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UNITED STATES





FORM 10-K

(Mark One)



| |  |                                                                                          
| |  | -----------------------------------------------------------------------------------------
| |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934    
|
| |  | For the fiscal year ended: December 31, 2000, OR                                         
|
| |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
|
| |  | For the transition period from
	               to                                        

Commission file number: 001-16033

ESPERION THERAPEUTICS, INC.

(Exact name of registrant as specified in its
charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|                        
|                        
|                        
|                        
|Delaware                 |  | 38-3419139                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

3621 South State Street

695 KMS Place


Ann Arbor, Michigan 48108


(734) 332-0506


(Address of principal executive offices,
including zip code, and telephone number, including area
code)


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

None 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.




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 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.

The aggregate market value of the
voting stock of the Registrant held by non-affiliates of the
Registrant as of March 15, 2001, computed by reference to
the Nasdaq closing price on such date, was approximately
$97,180,735.

The number of outstanding shares
of the Registrants common stock, as of March 15,
2001, was 25,956,237.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy
Statement for the 2001 Annual Meeting of Stockholders are
incorporated by reference into Part III and certain
documents are incorporated by reference into Part IV.



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TABLE OF CONTENTS



|                                                |  |  |  |  |  |  |  | 
|----------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                         
|INDEX TO FINANCIAL STATEMENTS                  
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS       
|CONSOLIDATED BALANCE SHEETS                    
|CONSOLIDATED STATEMENTS OF OPERATIONS          
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|CONSOLIDATED STATEMENTS OF CASH FLOWS          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|PART III                                       
|PART IV                                        
|SIGNATURES                                     
|INDEX TO EXHIBITS                              
|Third Amendment to Lease                       
|Lease Extension                                
|Amendment to License Agreement                 
|Subsidiaries                                   
|Consent of Arthur Andersen LLP                 



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ESPERION THERAPEUTICS, INC.

FORM 10-K

TABLE OF CONTENTS


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|Item  1.          |  | Business                                                                               |    |      | 1  | 
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|Item  2.          |  | Properties                                                                             |    |      | 16 | 
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|Item  3.          |  | Legal Proceedings                                                                      |    |      | 17 | 
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|Item  4.          |  | Submission of Matters to a Vote of Security Holders                                    |    |      | 17 | 
|                  |  | PART II                                                                                |    |      |    | 
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|Item  5.          |  | Market for Registrants Common Equity and Related
	Stockholder Matters                 |    |      | 18 | 
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|Item  6.          |  | Selected Consolidated Financial Data                                                   |    |      | 19 | 
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|Item  7.          |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |    |      | 20 | 
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|Item  7A.         |  | Quantitative and Qualitative Disclosures about Market Risk                             |    |      | 31 | 
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|Item  8.          |  | Financial Statements and Supplementary Data                                            |    |      | 32 | 
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|Item  9.          |  | Changes in and Disagreements with Accountants on Accounting and
	Financial
	Disclosure |    |      | 50 | 
|                  |  | PART III                                                                               |    |      |    | 
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|Item  10.         |  | Directors and Executive Officers of the Registrant                                     |    |      | 51 | 
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|Item  11.         |  | Executive Compensation                                                                 |    |      | 51 | 
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|Item  12.         |  | Security Ownership of Certain Beneficial Owners and Management                         |    |      | 51 | 
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|Item  13.         |  | Certain Relationships and Related Transactions                                         |    |      | 51 | 
|                  |  | PART IV                                                                                |    |      |    | 
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|Item  14.         |  | Exhibits, Financial Statement Schedules and Reports on
	Form  8-K                      |    |      | 52 | 
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|SIGNATURES        |  |                                                                                        | 55 |     
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|INDEX TO EXHIBITS |  |                                                                                        | 56 |     



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Forward-Looking Information is Subject to Risk and
Uncertainty

The information contained in this report includes
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are often identified
by words such as may, believe,
anticipate, planned, expect,
require, intend, assume and
similar expressions. Our forward-looking statements involve
uncertainties and other factors that may cause our actual
results, performance or achievements to be far different from
that suggested by our forward-looking statements. These factors
include, but are not limited to, risks associated with the
development of our product candidates, including regulatory
approval; dependence on clinical research organizations, license
arrangements and other strategic relationships with third
parties for the research, development, manufacturing and
commercialization of our products; dependence on patents and
proprietary rights; procurement, maintenance, enforcement and
defense of the Companys patents and proprietary rights;
risks related to manufacturing; risks associated with the timing
and acceptance of new products by the Company or its
competitors; competitive conditions in the industry; business
cycles affecting the markets in which the Companys
products are sold; extraordinary events, such as litigation;
risks inherent in seeking and consummating acquisitions,
including the diversion of management attention to the
assimilation of the operations and personnel of the acquired
business; risks relating to the timing of the Companys
financing needs; fluctuations in foreign exchange rates; and
economic conditions generally or in various geographic areas.
All of the foregoing factors are difficult to forecast. These
risks and uncertainties are discussed below in the section
entitled Item 7  Managements
Discussion and Analysis of Financial Condition and Results of
Operations. We do not intend to update any of these
factors or to publicly announce the results of any revisions to
any of these forward-looking statements.




PART I

Item 1.  Business

Overview

Esperion Therapeutics, Inc. is a biopharmaceutical company
dedicated to the discovery and development of products for the
treatment of cardiovascular and metabolic diseases. We began
operations in May 1998 and became a public company in August
2000 with the closing of our initial public offering.

We have focused our initial drug development and discovery
activities on a novel class of drugs to treat acute and chronic
cardiovascular diseases. We intend to commercialize a novel
class of drugs that focus on a new treatment approach we call
HDL Therapy, which is based upon our understanding
of high density lipoprotein, or HDL, function. Through HDL
Therapy we intend to exploit the beneficial properties of HDL in
cardiovascular and metabolic diseases with a portfolio of
product candidates. Currently, we are working on five product
candidates: LUV, AIM, RLT Peptide, ProApo A-1 and HDL
Elevators. Each of these product candidates, as explained in
detail under Our Products in Development, is
designed to enhance the naturally occurring processes in the
body that remove excess cholesterol from arterial walls. We
initiated clinical trials with two of our product candidates in
2000. We expect to initiate clinical testing on additional
product candidates and continue clinical testing of the initial
product candidates during 2001.

Our product development to date has used in vitro assays,
testing procedures performed outside the body, animal models
which we believe are appropriate at this stage of development
and, in several cases, human clinical testing. Preclinical
studies suggest that our product candidates may either increase
HDL-Cholesterol, or HDL-C, or its function and may enhance
removal of excess cholesterol and lipids from arteries.
Third-party published reports of preliminary human clinical
studies with respect to products that are similar to some of our
product candidates suggest that these compounds may increase
elimination of cholesterol from the body by enhancing the
efficiency of the reverse lipid transport, or RLT, pathway. We
believe that the therapies that we are developing could
potentially enhance the naturally occurring processes in the
body for the removal of excess cholesterol from arterial walls.

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We believe that our drug discovery technologies and scientific
and drug development expertise have potential applicability to a
broad range of cardiovascular and metabolic diseases, including
treatments for heart disease, diabetes and obesity.

We were incorporated in Delaware and commenced operations in May
1998. Our executive offices and research facility are located at
3621 South State Street, 695 KMS Place, Ann
Arbor, Michigan 48108, and our telephone number is
(734) 332-0506.

Background



| |        
| | -------
| | General

The cardiovascular system is comprised of the heart and blood
vessels, that deliver oxygen and other nutrients to the tissues
and organs of the body, such as the brain, kidneys and lungs,
and remove waste products. The heart propels blood through a
network of arteries and veins. The kidneys regulate the blood
volume, and the lungs put oxygen in the blood and remove carbon
dioxide. To accomplish these tasks, the cardiovascular system
must maintain adequate blood flow, which can be dramatically
reduced by the excessive deposit of a fat called
cholesterol in the arterial walls. Cholesterol is
essential for cells to function normally. Our bodies obtain
cholesterol both through the foods we eat and by manufacturing
cholesterol inside some of our cells and organs. Cholesterol
either remains within the cell or is transported by the blood to
various organs. The major carriers for cholesterol in the blood
are lipoproteins, which are particles composed of fat and
protein, including low density lipoprotein, or LDL, and high
density lipoprotein, or HDL. HDL removes excess cholesterol from
arteries and tissues to transport it back to the liver for
elimination.

The RLT pathway is a four step process responsible for removing
excess cholesterol from arteries and transporting it to the
liver for elimination from the body. The first step is the
removal of cholesterol from arteries by HDL in a process named
cholesterol removal. In the second step, cholesterol is
converted to a new form that is more tightly associated with HDL
as it is carried in the blood; this process is called
cholesterol conversion. The third step is the transport and
delivery of that converted cholesterol to the liver in a process
named cholesterol transport. The final step is the
transformation and discarding of cholesterol by the liver in a
process named cholesterol elimination. We believe our product
candidates have the potential to enhance the effectiveness of
these four steps in the RLT pathway in humans.

In a healthy human body, there is a balance between the delivery
and removal of cholesterol. Over time, however, there is often
an imbalance that occurs in our bodies in which there is too
much cholesterol delivery by LDL and too little removal by HDL.
When people have a high level of LDL Cholesterol, or LDL-C, and
low level of HDL-C, the imbalance results in more cholesterol
being deposited in the arterial walls than being removed. This
imbalance can also be exaggerated by, among other factors, age,
gender, high blood pressure, smoking, diabetes, obesity, genetic
factors, physical inactivity and consumption of a high-fat diet.
The excess cholesterol carried in the blood on LDL particles is
deposited throughout the body, but frequently ends up in the
lining of arteries, especially those found in the heart. As a
consequence, repeated deposits of cholesterol, called plaque,
form and can narrow or block the arteries, possibly leading to a
heart attack or stroke.



| |                       
| | ----------------------
| | Cardiovascular Disease

According to the American Heart Association, cardiovascular
disease is the largest killer of American men and women. In
2001, the direct and indirect annual cost of cardiovascular
disease is estimated to be $300 billion, of which
approximately $27 billion is spent annually on drug
therapy. The most prominent form of cardiovascular disease is
atherosclerosis, a systemic disease that includes the buildup of
plaque in artery walls limiting blood flow to the heart, brain,
other vital organs and extremities. Atherosclerosis can result
in heart attacks, chest pain, known as angina, and a variety of
other complications, and is responsible for over half of all
deaths from cardiovascular disease.

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| |                                            
| | -------------------------------------------
| | Importance of HDL in Cardiovascular Disease

Physicians recognize high LDL-C and low HDL-C levels as risk
factors for cardiovascular disease. In addition, high HDL-C
levels generally are associated with lower incidence of
cardiovascular disease. Clinical studies have suggested that:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Low levels of HDL-C are a risk factor for coronary heart
	disease. The first study suggesting that people with low
	HDL-C had increased risk of atherosclerotic cardiovascular
	disease was reported in 1951. Since that time, a number of
	studies have confirmed that low HDL-C levels are a risk factor
	for coronary heart disease.                                                                                                                                                      
|
| |  | Increasing HDL-C reduces risk of coronary heart disease.
	The Helsinki Heart Study, completed in 1987, suggested that
	increasing HDL-C levels reduced risk of coronary heart disease
	in individuals at risk due to low HDL-C, high LDL-C, and high
	triglycerides, another type of lipid.                                                                                                                                                                                                  
|
| |  | Increasing HDL-C levels reduces the risk of death from
	coronary artery disease, heart attack or stroke. The
	Veterans Affairs Cooperative Studies Program High Density
	Lipoprotein Cholesterol Intervention Trial, completed in 1999,
	suggested that men with coronary artery disease who took a lipid
	regulating drug for five years experienced on average a 6%
	increase in HDL-C, resulting in a 24% risk reduction in death
	due to coronary artery disease, heart attack or stroke.
|
| |  | Low levels of HDL-C translate to a low survival rate
	following coronary bypass surgery. A 20-year study completed
	in 1999 suggested that people with low HDL-C levels have a lower
	survival rate following coronary bypass surgery. This study
	suggests the importance of HDL-C in minimizing the necessity of
	post-operative treatments.                                                                                                                                               

In addition, published pre-clinical studies suggest other
protective properties of HDL, such as reducing inflammation in
arteries.

