 
|        | 10 | .37(5)   |  |                        |  | p53 Assignment Agreement, effective as of
    June 30, 2001, by and among Introgen, API and Aventis                                                                              
|        | 10 | .38(5)   |  |                        |  | K-ras Assignment Agreement, effective as of
    June 30, 2001, by and among Introgen, API and Aventis                                                                            
|        | 10 | .39(5)   |  |                        |  | Registration Rights Agreement, effective as of
    June 30, 2001, by and among Introgen, API and RPR                                                                             
|        | 10 | .40(5)   |  |                        |  | Voting Agreement, effective as of June 30,
    2001, by and among Introgen, API and RPR                                                                                          
|        | 10 | .41(7)  |  |                        |  | Master Services Agreement, effective as of
    July 9, 2001, by and between Introgen and PPD Development,
    LLC                                                                
|        | 10 | .42(8) |  |                        |  | Series A Preferred Stock Purchase Agreement,
    effective as of March 7, 2002, by and between Introgen and
    VirRx, Inc.                                                      
|        | 10 | .43(8) |  |                        |  | Collaboration and License Agreement, effective as
    of March 7, 2002, by and between Introgen and VirRx, Inc.                                                                  
|        | 10 | .44(9)   |  |                        |  | Securities Purchase Agreement, effective as of
    June 18, 2003, by and among Introgen and the Investors
    named therein.                                                     
|        | 10 | .45(10)  |  |                        |  | Placement Agent Agreement, effective as of
    November 26, 2003, by and among Introgen, SG Cowen
    Securities Corporation and First Albany Capital Inc.                       
|        | 21 | .1(1)    |  |                        |  | List of subsidiaries of Introgen                                                                                                                                                 
|        | 23 | .1       |  |                        |  | Consent of Ernst & Young LLP,
    independent auditors                                                                                                                           
|        | 23 | .2       |  |                        |  | Information Regarding Consent of Arthur Andersen
    LLP                                                                                                                         
|        | 23 | .3(11)   |  |                        |  | Consent of Ernst & Young LLP,
    independent auditors                                                                                                                           
|        | 24 | .1       |  |                        |  | Power of Attorney (See page 55)                                                                                                                                                  
|        | 31 | .1       |  |                        |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to Rule 13a-14(a) and
    Rule 15d-14(a) of the Securities Exchange Act, as amended            
|        | 32 | .1       |  |                        |  | Certification of Chief Executive Officer and
    Chief Financial Officer Pursuant to 18 U.S.C. 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002



---



| |     |                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Registration Statement on
    Form S-1 (No. 333-30582) filed with the Securities and
    Exchange Commission on February 17, 2000.                       
|
| | (2) | Incorporated by reference to the same-numbered
    exhibit filed with Amendment No. 2 to Introgens
    Registration Statement on Form S-1 (No. 333-30582)
    filed with the Securities and Exchange Commission on
    September 8, 2000.
|
| | (3) | Incorporated by reference to the same-numbered
    exhibit filed with Amendment No. 3 to Introgens
    Registration Statement on Form S-1 (No. 333-30582)
    filed with the Securities and Exchange Commission on
    October 4, 2000.  

53



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##### Table of Contents





| |     |                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Quarterly Report on
    Form 10-Q, for the quarter ended December 31, 2000,
    (File No. 000-21291), filed with the Securities and
    Exchange Commission on February 14, 2001.                                        
|
| | (5) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Annual Report on
    Form 10-K for the fiscal year ended June 30, 2001
    (File No. 000-21291), filed with the Securities and
    Exchange Commission on September 19, 2001.                                            
|
| | (6) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Transition Report on
    Form 10-KT for the six-month transition period ended
    December 31, 2001 (File No. 000-21291), filed with the
    Securities and Exchange Commission on March 20, 2002.                       
|
| | (7) | Incorporated by reference to the same-numbered
    exhibit filed with Amendment No. 1 to Introgens
    Transition Report on Form 10-KT for the six-month
    transition period ended December 31, 2001 (File
    No. 000-21291), filed with the Securities and Exchange
    Commission on March 26, 2002.
|
| | (8) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Quarterly Report on
    Form 10-Q, for the quarter ended March 31, 2002 (File
    No. 000-21291), filed with the Securities and Exchange
    Commission on May 15, 2002.                                                 
|
| | (9) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on June 18, 2003.                                                                                                                  



|     |                                                                                                                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on November 26, 2003.                                                                  
|    
|(11) | Incorporated by reference to the same-numbered
    exhibit filed with Introgens Annual Report on
    Form 10-K for the fiscal year ended December 31, 2002
    (File No. 000-21291), filed with the Securities and
    Exchange Commission on March 31, 2003.



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | Confidential treatment has been granted for
    portions of this exhibit.



| |    |                                                                            
| | -- | ---------------------------------------------------------------------------
| |  | Confidential treatment has been requested for
    portions of this exhibit.

(b) Reports on Form 8-K

Current Report on Form 8-K announcing
Introgens third quarter 2003 financial results and
furnishing certain financial statements, filed with the
Securities and Exchange Commission on November 13, 2003.

Current Report on Form 8-K announcing the
Placement Agent Agreement entered into by and among Introgen, SG
Cowen Securities Corporation and First Albany Capital Inc. and
filing the Placement Agent Agreement as an exhibit thereto,
filed with the Securities and Exchange Commission on
November 26, 2003.

(c) Exhibits

See Item 15(3) above.

(d) Financial Statement Schedules

See Item 15(2) above.

54



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934 the Registrant
has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned thereunto duly
authorized in the City of Austin, Texas, this March 5, 2004.



| |                            
| | ---------------------------
| | INTROGEN THERAPEUTICS, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ DAVID G. NANCE

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | David G. Nance                                     
| | President, Chief Executive Officer and
    Director
| | (Principal Executive Officer)                      



| |     |                           
| | --- | --------------------------
| | By: | /s/ JAMES W. ALBRECHT, JR.

| |                                                 
| | ------------------------------------------------
| |                                                 
| | James W. Albrecht, Jr.                          
| | Chief Financial Officer                         
| | (Principal Financial and Accounting
    Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints David G. Nance and James W. Albrecht, Jr. and each of
them acting individually, as his or her attorney-in-fact, each
with full power of substitution, for him or her in any and all
capacities, to sign any and all amendments to this Report on
Form 10-K, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities
and Exchange Commission.

Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, this Report on Form 10-K
has been signed on behalf of the Registrant by the following
persons in the capacities and on the dates indicated:

|                                                               |  |                                                                                    |  |               |  | 
|-------------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ------------- |  | 
|                                                               |  |                                                                                    |  |              
|Signature                                                      |  | Title                                                                              |  | Date         
|                                                               |  |                                                                                    |  |              
|                                                              
|/s/ DAVID G. NANCE(David G. Nance)                             |  | President, Chief Executive Officer, and Director
    (Principal Executive Officer) |  | March 5, 2004
|                                                              
|/s/ JAMES W. ALBRECHT, JR.(James W. Albrecht, Jr.)             |  | Chief Financial Officer (Principal Financial and
    Accounting Officer)           |  | March 5, 2004
|                                                              
|/s/ JOHN N. KAPOOR, PH.D.(John N. Kapoor, Ph.D.)               |  | Chairman of the Board and Director                                                 |  | March 5, 2004
|                                                              
|/s/ WILLIAM H. CUNNINGHAM, PH.D.(William H. Cunningham, Ph.D.) |  | Director                                                                           |  | March 5, 2004
|                                                              
|/s/ MALCOLM GILLIS, PH.D.(Malcolm Gillis, Ph.D.)               |  | Director                                                                           |  | March 5, 2004
|                                                              
|/s/ CHARLES E. LONG(Charles E. Long)                           |  | Director                                                                           |  | March 5, 2004
|                                                              
|/s/ MAHENDRA G. SHAH, PH.D.(Mahendra G. Shah, Ph.D.)           |  | Director                                                                           |  | March 5, 2004

55



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of

Introgen Therapeutics, Inc. and Subsidiaries:


We have audited the accompanying consolidated
balance sheets of Introgen Therapeutics, Inc. and subsidiaries
as of December 31, 2003 and 2002, and the related
consolidated statements of operations, stockholders
equity, and cash flows for the years then ended. These financial
statements are the responsibility of Introgen Therapeutics,
Inc.s management. Our responsibility is to express an
opinion on these financial statements based on our audit. The
financial statements of Introgen Therapeutics, Inc. and
subsidiaries for the six months ended December 31, 2001 and
for the year ended June 30, 2001, were audited by other
auditors whose report dated January 18, 2002, expressed an
unqualified opinion on those statements.

We conducted our audits in accordance with
auditing standards generally accepted in the 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
consolidated financial position of Introgen Therapeutics, Inc.
and subsidiaries as of December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with accounting
principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Austin, Texas

January 16, 2004


F-1



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of

Introgen Therapeutics, Inc.:


We have audited the accompanying consolidated
balance sheets of Introgen Therapeutics, Inc. (a Delaware
corporation), and subsidiaries as of June 30, 2000 and 2001
and December 31, 2001, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
June 30, 2001 and for the six months ended
December 31, 2001. These financial statements are the
responsibility of Introgen Therapeutics, Inc.s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the 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 Introgen Therapeutics, Inc., and subsidiaries as of
June 30, 2000 and 2001 and December 31, 2001, and the
results of their operations and their cash flows for each of the
three years in the period ended June 30, 2001 and the six
months ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Austin, Texas

January 18, 2002


THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY
ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH INTROGEN
THERAPEUTICS, INC.S FILING ON FORM 10-K FOR THE AS OF AND
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 2001. THIS
AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THIS FILING ON FORM 10-K. SEE EXHIBIT 23.2
FOR FURTHER DISCUSSION.