Current Treatments for Cardiovascular Disease

Treatments are either short-term solutions, termed
acute by physicians, or long-term solutions, termed
chronic. Acute treatments are reserved for more
life-threatening cardiovascular conditions, such as a heart
attack, a condition where there is a shortage of oxygen-rich
blood available to the heart. In contrast, chronic treatments
are used to prevent cardiovascular disease from growing worse
and having to resort to acute treatments. Acute treatments
usually involve costly invasive procedures, while chronic
treatments are usually in tablet or pill form.



| |                 
| | ----------------
| | Acute Treatments

Acute treatments are required when blood flow to the heart is
severely restricted and the patient is at immediate risk for
further complications. Two of the most common invasive
procedures used to restore blood flow are bypass surgery and
percutaneous coronary intervention (PCI) (i.e., balloon
angioplasty, with or without stents). In bypass surgery, a
cardiovascular surgeon redirects blood flow around the blocked
arteries by grafting a healthy vessel removed from another
location in the patient. In PCI, a thin flexible tube with an
inflatable balloon at its end is positioned in the artery at the
point of blockage. The balloon is then inflated and this pushes
aside the plaque that causes the blockage, resulting in a
reopening of the artery to allow greater blood flow. Frequently,
a cardiologist reinforces the newly opened artery with a
wire-mesh cylinder called a stent.

The primary benefit of successful acute treatments is the
immediate restoration of oxygen-rich blood flow to the heart.
However, the major drawbacks are:



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Restenosis, or reclosing of the artery, even after stenting,
	occurs in up to 40% of patients who have had PCI. This may
	require an additional procedure, often within six to twelve
	months.                  
|
| |  | These procedures are invasive to the patient and involve opening
	up the chest cavity to expose the heart, as in coronary bypass
	surgery, or inserting a thin flexible tube through a leg artery
	and advancing

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| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | it to the heart, as in PCI. Invasive procedures by their nature
	involve a risk of complications, including death. For example,
	up to 3.5% of coronary bypass patients die from post-operative
	complications.                                           
|
| |  | There is significant recovery time after coronary bypass surgery.                                                                                                                                                                                         
|
| |  | Many patients are not eligible for invasive surgical procedures
	due to their anatomy and physical condition.                                                                                                                                             
|
| |  | Atherosclerosis affects the entire cardiovascular system and
	since acute procedures are localized and treat only one segment
	of a diseased artery at a time, many diseased arteries are left
	untreated after using these localized invasive procedures.

In 1998, 553,000 coronary bypass surgeries were performed on
336,000 patients in the United States with an average cost of
about $45,000. Almost half of all patients that have a coronary
bypass require a repeat coronary bypass because the grafted
vessels become blocked again. In 1998, approximately 539,000 PCI
procedures were performed in the United States. The average cost
of a PCI is $20,000 and more when a stent is used. Up to 40% of
procedures result in reclosing of the diseased artery within the
first few months due to restenosis.



| |                   
| | ------------------
| | Chronic Treatments

The initial recommendation for a patient with elevated LDL-C, a
well-known risk factor, is frequently a change in lifestyle
involving exercise combined with a low-fat, low-cholesterol
diet. If a patients cholesterol level does not improve,
then a physician moves to the next step of treatment to achieve
acceptable levels of cholesterol in the blood.

Chronic treatments for cardiovascular disease have the goal of
preventing or limiting progression of the disease to reduce risk
of heart disease, disability or death. Physicians frequently
will prescribe a statin drug that lowers the level of LDL-C in
the blood by inhibiting cholesterol production in the body.
These drugs can also lower triglycerides, a type of lipid, and
have the ability to slightly raise HDL-C. Recent studies have
shown that the statins reduce the risk of illness and death from
cardiovascular disease by approximately 30%. It usually takes at
least two years, if at all, for the drugs to have an effect on
death rates. These drugs reduce the rate of progression of the
disease in a majority of patients. However, statins have not
been consistent in demonstrating regression of atherosclerotic
disease.

Our Strategy

We are taking a product-focused approach towards drug
development. The key elements of our business strategy are as
follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Develop several different drug candidates for HDL
	Therapy. Based on our understanding of the RLT pathway, we
	have identified a portfolio of several product candidates that
	we believe could provide a broad spectrum of treatment options
	for cardiovascular and metabolic diseases. These product
	candidates are focused on improving HDL function in the RLT
	pathway and the removal of excess cholesterol from arteries.                                                                                                                                                             
|
| |  | Leverage experienced scientific and drug development
	expertise. We are managed by an experienced group of drug
	developers with significant expertise in cardiovascular research
	and drug development. Roger  S. Newton, Ph.D.,
	President and Chief Executive Officer of Esperion, was the
	co-discoverer and chairman of the discovery team and a member of
	the development team of Atorvastatin (Lipitor®). Sales of
	Lipitor exceeded $5.0 billion in 2000. In addition, we have
	discovered HDL elevators and have successfully recruited the
	inventors of two of our drug candidates.
|
| |  | Optimize clinical and regulatory strategies to shorten time
	to market.We believe that by initially focusing on acute
	treatments, we can achieve an abbreviated development time, and
	faster time to market, which will benefit patients with
	cardiovascular disease. We intend to perform clinical trials to
	rapidly assess efficacy for well-defined cardiovascular
	endpoints in the treatment of acute coronary events.                                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Retain significant marketing rights to our product
	candidates. Our goal is to retain marketing rights to our
	product candidates for as long as it is commercially
	advantageous. By completing as much of the preclinical and
	clinical development work by ourselves as is feasible, we hope
	to be able to negotiate more favorable terms for any such
	marketing arrangements.

We anticipate that our most significant expenditures will be for
further clinical development of our product candidates, payments
under current licensing agreements, ongoing research and
development activities, the manufacture of preclinical and
clinical material, and general corporate and working capital
purposes.

Our Products in Development

Our initial product development efforts are focused on
developing a novel class of drugs designed to treat both acute
and chronic atherosclerotic disease using HDL Therapy. Our
product candidates are designed to enhance HDL function and the
four steps of the RLT pathway. Our product development to date
has used in vitro assays, testing procedures performed
outside the body, animal models which we believe are appropriate
at this stage of development and, in several cases, human
clinical testing. We initiated human clinical trials with two of
our product candidates in 2000. We expect to initiate clinical
testing on additional product candidates and continue clinical
testing of the initial product candidates during 2001. Our human
clinical trials may not commence or proceed as anticipated and
we may not be able to demonstrate the same levels of safety,
efficacy or other results in clinical trials that have been
suggested in our preclinical trials or in studies of third
parties with products similar to ours.



| |              
| | -------------
| | LUV (ETC-588)

We are developing large unilamellar vesicles, or LUV, as an
acute treatment for ischemia, or reduced blood flow to the
heart, caused by atherosclerosis. LUV are spherical particles
made of naturally occurring lipids that can remove cholesterol
from cells, including those in the arterial wall. LUV can cycle
back through arteries several times to remove more cholesterol.
We believe that this process will allow the body to
significantly increase the amount of cholesterol it is able to
remove and improve cardiovascular health and function. We
believe that LUV have a high capacity to transport cholesterol,
the third step in the RLT pathway, and deliver it to the liver
for elimination from the body.

Two preclinical animal studies were published involving the
administration of LUV. They showed the removal of cholesterol
from arteries and the regression of atherosclerosis, thereby
helping arteries regain their flexibility and function. The
material used in these studies was similar to the LUV that we
are developing. No adverse effects were reported in these
studies of LUV. None of the studies were conducted by us or on
our behalf.

Phase I single and multiple dose tolerance studies in healthy
volunteers were completed in 2000. Analysis of data from those
studies suggest a dose-dependent cholesterol mobilization. The
Phase II clinical program in progress is designed to
evaluate multiple dose safety, tolerability and frequency of
treatment in patients with known atherosclerosis. Additional
efficacy endpoints may also be studied, including the evaluation
of blood vessel function and size. The initial Phase II
study began in December 2000 and data are expected to be
available before the end of 2001.



| |              
| | -------------
| | AIM (ETC-216)

We are developing apolipoprotein A-I Milano, or AIM, for the
treatment of acute coronary diseases caused by atherosclerosis.
AIM is a variant form of ApoA-I, the major protein component of
HDL, and is present in a small fraction of the population with
low HDL-C levels. Low HDL-C levels normally would correlate with
high risk for cardiovascular disease. However, those people with
the AIM variant tend to show a lower risk of cardiovascular
disease. We initiated a Phase I clinical trial in Europe in
the fourth quarter of 2000 and completed the trial in the first
quarter of 2001. We released results from that study at the end
of the first quarter of 2001. We intend to initiate a multiple
dose tolerance study in patients in the United States in the
second half of 2001.

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We believe infusion of AIM in humans will enhance the RLT
pathway. Published reports in 1998 and 1999 have shown that in
animal models, AIM reduced atherosclerotic lesions and prevented
inflammation and clotting. A 1999 report of in vitro tests
showed that AIM increased cholesterol removal. An additional
preclinical report in 2001 demonstrated regression of
atherosclerotic lesions in 48 hours. Also, published
reports in 1994 and 1995 showed that AIM inhibited restenosis
following balloon angioplasty in two animal models. No adverse
effects were reported in any of the preclinical animal studies.
The material used in these studies is similar to the AIM that we
are currently developing. Additionally, none of these studies
noted were conducted for us or on our behalf.

We acquired exclusive worldwide rights for AIM from Pharmacia in
July 1998. Under this license agreement, at the completion of
Phase II clinical trials, Pharmacia has the exclusive right
of election to co-develop and the exclusive right to market AIM
in countries outside of the United States and Canada. In
addition, if we pursue a co-development and co-promotion
arrangement in the United States and Canada, Pharmacia has the
right of first negotiation.



| |                      
| | ---------------------
| | RLT Peptide (ETC-642)

We are developing RLT Peptide for the treatment of acute
coronary diseases caused by atherosclerosis. Our preclinical
studies have shown that our RLT Peptide enhances various steps
of the RLT pathway.

The patent applications that we filed in 1997 for our RLT
Peptide describe experiments of the compound in human blood
samples. These experiments showed that the RLT Peptide interacts
with and activates important enzymes in the RLT pathway
including the stimulation of cholesterol removal. The results of
a preclinical animal model study described in the patents showed
that the administration of an RLT peptide increased HDL-C levels
in the blood. The RLT peptide used in this study is similar to
the RLT Peptide that we are developing. No adverse effects were
reported in this study. This study was not conducted for us or
on our behalf. In addition, preclinical studies demonstrated
that administration of RLT Peptide may enhance cholesterol
mobilization in several animal models.

Our goal is to establish in human clinical trials that
intravenous infusions of our RLT Peptide are safe and can remove
cholesterol from arteries, thus increasing blood flow and
reducing the death and disability associated with
atherosclerosis. We intend to initiate a single dose tolerance
study in patients with our RLT Peptide in the middle of 2001.



| |                    
| | -------------------
| | ProApoA-I (ETC-276)

We are developing ProapolipoproteinA-I, or ProApoA-I, for the
treatment of acute coronary diseases caused by atherosclerosis.
ProApoA-I is a naturally occurring protein found in all humans
that forms particles with lipids similar to natural HDL.

In the blood, ProApoA-I is converted to ApoA-I which is
responsible for all four steps of the RLT pathway. A 1995
published report of in vitro tests showed that ProApoA-I
had properties important for the removal of cholesterol from
cells. Results from animal studies in several species
demonstrated that ProApo-I activated the RLT pathway.
Third-party published reports showed that when ProApoA-I was
infused into people with high cholesterol levels they showed
increased elimination of cholesterol from the body by enhancing
the RLT pathway. No adverse effects were reported in any of
these studies. The material used in these studies is similar to
the ProApoA-I that we are currently developing. None of the
studies noted were conducted for us or on our behalf.

Our goal is to show that intravenous infusions of ProApoA-I can
help remove cholesterol from arteries, thus increasing blood
flow and reducing the symptoms associated with atherosclerosis.
The Company is evaluating various strategies related to the
production of ProApoA-I in order to meet regulatory requirements
for beginning clinical trials. If the Company is able to meet
the qualitative and quantitative requirements, a Phase II
trial may begin before the end of 2001.

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| |              
| | -------------
| | HDL Elevators

We are developing orally active, small molecule drugs designed
to increase HDL-C levels and/or enhance their function to
stimulate the RLT pathway. We have implemented several
strategies to develop these drugs based on well-known mechanisms
by which HDL is produced in the body. One strategy has yielded
several classes of active molecules.

Our preclinical studies demonstrated that several classes of
molecules may elevate HDL-C in animal models. These molecules
can also control lipid production and digestion in cells from
rats, rabbits, hamsters and humans, and inhibit the progression
of atherosclerosis in an animal model. We believe that these
classes of molecules also possess anti-diabetic and anti-obesity
properties. Our goal is to establish in human clinical trials
that orally administered small molecules are a safe, chronic
treatment to enhance the RLT pathway while simultaneously
treating conditions affecting the diabetic or obese patient.
Upon completion of certain pre-clinical and toxicology studies,
the Company intends to begin clinical testing on one or more of
the small molecules under development. The first small molecule
is expected to enter a Phase I clinical trial in 2002.

Research and Development

We have devoted substantially all of our resources since we
began our operations in May 1998 to the research and development
of pharmaceutical product candidates for cardiovascular and
metabolic diseases. Our research and development expenses were
$21.8 million, $8.5 million and $1.9 million in 2000,
1999 and 1998, respectively. Some of those expenses funded
research to study the potential connection between the presence
of low HDL-C levels and the incidence of metabolic disorders
such as diabetes and obesity. While all of our current product
candidates are for the treatment of cardiovascular disease, we
also intend to discover and develop product candidates for the
treatment of metabolic disorders such as diabetes and obesity.

We have implemented strategies in research and development which
we believe will generate a pipeline of new drugs for the
treatment of cardiovascular and metabolic diseases including
lipid disorders, diabetes, obesity, and related complications.
These strategies include an intensive effort to identify both
orally active small molecules and novel biopharmaceuticals.

Small molecule discovery efforts focused on lipid disorders, are
aimed to identify drugs that increase HDL-C levels and/or
enhance their function to stimulate the RLT pathway. HDL or its
lipid and protein components are synthesized and replenished via
three pathways in the body:



| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | digestion of triglycerides in triglyceride - rich lipoproteins;                                                                                                                                                                                        
|
| |  | synthesis of apolipoprotein A-I;                                                                                                                                                                                                                       
|
| |  | effluxing of cell-derived cholesterol into pre-existing HDL. We
	have implemented approaches to identify drugs that stimulate
	these pathways, which we believe will result in the synthesis of
	more HDL or the rapid replenishment of HDL components.

Small molecule discovery efforts focused on diabetes and obesity
are aimed to improve the insulin sensitivity of resistant
tissues and to enhance the breakdown of fat from adipose tissue,
the storage site for fat. We believe that some pathways involved
in HDL synthesis and replenishment intersect with pathways
affecting insulin resistance and the breakdown of fat. We
believe that identifying those points of intersection will
accomplish two goals:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | accelerating our discovery process by helping us refine new
	chemical structures;                                           
|
| |  | providing novel, validated molecular targets for in-house drug
	discovery efforts and/or assets for industry collaborations.

To identify those points of intersection, we intend to
capitalize on our knowledge of chemistry, drug action, and
biological models by integrating that knowledge with genomics
tools and techniques. We believe our product candidates and
active small molecules provide a proprietary platform, which
will help us to improve our prediction of clinical success with
drug candidates.

7



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Clinical Testing

We do not have the ability to independently conduct all aspects
of our clinical studies and obtain regulatory approvals for our
product candidates. We rely on third-party contract research
organizations, or CROs, to perform many of these functions.

Marketing and Sales

We currently have no sales or distribution capabilities. In
order to successfully commercialize any of our product
candidates, we must either internally develop full sales,
marketing and distribution capabilities or make arrangements
with third parties to perform these services. We intend to sell,
market and distribute some products directly and rely on
relationships with third parties to sell, market and distribute
other products. To market any of our products directly, we must
develop a marketing and sales force with technical expertise and
with supporting distribution capabilities. During 2000, we hired
a marketing director to develop commercialization strategies for
our products.

Our licensors have granted us exclusive rights to market our
product candidates except for AIM. We acquired exclusive
worldwide rights for AIM from Pharmacia in July 1998. Under this
agreement, at the completion of Phase II clinical trials,
Pharmacia has the exclusive right of election to co-develop and
the exclusive right to market AIM in countries outside of the
United States and Canada. In addition, if we pursue a
co-development and co-promotion arrangement in the United States
and Canada, Pharmacia has the right of first negotiation.

In the United States, we do not intend to enter into
co-promotion arrangements or out-license our product candidates
until our product candidates are in the later stages of
development, but we may promote our product candidates through
marketing relationships with one or more companies that have
established distribution systems and direct sales forces. In
international markets, we intend initially to seek strategic
relationships to market, sell and distribute our product
candidates, but we may eventually become involved in direct
sales and marketing activities internationally.

Manufacturing



| |                                   
| | ----------------------------------
| | Manufacturing and Materials Supply

We currently rely, and will continue to rely for at least the
next few years on contract manufacturers to produce sufficient
quantities of our product candidates for use in our preclinical
and clinical trials. We also rely, and intend to continue to
rely on third parties to provide the components of these product
candidates, such as proteins, peptides, phospholipids and bulk
chemical materials.

There is currently a limited supply of some of these components.
Furthermore, the contract manufacturers that we have identified
to date only have limited experience at manufacturing,
formulating, analyzing, and filling and finishing our product
candidates in quantities sufficient for conducting clinical
trials or for commercialization.

The process for manufacturing proteins and formulating them into
protein lipid complexes is complicated. We have no experience in
commercial-scale manufacture of LUV, ProApoA-I, AIM, RLT Peptide
and HDL Elevators. Our product candidates will need to be
manufactured in facilities and using processes that comply with
current Good Manufacturing Practices, or cGMP, and current Good
Laboratory Practices, or cGLP, requirements and other similar
regulations, including those from outside the United States. It
takes a substantial period of time to produce proteins,
peptides, phospholipids and HDL Elevators in compliance with
such regulations. If we are unable to establish and maintain
relationships with third parties for manufacturing sufficient
quantities of our product candidates and their components that
meet our planned time and cost parameters, the development and
timing of our clinical trials may be adversely affected.

8



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Intellectual Property and License Agreements

Our ability to protect and use our intellectual property rights
in the development and commercialization of our product
candidates is crucial to our continued success. We will be able
to protect our proprietary rights from unauthorized use by third
parties only to the extent that our proprietary rights are
covered by valid and enforceable patents or are effectively
maintained as trade secrets, or other proprietary information or
know how. We currently rely on a combination of patents and
pending patent applications, some of which we license and some
of which have been assigned to us, proprietary information,
trade secrets and know how to protect our interests in
developing and commercializing our product candidates and
technologies.

In connection with the license agreements described below, we
may be obligated to make various milestone and future royalty
payments as defined in the agreements, up to an aggregate amount
of $29.2 million. At the present time, it is uncertain as
to whether we will be required to make these additional payments.



| |    
| | ---
| | LUV

In March 1999, we exclusively licensed certain LUV technology
from Inex Pharmaceuticals Corp., or Inex, on a worldwide basis.
Inex owns granted patents in 13 European countries covering
the LUV technology and exclusively licenses, from the University
of British Columbia, one issued U.S. patent and two pending
U.S. patent applications. The European patents claim
methods for treatment of atherosclerosis using liposomes. The
U.S. patent and patent applications claim liposome
structure and chemical makeup and methods for treatment of
disease, including atherosclerosis. The U.S. patent expires no
earlier than 2014. The European patents expire in 2011.

We paid Inex $250,000 at the time we entered into the license
agreement with Inex for LUV in March 1999. Our license agreement
with Inex, as amended, requires us to make payments to Inex as
milestones are achieved, and to pay Inex royalties on sales of
products that are covered by the licensed patents or developed
using the licensed technology. The first milestone payment of
$100,000 will be paid to Inex in the first quarter of 2001,
based upon enrollment of our first patient in a Phase II
clinical trial. Additional milestone payments will be paid to
Inex if and when we achieve future development milestones as
defined in the agreement, up to an aggregate amount of
$6.2 million. This license continues until the later of ten
years from the first commercial sale of a product covered by
this license or the last expiration date of any patent rights
covered by this license, unless earlier terminated by a party in
accordance with the terms of the license.

In September 2000, we entered into a merger agreement with
Talaria Therapeutics, Inc., or Talaria, through which we
acquired additional LUV technology, including seven U.S.
patents, eleven pending U.S. patent applications and
corresponding foreign pending patent applications claiming
methods and compositions for use in treating atherosclerosis and
other related disorders and angina. The issued U.S. patents
expire in 2016. Under our license agreement with Inex, as
amended, we are also required to pay Inex royalties on sales of
products that are covered by this LUV technology.

Our merger agreement with Talaria required us to issue
813,013 shares of common stock to Talaria stockholders and
requires us to pay: (i) up to $6.3 million in cash
and/or common stock based on the achievement of four future
development milestones; and (ii) royalties in cash and/or
common stock based on net annual sales of LUV in North America.
The first milestone was achieved in the first quarter of 2001,
upon the enrollment of our first patient in a Phase II
clinical trial. This milestone will be paid in 2001 through the
issuance of approximately 58,600 shares of common stock.



| |    
| | ---
| | AIM

In June 1998, we acquired exclusive, worldwide rights to AIM
from Pharmacia Corporation, subject to Pharmacias
exclusive right to co-develop and market AIM in countries other
than the United States and Canada. Under our license agreement
with Pharmacia, subject to Pharmacias exclusive right to
co-develop and market AIM in countries other than the United
States and Canada, we acquired four U.S. patents and four
pending U.S. patent applications, and other related foreign
patents and patent applications covering

9



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We paid Pharmacia $750,000 at the time we entered into our
license agreement in June 1998. Our license agreement with
Pharmacia requires us to make payments to Pharmacia as
milestones are achieved, and to pay Pharmacia royalties on sales
of products that are covered by the Pharmacia patents or
developed using the Pharmacia technology. The first milestone
payment of $1.0 million will be paid in cash or by issuance
of a promissory note to Pharmacia if and when we have completed
clinical trials showing preliminary safety and initial
proof-of-concept (which may include early Phase IIa
studies). We believe that this would mean clinical trials that
show statistically significant results in safety and efficacy,
allowing us to better define the details of any potential
Phase III pivotal trials.

If Pharmacia exercises its exclusive right to co-develop and
market AIM in countries other than the United States and Canada,
we will make additional milestone payments, up to an aggregate
of $2.5 million, to Pharmacia. If Pharmacia does not
exercise its right to co-develop and market AIM in countries
other than the United States and Canada, we will make additional
milestone payments, up to an aggregate of $13.5 million, to
Pharmacia starting if and when we enroll the first patient in
the first Phase III clinical trial for AIM in the United
States. Instead of paying milestones in cash, if the milestone
payments are greater than 10% of our cash reserves at the time
of payment, we may instead make these payments by issuing to
Pharmacia a promissory note.

Under this license agreement, at the completion of Phase II
clinical trials, Pharmacia has the exclusive right of election
to co-develop and the exclusive right to market AIM in countries
outside of the United States and Canada. In addition, if we
pursue a co-development and co-promotion arrangement in the
United States and Canada with a third party, Pharmacia has the
right of first negotiations to co-develop and co-promote in the
United States and Canada. This license expires on the latter of
2018 or upon the last of the Pharmacia patents to expire, unless
terminated earlier by a party in accordance with the terms of
the license.



| |            
| | -----------
| | RLT Peptide

Under the agreement entered into in September 1999, we
exclusively licensed from a group of inventors the RLT Peptide
technology, including four issued U.S. patents and eleven
pending U.S. and corresponding foreign, pending patent
applications. The RLT Peptide technology relates to peptides and
proteins that have activity equal to or greater than, ApoA-I.
The issued U.S. patents expire in 2017 and are directed to
peptides having ApoA-I activity or pharmaceutical compositions.
The pending patent applications are directed to peptides, drug
forms containing the peptides, methods of using the peptides,
pharmaceutical dosage forms of the peptides, and methods for
preparing the dosage forms.