F-2



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)


|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |         |        | 
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------- | ------ |  | ----- | ------- | ------ | 
|                                                                                               |                                                                                                                                                 |                                           
|                                                                                               |                                                                                                                                                 | December 31,                              
|                                                                                               |                                                                                                                                                 |                                           
|                                                                                               |                                                                                                                                                 | 2002                                       |       | 2003   
|                                                                                               |                                                                                                                                                 |                                            |       |        
|ASSETS                                                                                        
|Current Assets:                                                                                |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               | Cash and cash equivalents                                                                                                                       |                                            | $     | 23,467  |        |  | $     | 36,397  |       
|                                                                                               | Prepaid expenses and other current assets                                                                                                       |                                            |       | 812     |        |  |       | 302     |       
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               |                                                                                                                                                 | Total current assets                       |       |         | 24,279 |  |       |         | 36,699 | 
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|Property and equipment, net of accumulated
    depreciation of $8,228 and $9,661, respectively |                                                                                                                                                 |                                            | 8,742 |         |        |  | 7,502 |        
|Other assets                                                                                   |                                                                                                                                                 |                                            | 295   |         |        |  | 282   |        
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               |                                                                                                                                                 | Total assets                               |       | $       | 33,316 |  |       | $       | 44,483 | 
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                              
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                      
|Current Liabilities:                                                                           |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               | Accounts payable                                                                                                                                |                                            | $     | 1,774   |        |  | $     | 2,054   |       
|                                                                                               | Accrued liabilities                                                                                                                             |                                            |       | 1,997   |        |  |       | 2,535   |       
|                                                                                               | Deferred revenues from affiliate                                                                                                                |                                            |       | 69      |        |  |       | 16      |       
|                                                                                               | Current portion of notes payable                                                                                                                |                                            |       | 789     |        |  |       | 777     |       
|                                                                                               | Current portion of capital lease obligations                                                                                                    |                                            |       | 798     |        |  |       | 225     |       
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               |                                                                                                                                                 | Total current liabilities                  |       |         | 5,427  |  |       |         | 5,608  | 
|Capital lease obligations, net of current portion                                              |                                                                                                                                                 |                                            | 125   |         |        |  | 172   |        
|Notes payable, net of current portion                                                          |                                                                                                                                                 |                                            | 7,310 |         |        |  | 6,542 |        
|Deferred revenue, long-term                                                                    |                                                                                                                                                 |                                            | 619   |         |        |  | 876   |        
|Commitments and Contingencies                                                                  |                                                                                                                                                 |                                            |       |         |        |  |       |        
|Stockholders Equity:                                                                          |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               | Series A non-voting convertible preferred
    stock, $.001 par value; 100 shares authorized, issued
    and outstanding                         |                                            |       | 1       |        |  |       | 1       |       
|                                                                                               | Common stock, $.001 par value;
    50,000 shares authorized; 21,487 and 26,539 shares
    issued and outstanding in 2002 and 2003, respectively |                                            |       | 21      |        |  |       | 27      |       
|                                                                                               | Additional paid-in capital                                                                                                                      |                                            |       | 94,430  |        |  |       | 124,270 |       
|                                                                                               | Deferred compensation                                                                                                                           |                                            |       | (974    | )      |  |       | (44     | )     
|                                                                                               | Accumulated deficit                                                                                                                             |                                            |       | (73,643 | )      |  |       | (92,969 | )     
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               |                                                                                                                                                 | Total stockholders equity                 |       |         | 19,835 |  |       |         | 31,285 | 
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        
|                                                                                               |                                                                                                                                                 | Total liabilities and stockholders equity |       | $       | 33,316 |  |       | $       | 44,483 | 
|                                                                                               |                                                                                                                                                 |                                            |       |         |        |  |       |        

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

F-3



---



##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(Amounts in thousands, except per share
amounts)


|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |        |         |  
|------------------------------------------------------------------ | ----------------------------- | ---------------------------------- | ------- | ---------------- | ------- | ----------------------- | ------ | ----- | ------ | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                                   |                               |                                    |         |                  |         |                         |        |      
|                                                                   |                               |                                    |         | Six Months Ended |         |                        
|                                                                   |                               | Year Ended                         |         | December 31,     |         | Year Ended December 31,
|                                                                   |                               | June 30,                           |         |                  |         |                        
|                                                                   |                               | 2001                               |         | 2000             |         | 2001                    |        | 2002  |        | 2003
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |     
|                                                                   |                               |                                    |         |                  |         |                        
|                                                                   |                               | (Unaudited)                        |         |                  |         |                        
|Contract services, grant and other Revenue                         |                               | $                                  | 684     |                  |         | $                       | 391    |       |        | $    | 298     |        |         | $ | 1,173   |        |         | $ | 304     |       
|Collaborative research and development revenues
    from affiliate |                               |                                    | 3,016   |                  |         |                         | 3,016  |       |        |      |        |        |         |   |        |        |         |   |        |       
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|Product sales to affiliate                                         |                               |                                    | 1,500   |                  |         |                         | 1,500  |       |        |      |        |        |         |   |        |        |         |   |        |       
|Cost of product sales                                              |                               |                                    | 2,488   |                  |         |                         | 2,488  |       |        |      |        |        |         |   |        |        |         |   |        |       
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|                                                                   | Gross margin on product sales |                                    |         | (988             | )       |                         |        | (988  | )      |      |         |       |         |   |         |       |         |   |         |       |        
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|Operating costs and expenses:                                      |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|                                                                   | Research and development      |                                    |         | 15,014           |         |                         |        | 5,153 |        |      |         | 10,063 |         |   |         | 21,512 |         |   |         | 14,973 |        
|                                                                   | General and administrative    |                                    |         | 4,875            |         |                         |        | 2,040 |        |      |         | 3,526  |         |   |         | 6,722  |         |   |         | 6,102  |        
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|                                                                   |                               | Total operating costs and expenses |         |                  | 19,889  |                         |        |       | 7,193  |      |         |        | 13,589  |   |         |        | 28,234  |   |         |        | 21,075  |  
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|Loss from operations                                               |                               |                                    | (17,177 | )                |         |                         | (4,774 | )     |        |      | (13,291 | )      |         |   | (27,061 | )      |         |   | (20,771 | )     
|Interest income                                                    |                               |                                    | 1,230   |                  |         |                         | 783    |       |        |      | 912     |        |         |   | 596     |        |         |   | 1,017   |       
|Interest expense                                                   |                               |                                    | (849    | )                |         |                         | (380   | )     |        |      | (467    | )      |         |   | (803    | )      |         |   | (624    | )     
|Other income                                                       |                               |                                    | 354     |                  |         |                         |       |       |        |      | 518     |        |         |   | 1,140   |        |         |   | 1,052   |       
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|                                                                   |                               | Net loss                           |         | $                | (16,442 | )                       |        | $     | (4,371 | )    |         | $      | (12,328 | ) |         | $      | (26,128 | ) |         | $      | (19,326 | )
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|Net loss per share, basic and diluted                              |                               | $                                  | (1.02   | )                |         | $                       | (0.39  | )     |        | $    | (0.58   | )      |         | $ | (1.22   | )      |         | $ | (0.84   | )     
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       
|Shares used in computing basic and diluted net
    loss per share  |                               |                                    | 16,163  |                  |         |                         | 11,120 |       |        |      | 21,440  |        |         |   | 21,471  |        |         |   | 22,902  |       
|                                                                   |                               |                                    |         |                  |         |                         |        |       |        |      |         |        |         |   |         |        |         |   |         |       

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

F-4



---



##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(Amounts in thousands)