We paid the inventors of our RLT Peptide an initial license fee
of $50,000 in January 2000. Our license agreement with the
inventors requires us to make payments to them as milestones are
achieved, and to pay them royalties on sales of products that
are covered by the inventors patents or developed using
the inventors technology. The first milestone payment of
$50,000 will be paid to the inventors in 2001. Additional
milestone payments, up to an aggregate of $2.1 million,
will be paid to the inventors if and when we achieve future
development milestones as defined in the agreement with the
inventors. This license continues until ten years from the date
of license execution or the last to expire of any of the
inventors patents, unless terminated earlier by a party in
accordance with the terms of the license.



| |          
| | ---------
| | ProApoA-I

In February 2000, we entered into a license agreement with
Region Wallonne to obtain exclusive, worldwide rights to its
patents, proprietary information and know-how concerning a
precursor protein known as proapolipoprotein A-I, or ProApoA-I.
We have an exclusive license to a United States patent relating
to a

10



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We paid Region Wallonne $25,000 at the time we entered into this
license agreement. We are further obligated to pay Region
Wallonne royalties on sales of products that are covered by its
patents. As part of this license, we have also agreed to
purchase supplies of ProApoA-I from a manufacturer in, and to
enter into a research collaboration with investigators in,
Region Wallonne.



| |              
| | -------------
| | HDL Elevators

We are also in the process of researching and developing small
organic molecules that increase HDL-C levels and also molecules
that possess anti-diabetic and anti-obesity properties. We have
filed eight United States patent applications and one
international application directed to classes of compounds
having this activity, the use of these compounds and
compositions containing these compounds and related to their
preparation. We are also pursuing, and will continue to pursue,
patent protection for other classes of compounds having this
activity, which have been or will be identified in our
laboratories.

Government Regulation

The U.S. Food and Drug Administration, or FDA, and
comparable regulatory agencies in state and local jurisdictions
and in countries outside of the United States impose substantial
requirements on the preclinical and clinical development,
manufacture and marketing of pharmaceutical product candidates.
These agencies and other federal, state and local governmental
entities regulate research and development activities and the
testing, manufacture, quality control, safety, effectiveness,
labeling, storage, record-keeping, approval and promotion of our
product candidates. All of our product candidates will require
regulatory approval before commercialization. In particular,
therapeutic product candidates for human use are subject to
rigorous preclinical and clinical testing and other requirements
of the Federal Food, Drug, and Cosmetic Act, or FDC Act,
implemented by the FDA, as well as similar statutory and
regulatory requirements of countries outside the United States.
Obtaining these marketing approvals and subsequently complying
with ongoing statutory and regulatory requirements is costly and
time-consuming. Any failure by us or our collaborators,
licensors or licensees to obtain, or any delay in obtaining
regulatory approvals or in complying with other requirements
could adversely affect the commercialization of product
candidates and our ability to receive product or royalty
revenues.

The steps required before a new drug product candidate may be
distributed commercially in the U.S. generally include:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | conducting appropriate preclinical laboratory evaluations of the
	product candidates chemistry, formulation and stability,
	and preclinical studies to assess the potential safety and
	efficacy of the product candidate;         
|
| |  | submitting the results of these evaluations and tests to the
	FDA, along with manufacturing information and analytical data,
	in an Investigational New Drug application, or IND;                                                   
|
| |  | initiating clinical trials under the IND after the resolution of
	any safety or regulatory concerns of the FDA;                                                                                                                     
|
| |  | obtaining approval of Institutional Review Boards, or IRBs, to
	introduce the drug into humans in clinical studies;                                                                                                                 
|
| |  | conducting adequate and well-controlled human clinical trials
	that establish the safety and efficacy of the product candidate
	for the intended use, typically in the following three
	sequential, or slightly overlapping, stages:



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Phase I: The product candidate is initially
	introduced into healthy human subjects or patients and tested
	for safety, dose tolerance, absorption, metabolism, distribution
	and excretion;

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| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Phase II: The product candidate is studied in
	patients to identify possible adverse effects and safety risks,
	to determine dosage tolerance and the optimal dosage, and to
	collect efficacy data; and                                        
|
| | Phase III: The product candidate is studied in an
	expanded patient population at multiple clinical study sites, to
	confirm efficacy and safety at the optimized dose, by measuring
	a primary endpoint established at the outset of the study;



| |   |                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | submitting the results of preliminary research, preclinical
	studies, and clinical trials as well as chemistry, manufacturing
	and control information on the product candidate to the FDA in a
	New Drug Application, or NDA or Biologics Licensing Application
	BLA;  and
|
| |  | obtaining FDA approval of the NDA or BLA and final product
	labeling prior to any commercial sale or shipment of the product
	candidate.                                                                                                                                     

Each NDA or BLA must be accompanied by a user fee, pursuant to
the requirements of the Prescription Drug User Fee Act
(PDUFA) and its amendments. According to the FDA, in 2001
the user fee for an application requiring clinical data, such as
a full NDA or BLA, is $309,647. The FDA adjusts the PDUFA user
fees on an annual basis. PDUFA is up for reauthorization and
will sunset on October 1, 2002, unless reauthorized by
Congress.

This process can take a number of years and requires substantial
financial resources. There are no assurances that NDAs or BLAs
for the product candidates will be approved. The results of
preclinical studies and initial clinical trials are not
necessarily predictive of the results of these specific
formulations or the results of large-scale clinical trials, and
clinical trials may be subject to additional costs, delays or
modifications due to a number of factors, including the
difficulty in obtaining enough patients, clinical investigators,
product candidate supply, or financial support. The FDA may also
require testing and surveillance programs to monitor the effect
of approved product candidates that have been commercialized,
and the FDA has the power to prevent or limit further marketing
of a product candidate based on the results of these
post-marketing programs. Upon approval, a product candidate may
be marketed only in those dosage forms and for those indications
approved in the NDA or BLA. However, drug marketers in some
limited circumstances may be permitted to distribute published
peer-reviewed scientific materials to physicians concerning
indications outside of the FDA labeling for approved products.

In addition to obtaining FDA approval for each product
candidate, the manufacturing establishments for each product
must register with the FDA, list products with the FDA, comply
with the applicable FDA cGMP regulations and permit and pass
manufacturing plant inspections by the FDA. Moreover, the
submission of applications for approval may be delayed because
of the need for additional time to complete the required
manufacturing stability studies. Companies from outside the
United States that manufacture products for distribution in the
United States also must list their products with the FDA and
comply with cGMPs. They are also subject to periodic inspection
by the FDA or by local authorities under agreement with the FDA.

Under the FDC Act and related statutes, developers of new drugs
are afforded certain limited protections against competition
from generic drug companies. Under the 1984 Drug Price
Competition and Patent Term Restoration Act, drug companies can
have certain product patents extended to counter balance, in
part, the duration of the FDAs review of their marketing
applications. This Act also provides for marketing exclusivity
(i.e., protection from generic competition regardless of
any available patent protection) for products for which clinical
investigations are necessary to support FDA approval of a
marketing application. Also, the FDA Modernization Act of
1997 permits under certain circumstances, an additional six
months of marketing exclusivity (pediatric
exclusivity) if the applicant files reports of
investigations studying use of the drugs in the pediatric
population. The pediatric exclusivity provisions is scheduled to
sunset on January 1, 2001 and there are no assurances that
it will be reauthorized.

Any product candidates that we manufacture or distribute
pursuant to FDA approvals are subject to extensive continuing
regulation by the FDA, including record-keeping requirements and
reporting adverse experiences with the product candidate. In
addition to continued compliance with standard regulatory
requirements, the FDA may also require further studies,
including post-marketing studies and surveillance to

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The FDC Act also mandates that product candidates be
manufactured consistent with cGMPs. In complying with the
FDAs regulations on cGMPs, manufacturers must continue to
spend time, money and effort in production, recordkeeping,
quality control, and auditing to ensure that the marketed
product candidate meets applicable specifications and other
requirements. The FDA periodically inspects manufacturing
facilities to ensure compliance with cGMPs. Failure to comply
subjects the manufacturer to possible FDA action, such as
warning letters, suspension of manufacturing, seizure of the
product, voluntary recall of a product or injunctive action, as
well as possible civil penalties. We currently rely on, and
intend to continue to rely on, third parties to manufacture our
compounds and product candidates. These third parties are
required to comply with cGMPs.

Many of our current third-party manufacturers are located
outside of the U.S., resulting in the possibility of
difficulties in importing our product candidates and/or their
components into the U.S., as a result of, among other things,
FDA import inspections, incomplete or inaccurate import
documentations, or defective packaging.

Products manufactured in the U.S. for distribution abroad
will be subject to FDA regulations regarding export, as well as
to the requirements of the country to which they are shipped.
These latter requirements are likely to cover the conduct of
clinical trials, the submission of marketing applications, and
all aspects of manufacturing and marketing. Such requirements
can vary significantly from country to country. As part of our
strategic relationships, our collaborators may be responsible
for the foreign regulatory approval process for our product
candidates, although we may be legally liable for noncompliance.

We are also subject to various federal, state and local laws,
rules, regulations and policies relating to safe working
conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of
hazardous or potentially hazardous substances used in connection
with our research work. Although we believe that our safety
procedures for handling and disposing of such materials comply
with current federal, state and local laws, rules, regulations
and policies, the risk of accidental injury or contamination
from these materials cannot be entirely eliminated.

The extent of government regulation that might result from
future legislation or administrative action cannot be accurately
predicted. In this regard, although the FDA Modernization Act of
1997 modified and created requirements and standards under the
FDC Act with the intent of facilitating product candidate
development and marketing, the FDA is still in the process of
developing regulations implementing the FDA Modernization Act of
1997. Consequently, the actual effect of these developments on
our business is uncertain and unpredictable.

Competition

The pharmaceutical and biopharmaceutical industries are
intensely competitive and are characterized by rapid and
significant technological progress. Our competitors include
large integrated pharmaceutical companies, biotechnology
companies, universities and public and private research
institutions which currently engage in, have engaged in or may
engage in efforts related to the discovery and development of
new pharmaceuticals and biopharmaceuticals, some of which may be
competitive. Almost all of these entities have substantially
greater research and development capabilities and financial,
scientific, manufacturing, marketing and sales resources than we
do, as well as more experience in research and development,
clinical trials, regulatory matters, manufacturing, marketing
and sales.

We are aware of companies that are developing invasive
procedures for the acute treatment of cardiovascular disease,
such as atherosclerosis, that may compete with our own acute
treatments. In addition,

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We are also aware of companies that are developing products for
the chronic treatment of cardiovascular or metabolic diseases
that may compete with our own HDL elevators. For example,
several other companies have HDL elevators under development,
which could compete with our HDL elevators. Other companies with
substantially greater research and development resources may
attempt to develop products that are competitive with our
product candidates or seek approval for drugs in later stages of
development that have similar effects as our product candidates.

If regulatory approvals are received, our products may compete
with several classes of existing drugs for the treatment of
atherosclerosis, some of which are available in generic form.
For example, drugs available for the treatment of
atherosclerosis include fibrates, statins, niacin, all of which
are available in pill or tablet, as opposed to the intravenous
administration method we intend to use for most of our product
candidates. There are also surgical treatments such as coronary
bypass surgery and PCI that may be competitive with our
products. However, for those patients who do not respond
adequately to existing therapies and remain symptomatic despite
treatment with existing drugs and who are not candidates for
these surgical procedures, there is no currently effective
treatment.

Our products are still under development, and it is not possible
to predict our relative competitive position in the future.
However, we think that the principal competitive factors in the
markets for LUV, AIM, the RLT Peptide, ProApoA-I and HDL
elevators are the following:



| |   |                                                           
| | - | ----------------------------------------------------------
| |  | safety and efficacy profile;                              
|
| |  | product price;                                            
|
| |  | ease of administration;                                   
|
| |  | duration of treatment;                                    
|
| |  | product supply;                                           
|
| |  | enforceability of patent and other proprietary rights; and
|
| |  | marketing and sales capability.                           

Our competitors also compete with us to:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | attract qualified personnel;                                                                      
|
| |  | attract parties for acquisitions, joint ventures or other
	collaborations;                        
|
| |  | license the proprietary technology that is competitive with the
	technology we are practicing; and
|
| |  | attract funding.                                                                                  

Employees

As of December 31, 2000, we had 58 employees. Of these
employees, 44 were engaged in research, preclinical and clinical
development, regulatory affairs, intellectual property
activities, and/or manufacturing activities and 14 were engaged
in finance and general administrative activities.