|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | --------------- |  | ------------ | -- | ---------- |  | -------- | --- | ----------- |  | ------- | - | ------------ |  | ------- | ------ | ----- |  | - | -- |  |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |             
|                                                                                                                                      |  | Series A, B, C  |        | Series A Non-   |  |              |    |            |  |          |     |             |  |         |   |             
|                                                                                                                                      |  | and D           |        | Voting          |  |              |    |            |  |          |     |             |  |         |   |             
|                                                                                                                                      |  | Convertible     |        | Convertible     |  |              |    |            |  |          |     |             |  |        
|                                                                                                                                      |  | Preferred Stock |        | Preferred Stock |  | Common Stock |    | Additional |  |          |     |             |  |        
|                                                                                                                                      |  |                 |        |                 |  |              |    | Paid-In    |  | Deferred |     | Accumulated |  |        
|                                                                                                                                      |  | Shares          |        | Amount          |  | Shares       |    | Amount     |  | Shares   |     | Amount      |  | Capital |   | Compensation |  | Deficit |        | Total
|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |      
|Balance, June 30, 2000                                                                                                                |  |                 | 6,419  |                 |  | $            | 6  |            |  |          |    |             |  | $       |  |              |  |         | 4,134  |       |  | $ | 4  |  |  | $ | 36,536  |   |  | $ | (4,210 | ) |  | $ | (18,745 | ) |  | $ | 13,592  |  
|Issuance of common stock in connection with
    initial public offering, net of offering costs of $4,575                              |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 4,600  |       |  |   | 5  |  |  |   | 32,221  |   |  |   |       |   |  |   |        |   |  |   | 32,226  |  
|Conversion of preferred stock to common stock                                                                                         |  |                 | (6,419 | )               |  |              | (6 | )          |  |          |    |             |  |         |  |              |  |         | 12,326 |       |  |   | 12 |  |  |   | (6      | ) |  |   |       |   |  |   |        |   |  |   |        |  
|Issuance of common stock in connection with
    Exercise of stock options and warrants                                                |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 331    |       |  |   |   |  |  |   | 204     |   |  |   |       |   |  |   |        |   |  |   | 204     |  
|Issuance of preferred stock in June 2001 in
    accordance stock purchase agreement with affiliate, net of
    offering costs of $100 |  |                 |       |                 |  |              |   |            |  |          | 100 |             |  |         | 1 |              |  |         |       |       |  |   |   |  |  |   | 24,900  |   |  |   |       |   |  |   |        |   |  |   | 24,900  |  
|Compensation relating to issuance of stock
    options, net of reversals                                                              |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   | 720     |   |  |   | (720   | ) |  |   |        |   |  |   |        |  
|Amortization of deferred compensation and stock-
    based compensation                                                               |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   |        |   |  |   | 1,589  |   |  |   |        |   |  |   | 1,589   |  
|Net loss                                                                                                                              |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   | (16,442 | ) |  |   | (16,442 | )
|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Balance, June 30, 2001                                                                                                                |  |                 |       |                 |  | $            |   |            |  |          | 100 |             |  | $       | 1 |              |  |         | 21,391 |       |  | $ | 21 |  |  | $ | 94,575  |   |  | $ | (3,341 | ) |  | $ | (35,187 | ) |  | $ | 56,069  |  
|Issuance of common stock in connection with
    Exercise of stock options and warrants                                                |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 55     |       |  |   |   |  |  |   | 26      |   |  |   |       |   |  |   |        |   |  |   | 26      |  
|Compensation relating to issuance of stock
    options, net of reversals                                                              |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   | (57     | ) |  |   | 57     |   |  |   |        |   |  |   |         |  
|Amortization of deferred compensation and stock-
    based compensation                                                               |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   |        |   |  |   | 799    |   |  |   |        |   |  |   | 799     |  
|Net loss                                                                                                                              |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   | (12,328 | ) |  |   | (12,328 | )
|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2001                                                                                                            |  |                 |       |                 |  | $            |   |            |  |          | 100 |             |  | $       | 1 |              |  |         | 21,446 |       |  | $ | 21 |  |  | $ | 94,544  |   |  | $ | (2,485 | ) |  | $ | (47,515 | ) |  | $ | 44,566  |  
|Issuance of common stock in connection with
    Exercise of stock options and warrants                                                |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 41     |       |  |   |   |  |  |   | 21      |   |  |   |       |   |  |   |        |   |  |   | 21      |  
|Compensation relating to issuance of stock
    options, net of reversals                                                              |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   | (135    | ) |  |   | 135    |   |  |   |        |   |  |   |        |  
|Amortization of deferred compensation and stock-
    based compensation                                                               |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   |        |   |  |   | 1,376  |   |  |   |        |   |  |   | 1,376   |  
|Net loss                                                                                                                              |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   | (26,128 | ) |  |   | (26,128 | )
|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2002                                                                                                            |  |                 |       |                 |  | $            |   |            |  |          | 100 |             |  | $       | 1 |              |  |         | 21,487 |       |  | $ | 21 |  |  | $ | 94,430  |   |  | $ | (974   | ) |  | $ | (73,643 | ) |  | $ | 19,835  |  
|Issuance of common stock in a private equity
    offering in June 2003, net of offering costs of $729                                 |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 2,000  |       |  |   | 3  |  |  |   | 10,769  |   |  |   |       |   |  |   |        |   |  |   | 10,772  |  
|Issuance of common stock in a direct equity
    offering in December 2003, net of offering costs of $1,473                            |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 2,859  |       |  |   | 3  |  |  |   | 18,540  |   |  |   |       |   |  |   |        |   |  |   | 18,543  |  
|Issuance of common stock in connection with
    exercise of stock options and warrants                                                |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         | 193    |       |  |   |   |  |  |   | 98      |   |  |   |       |   |  |   |        |   |  |   | 98      |  
|Compensation relating to issuance of stock
    options, net of reversals                                                              |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   | 433     |   |  |   | 39     |   |  |   |        |   |  |   | 472     |  
|Amortization of deferred compensation and stock-
    based compensation                                                               |  |                 |       |                 |  |              |   |            |  |          |    |             |  |         |  |              |  |         |       |       |  |   |   |  |  |   |        |   |  |   | 891    |   |  |   |        |   |  |   | 891     |  
|Net loss                                                                                                                              |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   | (19,326 | ) |  |   | (19,326 | )
|                                                                                                                                      |  |                 |        |                 |  |              |    |            |  |          |     |             |  |         |   |              |  |         |        |       |  |   |    |  |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2003                                                                                                            |  |                 |       |                 |  | $            |   |            |  |          | 100 |             |  | $       | 1 |              |  |         | 26,539 |       |  | $ | 27 |  |  | $ | 124,270 |   |  | $ | (44    | ) |  | $ | (92,969 | ) |  | $ | 31,285  |  

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

F-5



---



##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Amounts in thousands)


|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |         |       |         |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------------------------- | ---------------- | ----- | ----------------------- | ----- | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ------- | ----- | ------- | -
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |        
|                                                                            |                                                                                              |                                       |                                                         | Six Months Ended |       |                        
|                                                                            |                                                                                              | Year Ended                            |                                                         | December 31,     |       | Year Ended December 31,
|                                                                            |                                                                                              | June 30,                              |                                                         |                  |       |                        
|                                                                            |                                                                                              | 2001                                  |                                                         | 2000             |       | 2001                    |       | 2002    |       | 2003   
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |        
|                                                                            |                                                                                              |                                       |                                                         | (Unaudited)      |       |                         |       |         |       |        
|Cash flows from operating activities:                                       |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            | Net loss                                                                                     |                                       | $                                                       | (16,442          | )     |                         | $     | (4,371  | )     |         | $      | (12,328 | )     |         | $      | (26,128 | )     |         | $      | (19,326 | )    
|                                                                            | Adjustments to reconcile net loss to net cash
    used in operating activities:              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |         |      
|                                                                            |                                                                                              | Depreciation                          |                                                         |                  | 2,226 |                         |       |         | 1,066 |         |        |         | 1,191 |         |        |         | 1,801 |         |        |         | 1,475 |        
|                                                                            |                                                                                              | Compensation related to stock options |                                                         |                  | 1,589 |                         |       |         | 746   |         |        |         | 800   |         |        |         | 1,511 |         |        |         | 1,362 |        
|                                                                            |                                                                                              | Changes in assets and liabilities:    |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |         |       |        
|                                                                            |                                                                                              |                                       | Decrease (increase) in receivable from affiliate        |                  |       |                        |       |         |       | (709    | )      |         |       |        |        |         |       |        |        |         |       |        |  
|                                                                            |                                                                                              |                                       | Decrease (increase) in inventory                        |                  |       | 1,734                   |       |         |       | 984     |        |         |       |        |        |         |       |        |        |         |       |        |  
|                                                                            |                                                                                              |                                       | Decrease (increase) in other assets                     |                  |       | (437                    | )     |         |       | (371    | )      |         |       | (294    | )      |         |       | 49      |        |         |       | 523     |  
|                                                                            |                                                                                              |                                       | Increase (decrease) in accounts payable                 |                  |       | 113                     |       |         |       | 582     |        |         |       | 568     |        |         |       | 829     |        |         |       | 280     |  
|                                                                            |                                                                                              |                                       | Increase (decrease) in accrued liabilities              |                  |       | 3,376                   |       |         |       | 479     |        |         |       | (372    | )      |         |       | (2,032  | )      |         |       | 538     |  
|                                                                            |                                                                                              |                                       | Increase (decrease) in deferred revenue                 |                  |       | (917                    | )     |         |       | (155    | )      |         |       | 73      |        |         |       | 326     |        |         |       | 204     |  
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            |                                                                                              |                                       | Net cash used in operating activities                   |                  |       | (8,758                  | )     |         |       | (1,749  | )      |         |       | (10,362 | )      |         |       | (23,644 | )      |         |       | (14,944 | )
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|Cash flows from investing activities:                                       |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            | Purchases of property and equipment                                                          |                                       |                                                         | (3,581           | )     |                         |       | (2,954  | )     |         |        | (127    | )     |         |        | (121    | )     |         |        | (233    | )    
|                                                                            | Purchases of short-term investments                                                          |                                       |                                                         | (83,143          | )     |                         |       | (47,076 | )     |         |        | (19,400 | )     |         |        | (71,734 | )     |         |        |        |      
|                                                                            | Maturities of short-term investments                                                         |                                       |                                                         | 72,343           |       |                         |       | 20,075  |       |         |        | 28,749  |       |         |        | 83,184  |       |         |        |        |      
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            |                                                                                              |                                       | Net cash provided by (used in) investing
    activities |                  |       | (14,381                 | )     |         |       | (29,955 | )      |         |       | 9,222   |        |         |       | 11,329  |        |         |       | (233    | )
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|Cash flows from financing activities:                                       |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            | Proceeds from sale of preferred and common stock,
    net of offering costs                  |                                       |                                                         | 33,105           |       |                         |       | 33,070  |       |         |        | 25,026  |       |         |        | (114    | )     |         |        | 29,413  |      
|                                                                            | Proceeds from notes payable and capital leases                                               |                                       |                                                         | 3,263            |       |                         |       | 1,932   |       |         |        |        |       |         |        |        |       |         |        | 314     |      
|                                                                            | Principal payments under capital lease
    obligations and notes payable                     |                                       |                                                         | (818             | )     |                         |       | (387    | )     |         |        | (689    | )     |         |        | (1,501  | )     |         |        | (1,620  | )    
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            |                                                                                              |                                       | Net cash provided by (used in) financing
    activities |                  |       | 35,550                  |       |         |       | 34,615  |        |         |       | 24,337  |        |         |       | (1,615  | )      |         |       | 28,107  |  
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            |                                                                                              |                                       | Net increase (decrease) in cash                         |                  |       | 12,411                  |       |         |       | 2,911   |        |         |       | 23,197  |        |         |       | (13,930 | )      |         |       | 12,930  |  
|Cash, beginning of period                                                   |                                                                                              |                                       | 1,789                                                   |                  |       |                         | 1,789 |         |       |         | 14,200 |         |       |         | 37,397 |         |       |         | 23,467 |        
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|Cash, end of period                                                         |                                                                                              | $                                     | 14,200                                                  |                  |       | $                       | 4,700 |         |       | $       | 37,397 |         |       | $       | 23,467 |         |       | $       | 36,397 |        
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|Supplemental disclosure of cash flow information:                           |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            |                                                                                              |                                       | Cash paid for interest                                  |                  | $     | 917                     |       |         | $     | 280     |        |         | $     | 459     |        |         | $     | 803     |        |         | $     | 624     |  
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|Supplemental disclosure of non-cash investing and
    financing activities: |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            | Purchases of equipment under capital lease
    obligations                                   |                                       | $                                                       |                 |       |                         | $     |        |       |         | $      |        |       |         | $      |        |       |         | $      | 314     |      
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            | Receivable for issuance of preferred stock                                                   |                                       | $                                                       | 25,000           |       |                         | $     |        |       |         | $      |        |       |         | $      |         |       |         | $      |        |      
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        
|                                                                            | Offering costs deferred in 2000, netted against
    initial public offering proceeds in 2001 |                                       | $                                                       | 776              |       |                         | $     | 776     |       |         | $      |        |       |         | $      |         |       |         | $      |        |      
|                                                                            |                                                                                              |                                       |                                                         |                  |       |                         |       |         |       |         |        |         |       |         |        |         |       |         |        |        

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

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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003


(Information pertaining to the six-month period
ending December 31, 2000 is unaudited)




|   |                                          
|-- | -----------------------------------------
|1. | Formation and Business of the
    Company

Introgen Therapeutics, Inc., a Delaware
corporation, and our subsidiaries are biopharmaceutical
companies focused on the discovery, development and
commercialization of targeted therapies for the treatment of
cancer and other diseases. Our lead product candidate,
ADVEXIN® therapy, combines the p53 gene, one of the most
potent members of a group of naturally occurring tumor
suppressor genes, which act to kill cancer cells, arrest cancer
growth, protect cells from becoming cancerous, with a
non-replicating, non-integrating, adenoviral gene delivery
system that we have developed and extensively tested. We are
conducting two multi-national, multi-site Phase 3 clinical
trials of ADVEXIN therapy both by itself and in combination with
chemotherapy, in recurrent squamous cell cancer of the head and
neck. We have also completed or are currently conducting
numerous Phase 1 and Phase 2 clinical trials of
ADVEXIN therapy by itself and in combination with chemotherapy
or radiation therapy in a variety of cancers. These trials
include a completed Phase 2 clinical trial of ADVEXIN
administered as a complement with radiation therapy in a
non-small cell lung cancer; a Phase 2 clinical trial of
ADVEXIN therapy combined with systemic chemotherapy for the
treatment of breast cancer; a Phase 1/ early Phase 2
clinical trial of ADVEXIN therapy for the treatment of advanced
unresectable squamous cell esophageal cancer; a Phase 1
clinical trial of ADVEXIN therapy in prostate cancer;
Phase 1 clinical trials of ADVEXIN therapy in
bronchoalveolar cancer; and a Phase 1/early Phase 2
clinical trial in which ADVEXIN is being administered to prevent
precancerous oral lesions that have a high risk of developing
into cancer. As a supplement to our gene-induced therapeutic
protein programs, we are developing INGN 225 using ADVEXIN
therapy to create a highly specific therapeutic cancer vaccine
that stimulates a particular type of immune system cell as known
as a dendritic cell. We are developing our second product
candidate, INGN 241, for the treatment of solid tumors and
in melanoma, a deadly form of skin cancer. INGN 241
combines the mda-7 gene with our adenoviral vector system to
kill tumor cells, including metastatic tumor cells, through
multiple mechanisms. A Phase 1/early Phase 2 trial
indicated that in patients with various solid tumors,
INGN 241 is well tolerated, displays minimal toxicity and
is biologically active. We hold the worldwide rights for
pre-clinical and clinical development, manufacturing, marketing
and commercialization of ADVEXIN therapy. ADVEXIN therapy has
been designated as a Fast Track product by the FDA, and ADVEXIN
therapy for head and neck cancer has also been designated as an
Orphan Drug under the Orphan Drug Act, which may give us seven
years of marketing exclusivity for ADVEXIN therapy for this
indication if approved by the FDA.

We are investigating vector technologies for
delivering gene-based products into targeted cells. Through our
strategic collaboration with VirRx, Inc., we are developing INGN
007, a replication-competent viral therapy that over-expresses
an adenoviral gene and thereby causes rapid disruption of tumor
cells in which the adenovirus replicates. Pre-clinical testing
indicates that INGN 007 can eradicate human tumors in animal
models. We anticipate pursuing clinical confirmation of this
therapeutic candidate. We are also evaluating whether this
replicating viral construct could form the basis of a
self-amplifying delivery system, which could complement our
existing replication-disabled, adenoviral gene delivery system
in selected therapeutic scenarios.

We believe our research and development expertise
gained from our gene-induced protein therapies for cancer is
also applicable to other diseases that, like cancer, result from
cellular dysfunction and uncontrolled cell growth. As a result,
we are conducting research in collaboration with medical
institutions to understand the safety and effectiveness of our
gene-induced protein therapy product candidates in the treatment
of other diseases.

We own and operate a state-of-the-art, validated
manufacturing facility that we believe complies with the
FDAs current Good Manufacturing Practices requirements,
commonly known as CGMP requirements. We

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INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

produce ADVEXIN therapy in this facility for use
in our Phase 1, 2 and 3 clinical trials. We also have
produced in a separate facility INGN 241 for use in our
Phase 1/ early Phase 2 clinical trial.

We have not yet generated any significant
revenues from unaffiliated third parties, nor is there any
assurance of future product revenues. Our research and
development activities involve a high degree of risk and
uncertainty, and our ability to successfully develop,
manufacture and market our proprietary products is dependent
upon many factors. These factors include, but are not limited
to, the need for additional financing, the reliance on
collaborative research and development arrangements with
corporate and academic affiliates, and the ability to develop
manufacturing, sales and marketing experience. Additional
factors include uncertainties as to patents and proprietary
technologies, competitive technologies, technological change and
risk of obsolescence, development of products, competition,
government regulations and regulatory approval, and product
liability exposure. As a result of the aforementioned factors
and the related uncertainties, there can be no assurance of our
future success.

In October 1994, we entered into two
collaboration agreements with Rhône-Poulenc Rorer
Pharmaceutical Inc., which ultimately became part of Aventis
Pharma, or Aventis, for technology relating to p53 and K-ras
pathway inhibition. Aventis funded the clinical trials under
these programs. In June 2001, we and Aventis restructured our
relationship whereby we assumed responsibility for the worldwide
development of all p53 and K-ras products including funding,
control and performance of ongoing clinical trials.

Aventis licensed or transferred to us all of its
patents covering the manufacture, sale, offering for sale,
importation or use of ADVEXIN therapy and other K-ras patents,
delivery patents and targeting technologies, as well as all
trademarks and goodwill associated with ADVEXIN therapy. Aventis
also agreed, for a period of seven years, not to conduct any
activities directed to the development or commercialization of
any gene therapy products using the p53 or K-ras genes. In
connection with this restructuring, Aventis purchased
$25.0 million of non-voting preferred stock from us. During
the quarter ended September 30, 2001, we made a one-time
payment of $2.0 million to Aventis in consideration for
internal costs they incurred in facilitating the transition of
control and performance of these clinical trials from Aventis to
us and we are also obligated to reimburse Aventis for amounts
paid by Aventis to non-affiliate third parties or government
entities pursuant to these third party agreements extant at the
time of the restructured agreement, including royalties, license
fees, milestone or other payments.

Since our inception in 1993, we have used our
resources primarily to conduct research and development
activities, primarily for ADVEXIN therapy and, to a lesser
extent, for other product candidates. As of December 31,
2003 we had an accumulated deficit of approximately
$93.0 million. We expect to incur substantial additional
operating expenses and losses over the next several years as our
research, development, pre-clinical testing and clinical trial
activities increase. As we expand our operations and develop
systems to support commercialization of our product candidates,
these losses, among other things, have had, and are expected to
continue to have an adverse impact on our total assets,
stockholders equity and working capital.

We have no products that have generated any
commercial revenue. Presently, we earn minimal revenue from
contract services activities, grants, interest income and rent
from the lease of a portion of our facilities to The University
of Texas M. D. Anderson Cancer Center. We do not expect to
generate revenues from the commercial sale of products in the
near future, and we may never generate revenues from the
commercial sale of products.

Unless indicated otherwise, amounts disclosed in
these footnotes are rounded to the nearest thousand.

F-8



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying consolidated financial
statements include our accounts and all of our subsidiaries.
Intercompany transactions and balances are eliminated in
consolidation. In October 2001, we announced a change in the
ending date of our accounting year from June 30 to
December 31.



| |                 
| | ----------------
| | Use of Estimates

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



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents include amounts on
deposit with financial institutions and investments that are
readily convertible to cash and so near their maturity that they
present insignificant risk of changes in value because of
changes in interest rates. Generally, these investments have
original maturities of three months or less. Our investments
generally consist of securities in the form of federal
government obligations.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are carried at cost, less
accumulated depreciation. Maintenance, repairs and minor
replacements are charged to expense as incurred. Significant
renewals and betterments are capitalized. Depreciation is
provided generally using accelerated methods based on useful
lives of fifteen years for research, manufacturing and
administrative facilities and five to seven years for equipment.
Interest incurred during construction of facilities is
capitalized as a cost of those facilities.