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Executive Officers

The following table presents information about our executive
officers.

|                             |  |     |    |          |  |                                                            
|---------------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------
|Name                         |  | Age |    | Position
|                             |  |     |    |         
|Roger S. Newton, Ph.D.       |  |     | 50 |          |  | President, Chief Executive Officer                         
|                            
|                            
|                            
|                            
|Timothy M. Mayleben          |  |     | 40 |          |  | Vice President, Finance and Chief Financial Officer        
|                            
|                            
|                            
|                            
|Daniel L. Hartman, M.D.      |  |     | 39 |          |  | Vice President, Worldwide Clinical Research and Development
|                            
|                            
|                            
|                            
|Charles L. Bisgaier, Ph.D.   |  |     | 47 |          |  | Vice President, Pharmacology                               
|                            
|                            
|                            
|                            
|Jean-Louis H. Dasseux, Ph.D. |  |     | 42 |          |  | Vice President, Worldwide Chemistry and Technologies       
|                            
|                            
|                            
|                            
|Michael E. Pape, Ph.D.       |  |     | 39 |          |  | Senior Director, Cellular and Molecular Biology            
|                            
|                            
|                            
|                            
|Frank E. Thomas              |  |     | 31 |          |  | Director of Finance, Controller                            

Dr. Newton has served as our President and Chief
Executive Officer and as a director of Esperion since July 1998.
From August 1981 until May 1998, Dr. Newton was employed at
Parke-Davis Pharmaceutical Research, Warner-Lambert Company, as
a Distinguished Research Fellow in Vascular and Cardiac Diseases
where he was the co-discoverer of Lipitor and chairman of the
Lipitor discovery team and a member of the development team.
Dr. Newton received an A.B. in Biology from Lafayette
College, an M.S. in Nutritional Biochemistry from the University
of Connecticut and a Ph.D. in Nutrition from the University of
California, Davis. He also specialized in atherosclerosis
research during a post-doctoral fellowship at the University of
California, San Diego. He currently holds a faculty
appointment in the Department of Pharmacology at the University
of Michigan Medical School.

Mr. Mayleben has served as our Vice President,
Finance and Chief Financial Officer since January 1999.
Mr. Mayleben has more than 15 years experience working
with high-growth technology companies. Prior to joining
Esperion, Mr. Mayleben served as a Director of Business
Development for Engineering Animation, Inc., a
publicly-held company, from September 1999 to December 1999.
From July 1997 to September 1999, Mr. Mayleben served as
Chief Operating Officer and Chief Financial Officer of Transom
Technologies, Inc., a privately-held company that was
acquired by Engineering Animation, Inc. From November 1994
to July 1997, Mr. Mayleben served as Director of Operations
of Applied Intelligent Systems, Inc., a privately-held
company. Prior to that, Mr. Mayleben was a manager with the
Enterprise Group of Arthur Andersen & Co.
Mr. Mayleben received a BBA from the University of Michigan
and an MBA from the Northwestern University Kellogg Graduate
School of Management.

Dr. Hartman has served as our Vice President of
Worldwide Clinical Research and Development since August 2000.
Dr. Hartman was previously a Director of Cardiovascular
Clinical Research at Pfizer Global Research and Development, Ann
Arbor Laboratories from February 1999 to August 2000.
His pharmaceutical career began at Eli Lilly from May 1995
to February 1999 where he was the Lead Clinical Research
Physician of the Zovant® product team. Dr. Hartman
received his B.S. in Biology/Chemistry from Calvin College in
Grand Rapids Michigan and his M.D. from Wayne State University
School of Medicine in Detroit Michigan. His post-graduate
training occurred at Indiana University Medical Center in the
areas of internal medicine, and sub-specialty training in
Pulmonary and Critical Care Medicine.

Dr. Bisgaier is currently the Vice President,
Pharmacology for pre-clinical drug discovery at Esperion. Prior
to this, he served as the Senior Director of Pharmacology from
July 1998 to September 2000. Dr. Bisgaier was formerly an
Associate Research Fellow from 1996 to 1998 in the Department of
Vascular and Cardiac Disease at Parke-Davis Pharmaceutical
Research, Warner-Lambert Company, where he played a role in
discovery and development of pharmaceuticals that modulate
lipoprotein and cholesterol metabolism. Dr. Bisgaier
received a B.A. in Biology from the State University College at
Oneonta, New York, and a M.S. and Ph.D. in biochemistry from
George Washington University. He then studied lipoprotein
metabolism within a Specialized Center of Research (SCOR) for
atherosclerosis at Columbia University College of Physicians and
Surgeons, prior to joining Parke-Davis in 1990.

15



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##### Table of Contents



Dr. Dasseux has served as our Vice President,
Worldwide Chemistry and Technologies since August 2000, and as
our Senior Director of Chemistry from January 1999 to
August 2000. Dr. Dasseux has more than 13 years
of experience in the Pharmaceutical industry focusing on
Chemistry, Lipoprotein metabolism and Atherosclerosis.
Dr. Dasseux has more than 20 years experience in
Physical Chemistry and Lipid-Protein/peptide interactions. From
June 1987 until April 1998, Dr. Dasseux was employed by
Fournier Laboratories, France. Dr. Dasseux created and
managed the Fournier Pharma Research Center in Heidelberg,
Germany and held the position of Director of Research from
September 1988 to April 1998. Dr. Dasseux received his M.S.
in Biochemistry from the University of Bordeaux II, France
and his Ph.D. in Physical Chemistry from the University of
Bordeaux I, France. He was a postdoctoral research
scientist in the Department of Chemistry at the University of
Laval, Quebec, Canada; in the Department of Physics, The
University of Tennessee, Knoxville, Tennessee and in the
European Molecular Biology Laboratory, Heidelberg, Germany.

Dr. Pape has served as Director and then
Sr. Director of Cellular and Molecular Biology since July
1998. Dr. Pape has been involved in drug discovery related
to atherosclerosis since 1989. From 1989 until 1991, he worked
at The Upjohn Company and then from 1991 to 1998, he was a
Research Associate in the Department of Molecular Biology at
Parke-Davis Pharmaceutical Research, Warner-Lambert Company.
During his tenure at Parke-Davis, Dr. Pape served as
co-chair of the HDL Discovery Team from 1996 to 1998.
Dr. Pape received a B.S. in Microbiology from the
University of Michigan and a Ph.D. in Biochemistry from Purdue
University. Dr. Papes research has focused on the
causes and cures for atherosclerosis, diabetes and lipid
abnormalities. He currently holds a faculty appointment in the
Department of Biological Chemistry at the University of Michigan
Medical School.

Mr. Thomas, has served as our Director of Finance
and Controller since March 2000. Prior to joining Esperion,
Mr. Thomas served as Director of Finance and Controller for
Mechanical Dynamics, Inc., a publicly held company, from
September 1997 to March 2000. From July 1992 to
September 1997, Mr. Thomas worked for Arthur Andersen
LLP, most recently as an audit manager in the Detroit office.

Item 2.  Properties

Our leased principal corporate and research facilities, located
in Ann Arbor, Michigan, currently occupy approximately
25,000 square feet. Approximately 5,000 square feet of
leased space is covered by a lease that expires in
December 2001. The lease for the remaining square footage
expires in December 2003. We also lease research and office
space in Bromma, Sweden, which currently occupies approximately
4,000 square feet. This lease expires in June 2002. In
addition, we lease a lab facility in Strangnas, Sweden which
occupies approximately 410 square feet and expires in
July 2001 with an option to renew for an additional six
months. We believe that our existing facilities are adequate for
our current needs. Prior to the expiration of our existing
leases, we may look for additional or alternate space for our
operations and we believe that suitable additional or
alternative space will be available at such times on
commercially reasonable terms.

16



---



##### Table of Contents



Item 3.  Legal Proceedings

On March 22, 2000, Talaria Therapeutics, Inc., or Talaria
and Dr. Kevin J. Williams filed a lawsuit against us and Inex
Pharmaceuticals Corp., or Inex, the University of British
Columbia, or UBC, and the two inventors named on patent
applications we sublicense from Inex. One of these inventors is
now employed by us. One of the allegations in the lawsuit, which
was filed in the United States District Court for the Eastern
District of Virginia, was the improper incorporation into a UBC
patent application of certain confidential information of Dr.
Williams. This UBC patent application is exclusively licensed to
Inex and sublicensed to us. In addition to seeking damages, the
plaintiffs had asked that Dr. Williams be named as an inventor
and Talaria as the owner of the UBC patent application.

On September 21, 2000, we acquired Talaria by way of merger in
settlement of claims against the Company and its employee. On
November 28, 2000 we entered into an amendment to our
license agreement with Inex. The amendment granted us more
control over patent prosecution related to LUVs. We concurrently
signed with UBC, Inex, our subsidiary and successor to Talaria,
Williams and the two inventors a release of claims in connection
with the litigation and the Inex license agreement. A Notice of
Dismissal was filed on November 29, 2000 dismissing all
defendants from the lawsuit.



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

No matters were submitted to a vote of stockholders during the
last quarter of the year ended December 31, 2000.

17



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##### Table of Contents



PART II



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

The Companys common stock trades on the Nasdaq National
Market under the symbol ESPR. The range of high and
low sale prices for the Companys common stock on that
market for each of the quarters since the Companys initial
public offering on August 10, 2000 are as follows:

|                              |                                           |               |   |       |  |  |   |       | 
|----------------------------- | ----------------------------------------- | ------------- | - | ----- |  |  | - | ----- | 
|                              |                                           |              
|                              |                                           | Market prices
|                              |                                           |              
|                              |                                           | High          |   | Low  
|                              |                                           |               |   |      
|Year ended December 31, 2000: |                                           |               |   |       |  |  |   |      
|                             
|                             
|                             
|                             
|                              | Fourth quarter                            |               | $ | 21.13 |  |  | $ | 10.38 | 
|                             
|                             
|                             
|                             
|                              | Third quarter (beginning August 10, 2000) |               |   | 19.38 |  |  |   | 9.38  | 

As of December 31, 2000, there were 75 stockholders of
record of the Companys common stock. This may not be an
accurate indication of the total stockholders of the Company as
of December 31, 2000, since many nominees hold the
Companys shares in street name for the beneficial owners.

The Company has never declared or paid cash dividends on its
capital stock and anticipates that, for the foreseeable future,
it will continue to retain any earnings for use in the operation
of its business.

In September 2000, the Company merged with Talaria. In
connection with this merger, the Company issued
813,008 shares of the Companys common stock, which
have not been registered under the Securities Act of 1933. These
shares were issued in reliance upon the exemption from
registration contained in Section 4(2) of the Securities
Act of 1933.

During the year and three months ended December 31, 2000,
we issued and sold 333,966 and 10,876 shares, respectively, of
our common stock to employees and consultants upon exercise of
stock options held by them. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act
and Rule 701 promulgated thereunder.

18



---



##### Table of Contents





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

The following historical and pro forma selected consolidated
financial data of Esperion should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations on page 20, the
consolidated financial statements and notes beginning on
page 32. The selected consolidated financial data for the
years ended December 31, 2000 and 1999 and for the period
from inception (May 18, 1998) through December 31,
1998 are derived from our audited consolidated financial
statements.

Consolidated Statement of Operations Data (in thousands
except share and per share data):

|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |         |         |  
|------------------------------------------------------------------------ | ------------------------------------------------ | -------------- | ---------- | ------------ | ------- | ------------ | --------- | ----- | ------- | - | --------- | ----- | ------ | - | ------- | ------- | ------- | -
|                                                                         |                                                  |                |            |              |         |             
|                                                                         |                                                  | Year Ended     |            |              |         |             
|                                                                         |                                                  | December 31,   |            | Inception to |         | Inception to
|                                                                         |                                                  |                |            | December 31, |         | December 31,
|                                                                         |                                                  | 2000           |            | 1999         |         | 1998         |           | 2000 
|                                                                         |                                                  |                |            |              |         |              |           |      
|Operating expenses:                                                      |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Research and development                         |                | $          | 21,789       |         |              | $         | 8,484 |         |   | $         | 1,923 |        |   | $       | 32,196  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | General and administrative                       |                |            | 2,949        |         |              |           | 2,239 |         |   |           | 464   |        |   |         | 5,652   |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Deferred stock amortization                      |                |            | 1,014        |         |              |           | 279   |         |   |           |      |        |   |         | 1,293   |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Goodwill amortization                            |                |            | 250          |         |              |           |      |         |   |           |      |        |   |         | 250     |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Purchased in-process research and development(1) |                |            | 4,000        |         |              |           |      |         |   |           |      |        |   |         | 4,000   |        
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|                                                                         |                                                  | Operating loss |            |              | (30,002 | )            |           |       | (11,002 | ) |           |       | (2,387 | ) |         |         | (43,391 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other income, net                                                        |                                                  |                | 2,426      |              |         |              | 332       |       |         |   | 244       |       |        |   | 3,002   |        
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|Net loss                                                                 |                                                  |                | (27,576    | )            |         |              | (10,670   | )     |         |   | (2,143    | )     |        |   | (40,389 | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Beneficial conversion feature(2)                 |                |            | (22,870      | )       |              |           |      |         |   |           |      |        |   |         | (22,870 | )      
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|Net loss attributable to common stockholders                             |                                                  | $              | (50,446    | )            |         | $            | (10,670   | )     |         | $ | (2,143    | )     |        | $ | (63,259 | )      
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|Basic and diluted net loss per share                                     |                                                  | $              | (4.50      | )            |         | $            | (5.91     | )     |         | $ | (1.46     | )     |        |   |         |        
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|Shares used in computing basic and diluted net loss per share            |                                                  |                | 11,222,319 |              |         |              | 1,806,255 |       |         |   | 1,466,615 |       |        |   |         |        
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|Pro forma basic and diluted net loss per share                           |                                                  | $              | (2.45      | )            |         | $            | (1.14     | )     |         |   |           |       |        |   |         |        
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        
|Shares used in computing pro forma basic and diluted net loss
	per share |                                                  |                | 20,603,313 |              |         |              | 9,392,499 |       |         |   |           |       |        |   |         |        
|                                                                         |                                                  |                |            |              |         |              |           |       |         |   |           |       |        |   |         |        