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

|                              |                              |              |        |        |  |   |        |        | 
|----------------------------- | ---------------------------- | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                              |                              |             
|                              |                              | December 31,
|                              |                              |             
|                              |                              | 2002         |        | 2003  
|                              |                              |              |        |       
|Facilities                    |                              | $            | 11,594 |        |  | $ | 11,570 |       
|Equipment                     |                              |              | 5,376  |        |  |   | 5,593  |       
|                              |                              |              |        |        |  |   |        |       
|                              | Total property and equipment |              |        | 16,970 |  |   |        | 17,163 | 
|Less accumulated depreciation |                              |              | (8,228 | )      |  |   | (9,661 | )     
|                              |                              |              |        |        |  |   |        |       
|                              | Net property and equipment   |              | $      | 8,742  |  |   | $      | 7,502  | 
|                              |                              |              |        |        |  |   |        |       

As of December 31, 2002 and 2003, $3,077,000
and $2,152,000, respectively, of equipment was held under
capital lease obligations and is being depreciated over the
applicable lease term (see Note 7).



| |                     
| | --------------------
| | Federal Income Taxes

We recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have
been recognized differently between the financial statements and
tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statement carrying amounts and tax bases of
liabilities and assets using enacted tax rates and laws in
effect in the years in which the differences are expected to
reverse. Deferred tax assets are evaluated for realization based
on a more-likely-than-not criteria in determining if a valuation
should be provided.

F-9



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                    
| | -------------------
| | Accrued Liabilities

Accrued liabilities consist of the following
significant items (in thousands):

|                                         |                           |              |     |       |  |   |     |       | 
|---------------------------------------- | ------------------------- | ------------ | --- | ----- |  | - | --- | ----- | 
|                                         |                           |             
|                                         |                           | December 31,
|                                         |                           |             
|                                         |                           | 2002         |     | 2003 
|                                         |                           |              |     |      
|Property taxes                           |                           | $            | 314 |       |  | $ | 468 |      
|Clinical costs due unrelated parties     |                           |              | 275 |       |  |   | 434 |      
|Clinical costs due affiliate             |                           |              | 300 |       |  |   | 100 |      
|Pre-clinical costs due unrelated parties |                           |              | 490 |       |  |   | 246 |      
|Pre-clinical costs due related parties   |                           |              |    |       |  |   | 208 |      
|Payroll                                  |                           |              |    |       |  |   | 328 |      
|Vacation                                 |                           |              | 284 |       |  |   | 246 |      
|Legal fees                               |                           |              | 150 |       |  |   | 228 |      
|Other                                    |                           |              | 184 |       |  |   | 276 |      
|                                         |                           |              |     |       |  |   |     |      
|                                         | Total accrued liabilities |              | $   | 1,997 |  |   | $   | 2,535 | 
|                                         |                           |              |     |       |  |   |     |      

In conducting our pivotal Phase 3 clinical
trials of ADVEXIN therapy, we procure services from multiple
third party vendors. The cost of these services constitutes a
significant portion of the cost of these trials and of our
research and development expenses in general. Some of our
vendors do not necessarily bill us for their services on a
regular basis and, accordingly, make it difficult for us to
determine the costs we have incurred relative to their services
for any given accounting period. As a result, we make
significant accounting estimates as to the amount of costs we
have incurred relative to these vendors in each accounting
period. These estimates are based on many factors, including,
among others, costs set forth in our contracts with these
vendors, the period of time over which the vendor has rendered
the services and the rate of enrollment of patients in our
clinical trials. Using these estimates, we record expenses and
accrued liabilities in each accounting period that we believe
fairly represent our obligations to these vendors. Actual
results could differ from these estimates resulting in increases
or decreases in the amount of expense recorded and the related
accrual.



| |                    
| | -------------------
| | Revenue Recognition

Contract services revenue is recognized as the
related contract services are performed. Deferred revenue is
recorded for cash received for which the related expenses had
not been incurred.

In accordance with the terms of the grant, grant
revenue is recognized as research expenses relating to the grant
are incurred, provided that the amounts received are not
refundable if the research is not successful.

Collaborative research payments received prior to
the restructuring of the Aventis collaboration were recognized
as revenue as we performed our obligations related to such
research agreements. Deferred revenue was recorded for cash
received for which the related expenses had not been incurred.
We have not received such payments subsequent to
December 31, 2000.

Prior to the restructuring of the Aventis
collaboration, we sold gene-therapy based products to Aventis at
specified prices and payment terms with no rights to return
delivered and accepted product. Revenue from product sales to
the affiliate was recognized upon completion of production and
delivery requirements and acceptance by Aventis and when
collection was reasonably assured. Deferred revenue was recorded
for cash received for product which had not been delivered to
and accepted by Aventis. We have not sold product to Aventis
subsequent to December 31, 2000.

F-10



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Rental income from the sublease of laboratory
space to third parties under leases that have variable monthly
rent amounts over the term of the lease is recognized on a
straight-line basis over the term of the lease. Any cash
payments received in excess of rental income recognized is
recorded as deferred revenue. Rental income is included in other
income in the accompanying consolidated statement of operations.



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Research and development costs include the costs
of conducting basic research, developing product applications,
conducting pre-clinical investigations and performing clinical
trials to obtain data for regulatory filings for product
approvals. Research and development costs are expensed as
incurred.



| |                   
| | ------------------
| | Net Loss Per Share

Net loss per share is computed using the weighted
average number of shares of common stock outstanding. Due to
losses incurred in all periods presented, the shares associated
with stock options, warrants and non-voting convertible
preferred stock are not included because they are anti-dilutive.



| |                         
| | ------------------------
| | Stock-Based Compensation

Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation, allows companies to adopt one of two methods
for accounting for stock options. We have elected the method
that requires disclosure only of stock-based compensation.
Because of this election, we continue to account for our
employee stock-based compensation plans, using the intrinsic
value method, under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, as clarified by Interpretation
No. 44, Accounting for Certain Transactions Involving
Stock Compensation. Accordingly, deferred compensation is
recorded for stock-based compensation grants based on the excess
of the fair market value of the common stock on the measurement
date over the exercise price. The deferred compensation is
amortized ratably over the vesting period of each unit of
stock-based compensation grant, generally four years. If the
exercise price of the stock-based compensation grants is equal
to the fair value of our stock on the date of grant, no
compensation expense is recorded.

The fair value of options granted for all periods
presented was estimated on the applicable grant dates using the
Black-Scholes option pricing model. Significant weighted average
assumptions used to estimate fair value for all years include:
risk-free interest rates ranging from 3% to 6%; expected lives
of ten years; no expected dividends; and volatility factors
ranging from 62% to 107%. Had compensation expense been

F-11



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

determined consistent with the provisions of
SFAS No. 123, our net loss would have been increased
to the following pro forma amounts (in thousands, except per
share information):

|                                                                                                                    |                                 |                 |         |                  |   |                         |         |       |   |   |         |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------------------- | ------------------------------- | --------------- | ------- | ---------------- | - | ----------------------- | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                                    |                                 |                 |         |                  |   |                        
|                                                                                                                    |                                 |                 |         | Six Months Ended |   | Year Ended December 31,
|                                                                                                                    |                                 | Year Ended June |         | December 31,     |   |                        
|                                                                                                                    |                                 | June 30, 2001   |         | 2001             |   | 2002                    |         | 2003 
|                                                                                                                    |                                 |                 |         |                  |   |                         |         |      
|Net loss, as reported                                                                                               |                                 | $               | (16,442 | )                |   | $                       | (12,328 | )     |   | $ | (26,128 | )     |   | $ | (19,326 | )    
|Add: Stock-based employee compensation expense
    included in reported net loss                                    |                                 | $               | 1,589   |                  |   | $                       | 799     |       |   | $ | 1,377   |       |   | $ | 1,362   |      
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards |                                 | $               | (1,883  | )                |   | $                       | (1,693  | )     |   | $ | (1,902  | )     |   | $ | (4,076  | )    
|                                                                                                                    |                                 |                 |         |                  |   |                         |         |       |   |   |         |       |   |   |         |      
|Pro forma net loss                                                                                                  |                                 | $               | (16,736 | )                |   | $                       | (13,222 | )     |   | $ | (26,653 | )     |   | $ | (22,040 | )    
|                                                                                                                    |                                 |                 |         |                  |   |                         |         |       |   |   |         |       |   |   |         |      
|Loss per share:                                                                                                     |                                 |                 |         |                  |   |                         |         |       |   |   |         |       |   |   |         |      
|                                                                                                                    | Basic and Diluted  as reported |                 | $       | (1.02            | ) |                         | $       | (0.58 | ) |   | $       | (1.22 | ) |   | $       | (0.84 | )
|                                                                                                                    |                                 |                 |         |                  |   |                         |         |       |   |   |         |       |   |   |         |      
|                                                                                                                    | Basic and Diluted  pro forma   |                 | $       | (1.04            | ) |                         | $       | (0.62 | ) |   | $       | (1.24 | ) |   | $       | (0.96 | )
|                                                                                                                    |                                 |                 |         |                  |   |                         |         |       |   |   |         |       |   |   |         |      

See Note 3 for a discussion of stock
purchase warrants issued in connection with our sale of common
stock in June 2003.



| |                         
| | ------------------------
| | Other Comprehensive Loss

Our other comprehensive loss consists of net
loss, as there are no other comprehensive loss items.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation 46,
Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin
No. 51, (FIN 46). FIN 46 requires the
consolidation of entities in which an enterprise absorbs a
majority of another entitys expected losses, receives a
majority of the entitys expected residual returns, or
both, as a result of ownership, contractual or other interests
in the entity. Currently, entities are generally consolidated by
an enterprise when it has a controlling financial interest
through ownership of a majority voting interest in the entity.
The consolidation requirements of FIN 46 apply to variable
interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first
fiscal year or interim period ending after March 15, 2004.
VirRx, Inc., discussed in Note 5 above, is a variable
interest entity with regard to which we are evaluating whether
or not the adoption of FIN 46 will require consolidating
VirRx, Inc. in our future financial statements. VirRx, Inc. is
not consolidated in our financial statements as of
December 31, 2003, and for the periods then ended. A
consolidation of VirRx, Inc. into our financial statements would
not have a material impact on the financial statements as
presented. We have no relationships with any other variable
interest entities that we believe would require consolidation of
those entities under FIN 46.



|   |                     
|-- | --------------------
|3. | Stockholders Equity



| |                    
| | -------------------
| | Stock Sales in 2003

In December 2003, we sold 2,859,427 newly-issued
shares of our common stock in a registered direct offering for
an aggregate purchase price of approximately $20.0 million.
Our net proceeds from this transaction, after related fees and
expenses, were approximately $18.5 million.

F-12



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In June 2003, we sold 2,000,000 newly-issued
shares of our common stock to selected institutional investors
through a private placement for an aggregate purchase price of
$11.5 million. Our net proceeds from this transaction,
after related fees and expenses, were $10.8 million. In
connection with this sale, we issued warrants to purchase
400,000 shares of our common stock at $7.89 per share.
These warrants are exercisable at any time by the warrant
holders through June 2008. Beginning in June 2005, we may force
the exercise of these warrants if the average closing market
price of our common stock during any 20 consecutive trading days
is greater than $15.78 per share.



| |                                                    
| | ---------------------------------------------------
| | Series A Non-Voting Convertible
    Preferred Stock

In connection with the restructuring of the
Aventis collaboration and pursuant to a stock purchase agreement
with Aventis executed on June 30, 2001, we issued and sold
to Aventis 100,000 unregistered shares of a new class of
$0.001 par value, Series A Non-Voting Convertible
Preferred Stock in exchange for $25.0 million. At
June 30, 2001, we had a receivable of $25.0 million
from Aventis for this sale, for which we received payment in
July 2001. These shares are convertible at any time, at our
option or the option of Aventis, into 2,343,721 shares of
our common stock. Under a voting agreement, Aventis must vote
these shares in the same manner as the shares voted by a
majority of the other stockholders on any corporate action put
to a vote of our stockholders. This voting requirement
terminates at the earliest of the tenth anniversary of the
voting agreement, registration of these shares with the
Securities and Exchange Commission or the sale of these shares
to an Aventis non-affiliate, as defined in the voting agreement.
A registration rights agreement grants the holder of a majority
of the common stock issuable upon conversion of the
Series A Non-Voting Convertible Preferred Stock three
demand registrations and three piggyback registrations.



| |                        
| | -----------------------
| | Initial Public Offering

In October 2000, we completed an initial public
offering of 4,600,000 newly-issued shares of our common stock at
a price of $8.00 per share. We received $32.2 million
in cash proceeds from the initial public offering, net of
underwriting discounts, commissions and other offering costs.

Simultaneous with the closing of the initial
public offering, our convertible preferred stock then
outstanding, consisting of 3,011,423 shares of
Series A Convertible Preferred Stock, 1,757,063 shares
of Series B Convertible Preferred Stock,
551,410 shares of Series C Convertible Preferred Stock
and 1,100,000 shares of Series D Convertible Preferred
Stock, was automatically converted into 12,326,173 shares
of common stock.

In August 2000, in connection with this initial
public offering, our Board of Directors approved a stock
dividend to effect a stock split of 1.6 shares for every
one share of common stock outstanding. An amount equal to the
increased par value of the common shares has been reflected as a
transfer from additional paid-in capital to common stock.
Retroactive effect has been given to the stock split in
stockholders equity and in all share and per share data as
of the earliest date presented in the accompanying consolidated
financial statements.



| |                   
| | ------------------
| | Stock Option Plans

The 2000 Stock Option Plan (the Stock Option
Plan) was initiated in October 2000 and all stock option grants
since that time have been under this plan. The Stock Option Plan
provides for the granting of options, either incentive or
non-statutory, or stock purchase rights to our employees,
directors and consultants to purchase shares of our common
stock. At December 31, 2003, there were
6,241,000 shares of common stock reserved for option grants
under this plan. This plan provides for annual increases in the
number of shares available for issuance in an amount equal to
the lesser of 1,600,000 shares, five percent of the
outstanding shares on the date of the annual increase, or a
lesser amount as may be determined by the Board of Directors.
The exercise price for all option grants shall be no less than
the fair value of our common stock at the date of

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INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

grant, with the exception of incentive stock
options granted to holders of shares representing more than ten
percent of our voting power, in which case the exercise price
shall be no less than 110 percent of the fair value. In the
event of a merger, reorganization or change in our controlling
ownership, all options outstanding under the Stock Option Plan
become fully vested and immediately exercisable unless the
successor corporation assumes or substitutes other options in
their place. The Stock Option Plan will terminate in 2010 and
may be amended or terminated by the Board of Directors.

Prior to October 2000, stock options were granted
under our 1995 Stock Plan. We no longer issue options under this
plan. The terms of this plan are substantially the same as the
Stock Option Plan. No shares of common stock were reserved for
option grants under this plan at December 31, 2003.

We record the fair value of options issued to
non-employee consultants at the fair value of the options
issued. Any expense is recognized over the service period or at
the date of issuance if the options are fully vested and no
performance obligation exists.

Aggregate deferred compensation recorded related
to stock options was $4,177,000 and $792,000 during the years
ended June 30, 2000 and 2001, respectively, $600,000 and
zero during the six months ended December 31, 2000
(unaudited) and 2001, zero during the year ended
December 31, 2002 and $39,000 during the year ended
December 31, 2003.

Amortization to expense of deferred compensation
related to stock options was $1,497,000 and $1,589,000 during
the years ended June 30, 2000 and 2001, respectively,
$746,000 and $799,000 for the six months ended December 31,
2000 (unaudited) and 2001, respectively, and $1,377,000 and
$891,000 during the years ended December 31, 2002 and 2003,
respectively.

Reversals of deferred compensation and additional
paid-in capital for unamortized deferred compensation related to
the forfeiture of non-vested options by terminated employees was
$248,000 and $73,000 for the years ended June 30, 2000 and
2001, respectively, and $56,000 and $56,000 for the six months
ended December 31, 2000 (unaudited) and 2001,
respectively, and $134,000 and $93,000 during the years ended
December 31, 2002 and 2003, respectively.

In June 2003, we granted stock options fully
vested upon issuance to (1) certain members of our Board of
Directors for which some of the options have exercise prices
below the market value of our common stock at the date of grant,
and (2) our corporate secretary, who is not a director or
employee and for whom options granted are subject to fair value
accounting. In 2003, we recorded compensation expense of
$471,000 related to these options.

F-14



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following is a summary of option activity
under these plans:

|                                     |           |             |           |                |   |  |      |      | 
|------------------------------------ | --------- | ----------- | --------- | -------------- | - |  | ---- | ---- | 
|                                     |           |             |           | Weighted      
|                                     |           |             |           | Average       
|                                     |           | Options     |           | Exercise Price
|                                     |           | Outstanding |           | Per Share     
|                                     |           |             |           |               
|Balance, June 30, 2000               |           |             | 2,597,155 |                |   |  | 0.55 |     
|                                     | Granted   |             |           | 704,498        |   |  |      | 4.30 | 
|                                     | Exercised |             |           | (308,212       | ) |  |      | 0.42 | 
|                                     | Cancelled |             |           | (17,357        | ) |  |      | 0.74 | 
|                                     |           |             |           |                |   |  |      |     
|Balance, June 30, 2001               |           |             | 2,976,084 |                |   |  | 1.27 |     
|                                     | Granted   |             |           | 379,300        |   |  |      | 4.35 | 
|                                     | Exercised |             |           | (55,238        | ) |  |      | 0.44 | 
|                                     | Cancelled |             |           | (38,350        | ) |  |      | 1.21 | 
|                                     |           |             |           |                |   |  |      |     
|Balance, December 31, 2001           |           |             | 3,261,796 |                |   |  | 1.80 |     
|                                     | Granted   |             |           | 989,514        |   |  |      | 3.62 | 
|                                     | Exercised |             |           | (40,331        | ) |  |      | 0.54 | 
|                                     | Cancelled |             |           | (224,886       | ) |  |      | 3.46 | 
|                                     |           |             |           |                |   |  |      |     
|Balance, December 31, 2002           |           |             | 3,986,093 |                |   |  | 2.18 |     
|                                     |           |             |           |                |   |  |      |     
|                                     | Granted   |             |           | 1,269,890      |   |  |      | 4.91 | 
|                                     | Exercised |             |           | (193,488       | ) |  |      | 1.46 | 
|                                     | Cancelled |             |           | (306,094       | ) |  |      | 3.20 | 
|                                     |           |             |           |                |   |  |      |     
|Balance, December 31, 2003           |           |             | 4,756,401 |                |   |  | 2.91 |     
|                                     |           |             |           |                |   |  |      |     
|Exercisable at December 31,
    2003 |           |             | 3,253,216 |                |   |  | 2.13 |     
|                                     |           |             |           |                |   |  |      |     

The weighted average fair value of options
granted during the year ended June 30, 2001 was $5.61, for
the six months ended December 31, 2001 was $3.96, and for
the years ended December 31, 2002 and 2003 was $3.07 and
$4.63, respectively.