Consolidated Balance Sheet Data (in thousands):

|                                                 |  |                    |         |      |  |      |         |   |  |   |        |  
|------------------------------------------------ |  | ------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                 |  |                   
|                                                 |  | As of December 31,
|                                                 |  |                   
|                                                 |  | 2000               |         | 1999 |  | 1998
|                                                 |  |                    |         |      |  |     
|Cash and cash equivalents                        |  | $                  | 70,228  |      |  | $    | 5,904   |   |  | $ | 12,541 |  
|                                                
|                                                
|                                                
|                                                
|Working capital                                  |  |                    | 64,181  |      |  |      | 3,143   |   |  |   | 12,390 |  
|                                                
|                                                
|                                                
|                                                
|Total assets                                     |  |                    | 77,877  |      |  |      | 7,999   |   |  |   | 13,414 |  
|                                                
|                                                
|                                                
|                                                
|Long-term debt, less current portion             |  |                    | 3,027   |      |  |      | 2,284   |   |  |   |       |  
|                                                
|                                                
|                                                
|                                                
|Convertible preferred stock                      |  |                    |        |      |  |      | 105     |   |  |   | 105    |  
|                                                
|                                                
|                                                
|                                                
|Deficit accumulated during the development stage |  |                    | (40,389 | )    |  |      | (12,813 | ) |  |   | (2,143 | )
|                                                
|                                                
|                                                
|                                                
|Total stockholders equity                       |  |                    | 67,691  |      |  |      | 2,815   |   |  |   | 13,187 |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We recorded a $4.0 million charge to operations
	for the write-off of purchased in-process research and
	development related to the acquisition of Talaria Therapeutics,
	Inc.                                                                                                                                                                                                                             
|   
|(2) | We recorded approximately $22.9 million
	relating to the beneficial conversion feature of the series C
	and series D preferred stock in the first quarter of fiscal 2000
	through equal and offsetting adjustments to additional
	paid-in-capital with no net impact on stockholders equity.
	The beneficial conversion feature was considered in the
	determination of our loss per common share amounts.

19



---



##### Table of Contents





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

Overview

Background

We have devoted substantially all of our resources since we
began our operations in May 1998 to the research and development
of pharmaceutical product candidates for cardiovascular and
metabolic diseases. We are a development stage pharmaceutical
company and have not generated any revenues from product sales.
We have not been profitable and have incurred a cumulative net
loss of approximately $40.4 million from inception
(May 18, 1998) through December 31, 2000 excluding the
beneficial conversion feature of preferred stock. These losses
have resulted principally from costs incurred in research and
development activities, and general and administrative expenses.
We expect to incur significant additional operating losses for
at least the next several years and until such time as we
generate sufficient revenue to offset expenses. Research and
development costs relating to product candidates will continue
to increase. Manufacturing, sales and marketing costs will
increase as we prepare for the commercialization of our products.

Results of Operations



| |                   
| | ------------------
| | Operating Expenses

|                            |            |                         |        |              |   |      |        |          |  |      |       |      |   |  |        |  |  |   |       |      |  
|--------------------------- | ---------- | ----------------------- | ------ | ------------ | - | ---- | ------ | -------- |  | ---- | ----- | ---- | - |  | ------ |  |  | - | ----- | ---- | -
|                            |            |                         |        | Period from 
|                            |            | Year Ended December 31, |        | Inception to
|                            |            |                         |        | December 31,
|In thousands                |            | 2000                    |        | % Change     |   | 1999 |        | % Change |  | 1998
|                           
|                           
|Research and development    |            | $                       | 21,789 |              |   |      | 156.8% |          |  | $    | 8,484 |      |   |  | 341.2% |  |  | $ | 1,923 |     
|                           
|                           
|                           
|                           
|                            | % of total |                         |        | 72.7         | % |      |        |          |  |      |       | 77.1 | % |  |        |  |  |   |       | 80.6 | %
|                           
|                           
|                           
|                           
|General and administrative  |            | $                       | 2,949  |              |   |      | 31.7%  |          |  | $    | 2,239 |      |   |  | 382.5% |  |  | $ | 464   |     
|                           
|                           
|                           
|                           
|                            | % of total |                         |        | 9.8          | % |      |        |          |  |      |       | 20.4 | % |  |        |  |  |   |       | 19.4 | %
|                           
|                           
|                           
|                           
|Deferred stock amortization |            | $                       | 1,014  |              |   |      | 263.4% |          |  | $    | 279   |      |   |  |       |  |  | $ | 0     |     
|                           
|                           
|                           
|                           
|                            | % of total |                         |        | 3.4          | % |      |        |          |  |      |       | 2.5  | % |  |        |  |  |   |       | 0.0  | %
|                           
|                           
|                           
|                           
|Goodwill amortization       |            | $                       | 250    |              |   |      |       |          |  | $    | 0     |      |   |  |       |  |  | $ | 0     |     
|                           
|                           
|                           
|                           
|                            | % of total |                         |        | 0.8          | % |      |        |          |  |      |       | 0.0  | % |  |        |  |  |   |       | 0.0  | %
|                           
|                           
|                           
|                           
|Purchased in-process R&D    |            | $                       | 4,000  |              |   |      |       |          |  | $    | 0     |      |   |  |       |  |  | $ | 0     |     
|                           
|                           
|                           
|                           
|                            | % of total |                         |        | 13.3         | % |      |        |          |  |      |       | 0.0  | % |  |        |  |  |   |       | 0.0  | %



| |                              
| | -----------------------------
| | Year Ended December 31, 2000.

On September 21, 2000, the Company acquired all of the
outstanding shares of stock of Talaria for 813,008 shares of
restricted Esperion common stock valued at $9 per share.
Additionally, the merger agreement provides for additional
consideration to Talaria stockholders including the milestones
and royalties as discussed in the following section called
Milestone Payments, Royalties and License Fees.
Milestones are due upon the enrollment of the first patient in
certain future clinical trials and upon each of the filing and
approval of a new drug application in the United States. These
milestone payments will increase the amount of the purchase
price in the period when the milestone is achieved, and the
Company will include these additional amounts in goodwill. The
royalty payments will be included in cost of sales in the period
when the respective sales are recognized. The combined milestone
payments and royalties are subject to a maximum aggregate
ceiling of $20.0 million.

At the acquisition date, Talaria was conducting development and
testing activities related to LUV. The product candidate is
designed to enhance mobilization of cholesterol from arterial
walls to the liver for elimination. The end result of this
cholesterol mobilization is intended to be an opening of
narrowed arteries and improved cardiovascular function. The
Company believes that LUV could provide advantages over current
available therapies.

The acquisition was accounted for under the purchase method of
accounting. The purchase price for amounts due at closing was
allocated to both tangible and intangible assets. In connection
with this allocation, the Company recorded a one-time charge to
operations in the third quarter of 2000 to write-off
$4.0 million associated with the in-process research and
development acquired in the transaction that had not reached

20



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##### Table of Contents





Research and Development Expenses.Research and
development expenses include all payroll costs attributable to
research and development activities, as well as an allocation of
overhead expenses incurred by the Company. Research and
development expenses increased to approximately
$21.8 million for the year ended December 31, 2000,
compared to approximately $8.5 million for the year ended
December 31, 1999. This 156.8% increase was primarily due
to the costs associated with developing our product candidates,
including new product candidates discovered or in-licensed over
the past year, as well as higher personnel costs. In addition,
the increase was a result of the costs incurred to manufacture
clinical material in connection with human clinical trials.

General and Administrative Expenses.General and
administrative expenses included the cost of salaries, employee
benefits, and other payroll costs associated with the
Companys finance, accounting, human resources, legal,
administrative and executive management functions. General and
administrative expenses also included an allocation of overhead
expenses incurred by the Company. General and administrative
expenses increased to approximately $2.9 million for the
year ended December 31, 2000 compared to approximately $2.2
for the year ended December 31, 1999. This 31.7% increase
was primarily due to increased general and administrative
personnel and facility costs.

Deferred Stock Amortization.Deferred stock amortization
includes the amortization of deferred costs for stock options
granted prior to the Companys initial public offering.
These costs are being amortized over the vesting period of the
underlying options, generally four years. Deferred stock
amortization increased 263.8% in 2000, as compared to 1999, due
to additional stock option grants made from January 1, 2000
to the date of the Companys initial public offering
(August 10, 2000). We expect this amortization expense to
begin declining in 2003 and end in 2004.

Goodwill Amortization.Goodwill amortization includes the
amortization of purchase price in excess of net assets on the
Companys acquisition of Talaria. The Company is amortizing
this goodwill over five years, which represents the period
estimated to be benefited from the acquisition, after
considering such factors as product development timelines,
revenue potential, competition and patent life.

Purchased in-process research and development.The
$4.0 million allocation to purchased in-process research
and development is based on the assumption that the development
of LUV has not yet reached technological feasibility, and that
no alternative future uses have been identified. At the
acquisition date, the product candidate had exhibited
satisfactory safety and efficacy results in preliminary testing;
however, significant further investment is required to complete
the development of the acquired technology, including completion
of clinical trials, manufacturing scale-up and successful
regulatory approvals. Talaria had spent approximately
$4.9 million on the development of the in-process project
since its inception in 1998 and the patent holders had spent
additional amounts on scientific research prior to 1998. We
expect to spend an additional $24.0 million in third party
costs over all phases of the project prior to commercialization.
Of these remaining costs, approximately $20.0 million would
relate to a Phase III clinical trial which is expected to
commence after the Phase II clinical trials are completed,
but not sooner than 2002. Our expectations with respect to these
additional costs, adjustments and periods are preliminary and
therefore subject to substantial sequential adjustments.

In making its purchase price allocation, management considered
present value calculations of income, an analysis of project
accomplishments and remaining outstanding items, as well as
project risks. The value assigned to purchased in-process
technology was determined by estimating the costs to develop the
acquired technology into commercially viable products,
estimating the resulting net cash flows from the projects, and
discounting the net cash flows to their present value. The
revenue projection used to value the in-process research and
development was based on estimates of relevant market sizes,
penetration rates, therapy costs, and the nature and expected
timing of new product introductions by the Company and its
competitors. The

21



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##### Table of Contents





The rate utilized to discount the net cash flows to their
present value was based on an estimated cost of capital
calculation. Due to the nature of the forecast and the risks
associated with the projected growth and profitability of the
developmental project, a discount rate of 35% was considered
appropriate for the in-process research and development. This
discount rate was commensurate with Talarias stage of
development and the uncertainties in the economic estimates
described above. If this project is not successfully developed,
the sales and profitability of the combined company may be
adversely affected in future periods. Costs associated with the
completion of the project have been and are expected to be
consistent with the assumptions used in the valuation.

Other Income (Expense).Interest income increased to
approximately $2.6 million for the year ended
December 31, 2000, compared to approximately $424,000 for
the year ended December 31, 1999. The increase was
attributable to higher levels of cash and cash equivalents
available for investment in 2000 due to the Companys
private financings and initial public offering. Interest expense
for the same periods was approximately $408,000 and $92,000,
respectively, and represents interest incurred on equipment
financing facilities and a special project loan. During 2000, we
recorded approximately $201,000 of foreign currency transaction
gains on transactions denominated in various currencies of
European countries, primarily the Swedish kronor.

Net Loss.The net loss was approximately
$27.6 million for the year ended December 31, 2000,
compared to approximately $10.7 million for the year ended
December 31, 1999. The increase reflects increases in
research and development and general and administrative expenses
in addition to the one-time $4.0 million purchased
in-process research and development write-off, offset in part by
the increase in interest income.