All options granted during the six months ended
December 31, 2000 and thereafter have an exercise price
equal to the fair value of our common stock as of date of grant,
with the exception of 265,000 options granted in 2003 to certain
members of our Board of Directors and our corporate secretary at
exercise prices of $4.00 and $5.00 per share. These
exercise prices were below the quoted market value of our common
stock of $5.58 per share on the date these options were
granted.

The following table summarizes information about
stock options outstanding as of December 31, 2003:

|                    |  |                     |           |                  |  |                  |      |                   |  |                  |      |  |  |  |           |  |  |   |      | 
|------------------- |  | ------------------- | --------- | ---------------- |  | ---------------- | ---- | ----------------- |  | ---------------- | ---- |  |  |  | --------- |  |  | - | ---- | 
|                    |  |                     |           |                 
|Options Outstanding |  |                    
|                    |  | Options Exercisable
|                    |  | Weighted Average    |           |                  |  |                 
|                    |  | Outstanding as of   |           | Remaining        |  |                  |      | Exercisable as of |  |                 
|Range of            |  | December 31,        |           | Contractual Life |  | Weighted Average |      | December 31,      |  | Weighted Average
|Exercise Price      |  | 2003                |           | (In Years)       |  | Exercise Price   |      | 2003              |  | Exercise Price  
|                    |  |                     |           |                  |  |                  |      |                   |  |                 
|$0.39-$1.99         |  |                     | 1,915,041 |                  |  |                  | 4.00 |                   |  | $                | 0.56 |  |  |  | 1,869,891 |  |  | $ | 0.55 | 
|2.00-3.91           |  |                     | 618,350   |                  |  |                  | 8.27 |                   |  |                  | 2.73 |  |  |  | 309,413   |  |  |   | 2.83 | 
|4.02-8.98           |  |                     | 2,223,010 |                  |  |                  | 8.64 |                   |  |                  | 4.97 |  |  |  | 1,073,912 |  |  |   | 4.68 | 
|                    |  |                     |           |                  |  |                  |      |                   |  |                  |      |  |  |  |           |  |  |   |      | 
|                    |  |                     | 4,756,401 |                  |  |                  | 6.72 |                   |  | $                | 2.91 |  |  |  | 3,253,216 |  |  | $ | 2.13 | 
|                    |  |                     |           |                  |  |                  |      |                   |  |                  |      |  |  |  |           |  |  |   |      | 

F-15



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

Under our 2000 Employee Stock Purchase Plan (the
Stock Purchase Plan), 780,000 shares of common stock are
reserved for purchase by eligible employees, at 85 percent
of the appropriate market price. The Stock Purchase Plan
provides for an increase on each January 1 in the number of
shares available for issuance, in an amount equal to the lesser
of 480,000 shares, 1.5 percent of the outstanding
shares of common stock on the date of the annual increase or
such lesser amount as may be determined by the Board of
Directors. The Stock Purchase Plan provides that eligible
employees may authorize payroll deductions of up to
10 percent of their qualified compensation. The maximum
number of shares that an employee may purchase in a single
offering period is 10,000 shares. The Stock Purchase Plan
will terminate in 2010 and may be amended or terminated by the
Board of Directors. During the year ended June 30, 2001,
22,561 shares of common stock were purchased by employees
under this plan. There have been no common stock purchases since
that time, as we have suspended operation of the Stock Purchase
Plan until further notice by the Board of Directors.



|   |                     
|-- | --------------------
|4. | Federal Income Taxes

The reconciliation of the statutory federal
income tax rate to our effective income tax rate is as follows:

|                                             |  |                     |       |              |  |              |       |      |  |      |       |    |  |  |       |    |  |  |       |   
|-------------------------------------------- |  | ------------------- | ----- | ------------ |  | ------------ | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | -- |  |  | ----- | --
|                                             |  |                     |       |              |  |              |       |     
|                                             |  |                     |       | Six Months   |  |             
|                                             |  |                     |       | Ended        |  | Year Ended  
|                                             |  |                     |       | December 31, |  | December 31,
|                                             |  | Year Ended June 30, |       |              |  |             
|                                             |  | 2001                |       | 2000         |  | 2001         |       | 2002 |  | 2003
|                                             |  |                     |       |              |  |              |       |      |  |     
|Federal statutory rate                       |  |                     | (34.0 | )%           |  |              | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )% |  |  | (34.0 | )%
|State taxes, net of federal benefit          |  |                     |      |              |  |              |      |      |  |      |      |    |  |  | (2.8  | )  |  |  | (2.8  | ) 
|Increase in deferred tax valuation allowance |  |                     | 30.6  |              |  |              | 30.8  |      |  |      | 32.9  |    |  |  | 37.1  |    |  |  | 39.5  |   
|Stock option compensation not deductible     |  |                     | 3.3   |              |  |              | 3.1   |      |  |      | 2.2   |    |  |  | 1.8   |    |  |  | 2.4   |   
|Research and development tax credits         |  |                     |      |              |  |              |      |      |  |      | (1.4  | )  |  |  | (0.2  | )  |  |  | (2.9  | ) 
|Other                                        |  |                     | 0.1   |              |  |              | 0.1   |      |  |      | 0.3   |    |  |  | (1.9  | )  |  |  | (2.2  | ) 
|                                             |  |                     |       |              |  |              |       |      |  |      |       |    |  |  |       |    |  |  |       |   
|                                             |  |                     |      | %            |  |              |      | %    |  |      |      | %  |  |  |      | %  |  |  |      | % 
|                                             |  |                     |       |              |  |              |       |      |  |      |       |    |  |  |       |    |  |  |       |   

The components of our deferred tax assets are as
follows (in thousands):

|                                                                |                           |              |         |        |  |   |         |        | 
|--------------------------------------------------------------- | ------------------------- | ------------ | ------- | ------ |  | - | ------- | ------ | 
|                                                                |                           |             
|                                                                |                           | December 31,
|                                                                |                           |             
|                                                                |                           | 2002         |         | 2003  
|                                                                |                           |              |         |       
|Net operating loss carryforwards                                |                           | $            | 21,602  |        |  | $ | 28,330  |       
|Research and development tax credits                            |                           |              | 283     |        |  |   | 848     |       
|Tax basis of property and equipment in excess of
    book basis |                           |              | 1,850   |        |  |   | 1,979   |       
|Accrued liabilities                                             |                           |              | 249     |        |  |   | 216     |       
|Deferred rent income                                            |                           |              | 134     |        |  |   | 325     |       
|Other                                                           |                           |              | (73     | )      |  |   | (11     | )     
|                                                                |                           |              |         |        |  |   |         |       
|                                                                | Total deferred tax assets |              |         | 24,045 |  |   |         | 31,687 | 
|Less  Valuation allowance                                      |                           |              | (24,045 | )      |  |   | (31,687 | )     
|                                                                |                           |              |         |        |  |   |         |       
|                                                                | Net deferred tax assets   |              | $       |       |  |   | $       |       | 
|                                                                |                           |              |         |        |  |   |         |       

As of December 31, 2003, we have generated
net operating loss (NOL) carryforwards of approximately
$76.6 million and research and development credits of
approximately $848,000 available to reduce future income taxes.
These carryforwards begin to expire in 2007. A change in
ownership, as defined by federal income tax regulations, could
significantly limit our ability to utilize these carryforwards.
Additionally,

F-16



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

because United States tax laws limit the time
during which these carryforwards may be applied against future
taxes, we may not be able to take full advantage of these
attributes for federal income tax purposes. As we have had
cumulative losses and there is no assurance of future taxable
income, a valuation allowance has been established to fully
offset the deferred tax asset. The valuation allowance increased
$5.0 million for the year ended June 30, 2001,
$2.8 million and $4.1 million for the six months ended
December 31, 2000 (unaudited) and 2001, respectively,
and $9.7 million and $7.6 million during the years
ended December 31, 2002 and 2003, respectively. These
valuation allowance increases were primarily due to losses from
operations.



|   |              
|-- | -------------
|5. | Notes Payable

We have notes payable with banks to finance our
facilities, which are pledged as security for these notes. There
are two notes with the following terms:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Note payable with an original principal balance
    of $6,000,000 and an outstanding balance of $5,732,000 and
    $5,630,000 at December 31, 2002 and 2003, respectively.
    Interest is fixed at 7.5 percent until November 2004, at
    which time it is subject to a one-time adjustment to a rate
    equal to the then-current rate of the five-year United States
    Treasury bond note plus 2 percent, with such adjusted
    interest rate not to exceed 8.5 percent. Interest plus
    principal based on a 25-year amortization period are payable
    monthly until November 2009, at which time the remaining
    outstanding principal is due and payable.
|
| |  | Note payable with an original principal balance
    of $3,263,000 and an outstanding balance of $2,332,000 and
    $1,689,000 at December 31, 2002 and 2003, respectively.
    Interest is at prime (4.25% at December 31, 2003),
    adjustable annually. Principal and interest, fully amortized
    over a five-year period, is payable monthly through June 2006.                                                                                                                                                                                                                                                                                                     

Interest was capitalized was $84,000 as a cost of
facilities during the time those facilities to which those notes
relate were under construction. Interest capitalized was during
the year ended June 30, 2001, $60,000 and zero during the
six months ended December 31, 2000 (unaudited) and
2001, respectively, and zero during the years ended
December 31, 2002 and 2003.

Aggregate annual maturities on notes payable as
of December 31, 2003, are as follows (in thousands):

|                              |            |       |     |       |       | 
|----------------------------- | ---------- | ----- | --- | ----- | ----- | 
|Year ending December 31, 2004 |            | $     | 777 |      
|                              | 2005       |       |     | 815   |      
|                              | 2006       |       |     | 429   |      
|                              | 2007       |       |     | 142   |      
|                              | 2008       |       |     | 153   |      
|                              | Thereafter |       |     | 5,003 |      
|                              |            |       |     |      
|                              |            | Total |     | $     | 7,319 | 
|                              |            |       |     |      

We believe the fair market value of our debt
approximates its carrying value as of all balance sheet dates
presented herein.



|   |                                
|-- | -------------------------------
|6. | License and Research Agreements



| |                                                                                
| | -------------------------------------------------------------------------------
| | Patent and Technology License Agreement
    With The University of Texas System

We have a license agreement with the Board of
Regents of The University of Texas System (the System) and M. D.
Anderson Cancer Center, a component institution of the System,
whereby we have an exclusive, worldwide license to use certain
technology. Beginning with the first commercial sale of a
product incorporating the licensed technologies, we will pay M.
D. Anderson Cancer Center, for the longer of fifteen

F-17



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

years or the life of the patent, a royalty based
on net sales by us or our affiliates or by sublicense agreement
of products incorporating any of such technologies. We are
obligated by the agreement to reimburse any of M. D. Anderson
Cancer Centers costs that may be incurred in connection
with obtaining patents related to the licensed technologies.



| |            
| | -----------
| | VirRx, Inc.

We are working with VirRx, Inc. (VirRx) to
investigate other vector technologies for delivering gene-based
products into targeted cells. We have an agreement with VirRx,
which began in 2002, to purchase shares of VirRxs
Series A Preferred Stock for $150,000 on the first day of
each quarter through January 1, 2006. We purchased $525,000
and $600,000 of this stock for cash during 2002 and 2003,
respectively, which we recorded as research and development
expense. VirRx is required to use the proceeds from these stock
sales in accordance with the terms of a collaboration and
license agreement between us and VirRx for the development of
VirRxs technologies. We may unilaterally terminate this
collaboration and license agreement with 90 days prior
notice at any time after March 7, 2003, which would also
terminate the requirement for us to make any additional stock
purchases. Provided the collaboration and license agreement
remains in place, we will make additional milestone stock
purchases, either for cash or through the issuance of our common
stock, upon the completion of Phase 1, Phase 2 and
Phase 3 clinical trials involving technologies licensed
under this agreement and we will make a $5.0 million cash
milestone payment to VirRx, for which we receive no VirRx stock,
upon approval by the United States Food and Drug Administration
of a biologics license application involving these technologies.
To the extent we have already made cash milestone payments, we
may receive a credit of 50% of the Phase 2 clinical trial
milestone payments and 25% of the Phase 3 clinical trial
milestone payments against this $5.0 million cash milestone
payment. The additional milestone stock purchases and cash
payment are not anticipated to be required in the near future.
We have an option to purchase all outstanding shares of VirRx at
any time until March 2007.



| |                                                   
| | --------------------------------------------------
| | Other Technology Option and License
    Agreements

We have technology option and license agreements
with various other third parties, in particular, an agreement
related to the mda-7 gene. These agreements require us to make
milestone and license payments to these parties if and when we
achieve certain prescribed clinical trial and product
development milestones. We have technology option and license
agreements with two additional third parties covering certain
enabling technologies, both of which require annual payments of
$20,000 until cancelled at our option.



| |                   
| | ------------------
| | Sponsored Research

We fund certain research performed by M. D.
Anderson Cancer Center to further the development of
technologies that could have potential commercial viability. By
sponsoring and funding this research, we have the right to
include certain patentable inventions arising therefrom under
our patent and technology license agreement with The University
of Texas System. The expense for this research was approximately
$634,000 during the year ended June 30, 2001, $230,000 and
$632,000 during the six months ended December 31, 2000
(unaudited) and 2001, respectively, and $809,000 and
$933,000 for the years ended December 31, 2002 and 2003,
respectively.



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies



| |                  
| | -----------------
| | Lease Commitments

We are obligated under various capital and
operating leases for land, office and laboratory space and
equipment that expire at various dates through September 2026.
The amounts payable under capital leases were drawn under
various lease lines of credit with commercial leasing companies
which were used to finance equipment acquisitions. Amounts drawn
under these lines are payable monthly over terms of 36 to
48 months

F-18



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

from the time of the draw. The lines of credit
bear interest at fixed interest rates ranging from 8.9% to
13.25% at December 31, 2003. The lease lines of credit are
secured by the equipment being financed.

Operating leases consist primarily of a ground
lease for the land on which our new facility is located. The
annual rent due under this lease is $144,000. The primary term
of this lease continues through September 2026.

Lease expense was $315,000 for the year ended
June 30, 2001, and $157,000 and $155,000 for the six months
ended December 31, 2000 (unaudited) and 2001,
respectively, and $303,000 and $301,000 for the years ended
December 31, 2002 and 2003. Future minimum lease payments
under non-cancelable operating leases and the present value of
future minimum capital lease payments as of December 31,
2003, are as follows (in thousands):

|                                    |            |                              |     |         |       |   |     |     |     | 
|----------------------------------- | ---------- | ---------------------------- | --- | ------- | ----- | - | --- | --- | --- | 
|                                    |            | Operating                    |     | Capital
|                                    |            | Leases                       |     | Leases 
|                                    |            |                              |     |        
|Year ending December 31, 2004       |            | $                            | 325 |         |       | $ | 248 |    
|                                    | 2005       |                              |     | 206     |       |   |     | 121 |    
|                                    | 2006       |                              |     | 144     |       |   |     | 70  |    
|                                    | 2007       |                              |     | 144     |       |   |     |    |    
|                                    | 2008       |                              |     | 144     |       |   |     |    |    
|                                    | Thereafter |                              |     | 2,563   |       |   |     |    |    
|                                    |            |                              |     |         |       |   |     |    
|                                    |            | Total minimum lease payments |     | $       | 3,526 |   |     |     | 439 | 
|                                    |            |                              |     |         |       |   |     |    
|Less  amount representing interest |            |                              |     |         |       |   | (40 | )  
|                                    |            |                              |     |         |       |   |     |    
|                                    |            | Capital lease obligations    |     |         |       |   |     | $   | 397 | 
|                                    |            |                              |     |         |       |   |     |    



| |                         
| | ------------------------
| | Insurance and Litigation

We are subject to numerous risks and
uncertainties because of the nature and status of our
operations, and we are subject to claims and legal actions
arising in the normal course of business. We maintain insurance
coverage for events and in amounts that we deem appropriate.
Management believes that uninsured losses, if any, would not be
materially adverse to our financial position or results of
operations.

We were previously named as a defendant in a
complaint filed by Canji, Inc against Sidney Kimmel Cancer
Center (SKCC), ourselves and others. In June 2002, Canji, SKCC
and we entered into an agreement to settle all claims to the
litigation. As part of the agreement, SKCC agreed to reimburse
us for certain costs, and we granted to Canji a limited,
non-exclusive sublicense under our license of intellectual
property from SKCC. The SKCC intellectual property is not
material to our business.



| |                     
| | --------------------
| | Employment Agreement

We have an employment agreement with our
President and Chief Executive Officer that provides for a base
salary and bonuses through July 31, 2006.



|   |                
|-- | ---------------
|8. | Related Parties

The Chairman of our Board of Directors owns, and
another member of our Board of Directors is a former employee
of, a company to which we pay consulting fees of approximately
$175,000 per year. We are obligated to continue paying this
fee until such time as we, at our option, terminate the services
of that company. As of December 31, 2003, these two
individuals held options to purchase 475,000 shares of our
common stock.

F-19



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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

We have a consulting agreement with an individual
primarily responsible for the creation of the technology upon
which ADVEXIN therapy is based, who is also a stockholder. Under
this consulting agreement, we paid this individual fees of
$150,000 during the year ended June 30, 2001, $75,000 and
$78,750 during the six months ended December 31, 2000
(unaudited) and 2001, respectively, and $171,000 and
$188,000 during the years ended December 31, 2002 and 2003,
respectively. This consulting agreement provides for payments of
$200,000 per annum thereafter through the end of its term
on September 30, 2009, with such future payments subject to
adjustment for inflation. We may terminate this agreement at our
option upon one years advance notice.

We sublease a portion of our facilities to M. D.
Anderson Cancer Center under a lease with a non-cancelable term
that expires in 2009. M. D. Anderson Cancer Center is obligated
to pay us rent of approximately $76,000 per month until
February 2006 and $13,053 per month thereafter. This lease
began in February 2001, after which time rental income related
to this lease is included in other revenue. Rental income was
$354,000 for the year ended June 30, 2001, $515,000 for the
six months ended December 31, 2001 and $1,104,000 and
$1,012,000 for the years ended December 31, 2002 and 2003,
respectively.

In 2002, we entered into an agreement with
Aventis Pharmaceuticals Products, Inc. (APP) under which
APP provided funding for a Phase 2 clinical trial for
breast cancer conducted under our supervision. We have received
$197,000 under this agreement through December 31, 2003.
Amounts received under this agreement are recorded as deferred
revenue until the related expenses are incurred. APP is an
affiliate of Aventis, one of our stockholders.

F-20



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##### Table of Contents



EXHIBIT INDEX

|        |      |  |  |                         |  |                                                                                                                                                                                  
|------- | ---- |  |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |                        
|Number  |      |  |  | Description of Document
|        |      |  |  |                        
|        | 23.1 |  |  |                        |  | Consent of Ernst & Young LLP,
    independent auditors                                                                                                                           
|        | 23.3 |  |  |                        |  | Consent of Ernst & Young LLP,
    independent auditors                                                                                                                           
|        | 24.1 |  |  |                        |  | Power of Attorney (See page 55)                                                                                                                                                  
|        | 31.1 |  |  |                        |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to Rule 13a-14(a) and
    Rule 15d-14(a) of the Securities Exchange Act, as amended            
|        | 32.1 |  |  |                        |  | Certification of Chief Executive Officer and
    Chief Financial Officer Pursuant to 18 U.S.C. 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002