Net Loss Attributable to Common Stockholders.The net
loss attributable to common stockholders for the year ended
December 31, 2000 includes a one time $22.9 million
charge related to the beneficial conversion feature on the
Series C and D Convertible Preferred Stock. The total of
the non-cash beneficial conversion feature was reflected through
equal and offsetting adjustments to additional paid-in-capital
with no net impact on stockholders equity. The beneficial
conversion feature was considered in the determination of the
Companys loss per common share amounts.



| |                              
| | -----------------------------
| | Year Ended December 31, 1999.

Research and Development Expenses.Research and
development expenses increased to approximately
$8.5 million for the year ended December 31, 1999,
compared to approximately $1.9 million for the period from
inception (May 18, 1998) to December 31, 1998. This
increase of 341.2% was primarily due to the full year period for
1999 as compared with a partial year for 1998 and costs
associated with developing AIM and LUV, and to a lesser extent
expanded efforts to develop new product candidates.

General and Administrative Expenses.General and
administrative expenses increased to approximately
$2.2 million for the year ended December 31, 1999
compared to approximately $464,000 for the period from inception
to December 31, 1998. This increase of 382.5% was primarily
due to the full year period for 1999 as compared with a partial
year for 1998, higher personnel costs, higher facility costs and
the professional fees associated with the acquisition of
additional product candidates and technologies.

Deferred Stock Amortization.Deferred stock amortization
includes the amortization of deferred costs for stock options
granted prior to the Companys initial public offering.
These costs are being amortized over the vesting period of the
underlying options, generally four years.

Other Income (Expense).Interest income increased to
approximately $424,000 for the year ended December 31,
1999, compared to approximately $246,000 for the period from
inception to December 31, 1998. The increase was
attributable to the full year period for 1999 as compared to a
partial year for 1998, offset by lower levels of cash and cash
equivalents available for investment in 1999. Interest expense
for the

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Net Loss.The net loss was approximately
$10.7 million for the year ended December 31, 1999,
compared to approximately $2.1 million for the period from
inception to December 31, 1998. The increase reflected the
full year period for 1999 as compared to a partial year in 1998,
increases in research and development and general and
administrative expenses, offset in part by the increase in
interest income.



| |                                               
| | ----------------------------------------------
| | Milestone Payments, Royalties and License Fees

In June 1998, we acquired exclusive, worldwide rights to AIM
from Pharmacia Corporation. Under our agreement with Pharmacia,
we acquired four U.S. patents and four pending
U.S. patent applications, and other related foreign patents
and patent applications covering various aspects of AIM. Under
this agreement, at the completion of Phase II clinical
trials, Pharmacia has the exclusive right of election to
co-develop and the exclusive right to market AIM in countries
outside of the United States and Canada. In addition, if we
pursue a co-development and co-promotion arrangement in the
United States and Canada with another party, Pharmacia has the
right of first negotiation to co-develop and co-promote AIM in
the United States and Canada. We paid Pharmacia $750,000 at the
time we entered into our agreement for AIM in June 1998. Our
agreement with Pharmacia requires us to make payments to
Pharmacia as milestones are achieved, and to pay Pharmacia
royalties on sales of products that are covered by the Pharmacia
patents or developed using the Pharmacia technology. The first
milestone payment will be paid in cash or by the issuance of a
promissory note to Pharmacia if and when we have completed
clinical trials showing preliminary safety and initial
proof-of-concept (which may include early Phase IIa
studies). We believe that this would mean clinical trials which
show statistically significant results in safety and efficacy,
allowing us to better define the details of any Phase III
pivotal trials. If Pharmacia exercises its exclusive right to
co-develop and market AIM in countries other than the United
States and Canada, then we will make additional milestone
payments to Pharmacia. If Pharmacia does not exercise its right
to co-develop and market AIM in countries other than the United
States and Canada, then we will make several milestone payments
to Pharmacia starting if and when we enroll the first patient in
the first Phase III clinical trial for AIM in the United
States. Instead of paying milestones in cash, if the milestone
payments are greater than 10% of our cash reserves at the time
of payment, we may instead make these payments by issuing
Pharmacia a promissory note. This license, unless earlier
terminated, will continue until the later of 20 years from
the date of the license or the last expiration date of any
patent rights covered by this license.

In March 1999, we exclusively sub-licensed for Europe and the
United States certain LUV technology from Inex which had
licensed the technology from the University of British Columbia.
We paid Inex $250,000 at the time we entered into our
sub-license agreement for LUV in March 1999. Our license
agreement with Inex, as amended, requires us to make payments to
Inex as milestones are achieved, and to pay Inex royalties on
sales of products that are covered by the UBC patents or former
Talaria patents or developed using the licensed technology. The
first milestone payment of $100,000 will be made in the first
quarter of 2001, upon enrollment of our first patient in a
Phase II clinical trial. Other milestone payments will be
paid to Inex if and when we achieve various future development
milestones outlined in the agreement with Inex. This license
remains in effect, unless earlier terminated, until the later of
ten years from the first commercial sale of a product
covered by this license or the last expiration date of any
patent rights covered by this license.

In September 2000, we entered into a merger agreement with
Talaria which will require: (i) payment of up to
$6.3 million in cash and/or common stock based on the
achievement of four future development milestones; and
(ii) payment of royalties in cash and/or common stock based
on net annual sales of large unilamellar vesicles, or LUVs, in
North America. The first milestone was achieved in the first
quarter of 2001, upon the enrollment of our first patient in a
Phase II clinical trial. This milestone will be paid in
2001 through the issuance of approximately 58,600 shares of
common stock.

In September 1999, we exclusively licensed from a group of
inventors, the RLT peptide technology, including
four issued United States patent and 11 pending United
States patent applications, and certain corresponding foreign
pending patent applications. We paid the inventors of our
RLT peptide an initial license

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In February 2000, we entered into a license agreement with
Region Wallonne in which we were granted exclusive worldwide
rights to its patents and applications, proprietary information
and know-how concerning ProApoA-I. As part of this license, we
have also agreed to purchase supplies of ProApoA-I from, and to
enter into a research collaboration with, Region Wallonne. We
paid Region Wallonne $25,000 at the time we entered into our
license agreement in February 2000. Our license agreement with
Region Wallonne requires us to pay royalties on sales of
products that are covered by the Region Wallonne patents. This
license remains in effect, until the latter of December 2012 or
the last expiration date of any patent covered by the license,
unless terminated earlier by a party in accordance with the
terms of the license.

We will be required to pay approximately $900,000 in cash or
common stock to Inex, the former Talaria stockholders and
certain inventors during 2001 and we may be obligated to make
additional milestone payments, up to an aggregate remaining
amount of $28.3 million, based on the achievement of
certain clinical trials and regulatory approval. These milestone
payments include up to $14.5 million, $5.5 million,
$6.2 million and $2.1 million pursuant to the
agreements with Pharmacia, Talaria, Inex and the group of
inventors, respectively. The agreement with Region Wallonne
provides only for royalties on future sales and is not included
in the aggregate milestone payments disclosed above. In addition
to the milestone payments, the agreements provide for the
payment of royalties on future product sales, as defined in the
agreements.

Liquidity and Capital Resources

In August 2000, the Company completed an initial public offering
of its stock, which resulted in the issuance of 6,000,000 shares
of common stock at $9.00 per share. In September 2000, an
additional 900,000 shares were sold by the Company at $9.00 per
share to cover the underwriters over-allotment. Net
proceeds to the Company from the offering were approximately
$56.2 million, after deducting the underwriting discount
and offering expenses.

As of December 31, 2000, the Company had cash and cash
equivalents of approximately $70.2 million, an increase of
approximately $64.3 million from December 31, 1999,
resulting primarily from the initial public offering and
preferred stock financings, offset by approximately
$18.0 million in cash used to fund operations. Our
investment policy emphasizes liquidity and preservation of
principal over other portfolio considerations. We select
investments that maximize interest income to the extent possible
by investing cash in securities with different maturities to
match projected cash needs and limit risk by diversifying our
investments. We believe that our current cash position, along
with available borrowings under our credit facilities will be
sufficient to fund our operations and capital expenditures until
at least the end of 2002.

During the years ended December 31, 2000 and 1999, net cash
used in operating activities was approximately
$18.0 million and $7.9 million, respectively. This
cash was used to fund our net losses for the periods, adjusted
for non-cash expenses and changes in operating assets and
liabilities.

Net cash used in investing activities for the years ended
December 31, 2000 and 1999 was $2.0 million and
$1.6 million, respectively, primarily the result of the
acquisition of laboratory equipment, furniture, fixtures and
office equipment. In addition, the Company used approximately
$233,000 in cash in connection with the acquisition of Talaria.

Net cash proceeds from financing activities were
$84.1 million and $2.8 million for the years ended
December 31, 2000 and 1999, respectively. The net cash
proceeds from financing activities for the year ended
December 31, 2000 resulted primarily from
$56.2 million raised in the initial public offering,
$26.9 million raised in preferred stock financings,
$1.5 million additional borrowings on special project and
equipment term

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We anticipate that our capital expenditures for the next twelve
months will be approximately $3.2 million. These
expenditures relate to, among other things, an agreement we have
entered into with a scientific instrument manufacturer to
purchase a specialized piece of equipment for $1.0 million.
We expect delivery in the first quarter of 2001.

As of December 31, 2000, we had approximately $743,000
outstanding under a credit facility with a U.S. bank. This
credit facility was used to finance purchases of equipment.
Borrowings under the facility bear interest at the banks
prime rate plus 1.0%. In 2000, we obtained an additional credit
facility with a U.S. bank to finance purchases of equipment. We
had approximately $775,000 outstanding under this credit
facility at an interest rate of 12% as of December 31,
2000. We also have a credit facility with a Swedish entity
totaling 50 million Swedish kronor (approximately
19.5 million Swedish Kronor, or approximately
$2.2 million, including accrued interest, of which was
outstanding as of December 31, 2000) that may only be used
to finance the development of our AIM product candidate. If a
related product is not developed or does not succeed in the
market, our obligation to repay the loan may be forgiven.
Borrowings under the loan facility bear interest at 17.0% of
which 9.5% is payable quarterly. The remaining 7.5% of interest
together with principal is payable in five equal annual
installments starting in December 2004.

We lease our corporate and research and development facilities
under operating leases expiring at various times through
December 2003. We may extend these leases for additional
periods. Total minimum payments under these leases are
approximately $1.3 million as of December 31, 2000.

We expect that our operating expenses and capital expenditures
will increase in future periods. We intend to hire additional
research and development, clinical testing and administrative
staff. Our capital expenditure requirements will depend on
numerous factors, including the progress of our research and
development programs, the time required to file and process
regulatory approval applications, the development of commercial
manufacturing capability, the ability to obtain additional
licensing arrangements, and the demand for our product
candidates, if and when approved by the FDA or other regulatory
authorities.

Income Taxes

As of December 31, 2000, we had operating loss
carryforwards of approximately $25.2 million. These net
operating loss carryforwards expire beginning in 2018.
Additionally, utilization of net operating loss carryforwards
may be limited under Section 382 of the Internal Revenue
Code. These and other deferred income tax assets are fully
reserved by a valuation allowance as management has determined
that it is more likely than not that the deferred tax assets
will not be realized.

Employees

As of December 31, 2000, we had 58 employees. Of these
employees, 44 were engaged in research, preclinical and clinical
development, regulatory affairs, intellectual property
activities, and/or manufacturing activities and 14 were engaged
in finance and general administrative activities.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments. The Company has
not yet quantified the impact of this statement on the
Companys financial statements.

The Company adopted Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25, effective July 1, 2000.
There was no impact on our consolidated financial position or
results of operations.

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Factors Affecting Our Future Prospects

We are a young company with a history of losses and even if
our product candidates are approved and commercialized, we may
never be profitable.

We have incurred substantial losses since we began our
operations in May 1998. As of December 31, 2000, we
had a cumulative net loss of approximately $40.4 million.
These losses have resulted principally from costs incurred in
our research and development programs and from our general and
administrative expenses. To date, we have not generated revenue
from product sales or royalties, and we do not expect to achieve
any revenue from product sales or royalties until we receive
regulatory approval and begin commercialization of our product
candidates. We are not certain of when, if ever, that will
occur. We expect to incur additional operating losses in the
future and these losses could increase significantly, whether or
not we generate revenue, as we expand our development and
clinical trial efforts. All of our product candidates are in
early stages of development, and we face the risks of failure
inherent in developing drugs based on new technologies. In
addition, most of our product candidates were recently
in-licensed from third parties. As a result, we have limited
in-house experience with these product candidates. Our product
candidates are not expected to be commercially available for
several years, if at all.

All of our current product candidates are designed to treat
cardiovascular disease by manipulating the beneficial properties
of HDL. We may defer or cease development of one or more of our
product candidates if a product candidate does not show
favorable clinical results, if we decide to concentrate our
resources on more promising product candidates, or for any other
reason. Decisions regarding the selection of product candidates
in development and the timing of the development of our product
candidates may accelerate the preclinical or clinical testing of
one or more product candidates while delaying or ceasing
progress of one or more other product candidates.

All of our product candidates must be tested and approved by
the FDA and other regulatory agencies before we can sell
them.

Our product candidates must satisfy rigorous standards of safety
and efficacy before they can be approved for commercial use by
the FDA, and international regulatory authorities. The FDA and
foreign regulatory authorities have full discretion over this
approval process. We will need to conduct significant additional
research, including clinical testing involving animals and
humans, before we can file applications for product approval.

Many of the product candidates in the pharmaceutical industry do
not successfully complete preclinical testing and clinical
trials. Also, satisfaction of regulatory requirements typically
takes many years, is dependent upon the type, complexity, and
novelty of the product and requires the expenditure of
substantial resources. Success in preclinical testing and early
clinical trials does not ensure that later clinical trials will
be successful. For example, a number of companies in the
pharmaceutical industry, including biotechnology companies, have
suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials and in interim
analyses. In addition, delays or rejections may be encountered
based upon additional government regulation, including any
changes in FDA policy, during the process of product
development, clinical trials and regulatory approvals.

In order to receive FDA approval or approval from foreign
regulatory authorities to market a product, we must demonstrate
through human clinical trials that the product candidate is safe
and effective for the treatment of a specific condition. We do
not know whether planned clinical trials will begin on time or
will be completed on schedule or at all. If we experience
significant delays in testing or approvals, or if we need to
perform more or larger clinical trials than planned, our product
development costs will increase. Any of our future clinical
studies might be delayed or halted because:



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the drug is not effective, or physicians think that the drug is
	not effective;                                                                                 
|
| |  | patients experience severe side effects during treatment;                                                                                                       
|
| |  | patients die during a clinical study because their disease is
	too advanced or they experience medical problems that are not
	related to the drug being studied;

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| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | patients do not enroll in the studies at the rate we expect; or        
|
| |  | drug supplies are not sufficient to treat the patients in the
	studies.

Even if the FDA approves our product candidates, that
approval will be limited.

If the FDA grants regulatory approval of a product, this
approval will be limited to those disease states and conditions
for which the product has demonstrated to be safe and effective
through clinical trials. Any product approvals we receive in the
future could also include significant restrictions on the use or
marketing of our products. Product approvals, if granted, can be
withdrawn for failure to comply with regulatory requirements or
upon the occurrence of adverse events following commercial
introduction of the products. Failure to comply with applicable
FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of
products, total or partial suspension of production or
injunction, as well as other regulatory action against our
product candidates or the Company. If approvals are withdrawn
for a product, or if a product were seized or recalled, we would
be unable to sell that product and our revenues would suffer. In
addition, our ability to market any of our potential products
outside the United States is contingent upon receiving market
application authorizations from the appropriate regulatory
authorities and these foreign regulatory approval processes
include all of the risks associated with the FDA approval
process described above.

Our product candidates may not be commercially successful
because physicians, patients, and government agencies and other
third-party payors may not accept them.

Even if regulatory authorities approve our product candidates,
they may not be commercially successful. Third parties may
develop superior products or have proprietary rights that
preclude us from marketing our products. We also expect that
most of our product candidates will be very expensive, if
approved. Patient acceptance of and demand for any product
candidates we obtain regulatory approval for will depend largely
on the following factors:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | acceptance by physicians and patients of our products as safe
	and effective therapies;                               
|
| |  | the extent, if any, of reimbursement of drug and treatment costs
	by government agencies and other third-party payors;
|
| |  | pricing of alternative products;                                                                                      
|
| |  | acceptance by physicians and patients of intravenous
	administration for some of our proposed products; and           
|
| |  | prevalence and severity of side effects associated with our
	products.                                                

In addition, any of our product candidates could cause adverse
events, such as immunologic or allergic reactions. These
reactions may not be observed in clinical trials, but may
nonetheless occur after commercialization. If any of these
reactions occur, they may render our product candidates
ineffective in some patients and our sales would suffer.

If our current and future manufacturing and supply strategies
are unsuccessful, then we may be unable to complete any future
clinical trials and/or commercialize our product candidates in a
timely manner, if at all.

Completion of our future clinical trials and commercialization
of our product candidates will require access to, or development
of, facilities to manufacture a sufficient supply of our product
candidates. We do not have the resources, facilities or
experience to manufacture our product candidates on our own and
do not intend to develop or acquire facilities for the
manufacture of product candidates for clinical trials or
commercial purposes in the foreseeable future. We currently
rely, and will continue to rely for at least the next few years,
on contract manufacturers to produce sufficient quantities of
our product candidates. Most of our contract manufacturers have
limited experience at manufacturing, formulating, analyzing,
filling and finishing our particular product candidates. Our
manufacturing strategy presents the following risks:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | we may not be able to locate acceptable manufacturers or enter
	into favorable long-term agreements with them;             
|
| |  | third parties may not be able to successfully manufacture our
	product candidates in a cost effective and/or timely manner;

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| |   |                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the manufacturing processes for our product candidates have not
	been tested for quantities needed for clinical trials or
	commercial sales;                                                                                                                                                                                          
|
| |  | delays in scale-up to commercial quantities could delay clinical
	studies, regulatory submissions and commercialization of our
	product candidates;                                                                                                                                                                                   
|
| |  | we may not have intellectual property rights, or may have to
	share intellectual property rights, to the manufacturing
	processes for our product candidates;                                                                                                                                                                         
|
| |  | manufacturing and validation of manufacturing processes and
	materials are complicated and time-consuming;                                                                                                                                                                                                                            
|
| |  | because many of our current third-party manufacturers are
	located outside of the U.S., there may be difficulties in
	importing our product candidates and/or their components into
	the U.S. as a result of, among other things, FDA import
	inspections, incomplete or inaccurate import documentation, or
	defective packaging; and
|
| |  | manufacturers of our product candidates are subject to the
	FDAs current Good Manufacturing Practices regulations, the
	FDAs current Good Laboratory Practices regulations and
	similar foreign standards and we do not have control over
	compliance with these regulations by our third-party
	manufacturers.                     

Even if we obtain regulatory approval of any of our product
candidates, if we are unable to create sales, marketing and
distribution capabilities or enter into agreements with third
parties to perform these functions, we will not be able to
successfully commercialize any of our product candidates.

We currently have no sales or distribution capability, but we
have hired a marketing director to develop commercialization
strategies for our products. In order to successfully
commercialize any of our product candidates, we must either
internally develop full sales, marketing and distribution
capabilities or make arrangements with third parties to perform
these services. If we do not develop a marketing and sales force
with technical expertise and supporting distribution
capabilities, we will be unable to market any of our
commercialized products directly. To promote any of our products
through third parties, we will have to locate acceptable third
parties for these functions and enter into agreements with them
on acceptable terms and we may not be able to do so. In
addition, any third-party arrangements we are able to enter into
may result in lower revenues than we could have achieved by
directly marketing and selling our products.

If the third-party clinical research organizations we intend
to rely on to conduct our future clinical trials do not perform
in an acceptable and timely manner, our clinical trials could be
delayed or unsuccessful.

We do not have the ability to independently conduct clinical
trials and obtain regulatory approvals for our product
candidates, and we currently rely and intend to continue to rely
on clinical investigators and third-party contract research
organizations to perform these functions. If we cannot locate
acceptable contractors to run our clinical trials or enter into
favorable agreements with them, or if these third parties do not
successfully carry out their contractual duties or meet expected
deadlines, we will be unable to obtain required approvals and
will be unable to commercialize our product candidates on a
timely basis, if at all.

We expect our quarterly and annual results to fluctuate
significantly.

In the near term, we expect our quarterly and annual operating
results to fluctuate significantly, depending primarily on the
following factors:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | timing of preclinical and clinical trials;                                    
|
| |  | interruption or delays in the supply of our product candidates
	or components;
|
| |  | timing of payments to licensors and corporate partners;                       
|
| |  | timing of investments in new technologies; and                                
|
| |  | other costs, which may be unexpected.                                         

If we fail to obtain the capital necessary to fund our
operations, we will be unable to successfully develop our
product candidates or retain rights to our product
candidates.

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Significant additional capital will be required in the future to
fund our operations. We do not know whether additional financing
will be available on acceptable terms when needed. We have
consumed substantial amounts of cash resources to date and
expect capital outlays and operating expenditures to increase
over the next several years as we expand our infrastructure and
research and development activities. If adequate funds are
unavailable, we may be required to:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | delay, reduce the scope of, or eliminate one or more of our
	research or development programs;                                                                                    
|
| |  | license rights to technologies, product candidates, or products
	on terms that are less favorable to us than might otherwise be
	available; or                                    
|
| |  | obtain funds through arrangements that may require us to
	relinquish rights to product candidates or products that we
	would otherwise seek to develop or commercialize ourselves.

If we raise additional funds by issuing equity securities, our
existing stockholders will own a smaller percentage of Esperion,
and new investors may pay less on average for their securities
than, and could have rights superior to, existing stockholders.

If our licensing arrangements and strategic relationships
with third parties are breached, terminated or proven to be
unsuccessful, we may lose rights with respect to product
candidates, and we may not be able to develop and commercialize
our product candidates on a timely basis, if at all.

We began operations in May 1998 and most of our product
candidates were recently in-licensed from third parties. We
depend, and will continue to depend, on these and other
licensing arrangements and other strategic relationships with
third parties for the research, development, manufacturing and
commercialization of our product candidates. Our rights may be
terminated if we do not perform as required under these
arrangements. In addition, these third parties may also breach
or terminate their agreements with us or otherwise fail to
conduct their activities in connection with our relationships in
a timely manner. If any of our licenses or relationships are
terminated or breached, we may:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | lose our rights to develop and market our product candidates;                                    
|
| |  | lose patent and/or trade secret protection for our product
	candidates;                          
|
| |  | experience significant delays in the development or
	commercialization of our product candidates;
|
| |  | be unable to obtain any other licenses on acceptable terms, if
	at all; and                      
|
| |  | incur liability for damages.                                                                     

Licensing arrangements and strategic relationships in our
industry can be very complex, particularly with respect to
intellectual property rights. Disputes may arise in the future
regarding ownership rights to technology developed by or with
other parties. These and other possible disagreements between us
and third parties with respect to our licenses or our strategic
relationships could lead to delays in the research, development,
manufacture and commercialization of our product candidates.
These disputes could also result in litigation or arbitration,
both of which are time-consuming and expensive. These third
parties may also pursue alternative technologies or product
candidates either on their own or in strategic relationships
with others in direct competition with us.

If we fail to secure and enforce patents and other
intellectual property rights underlying our product candidates
and technologies, we may be unable to develop our product
candidates or compete effectively.

The pharmaceutical industry places considerable importance on
obtaining patent and trade secret protection for new
technologies, products and processes. Our success will depend,
in part, on our ability, and the ability of our licensors, to
obtain and enforce our exclusive rights to our products and
technologies under the patent laws of the United States and
other countries. Our success also will depend on our ability to
prevent others from using our trade secrets. In addition, we
must operate in a way that does not infringe, or violate, the
patent, trade secret, and other intellectual property rights of
other parties.

The standards which the U.S. Patent and Trademark Office uses to
grant patents can change. Consequently, we may be unable to
determine the type and extent of patent claims that will be
issued to us or

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The standards which courts use to interpret patents can change,
particularly as new technologies develop. Consequently, we
cannot know how much protection, if any, our patents will
provide. If we choose to seek a court order that prohibits a
third party from using the inventions claimed in our patents,
the third party may ask the court to rule that our patents are
invalid and unenforceable. This type of lawsuit is expensive and
time consuming and could be unsuccessful. There is also the risk
that, even if the validity of our patents is upheld, the court
will refuse to stop the third party on the ground that its
activities do not infringe the patent.

We may face significant expense and liability as a result of
litigation or other proceedings relating to patents and other
intellectual property rights of others.

Should third parties file patent applications, or be issued
patents, claiming technology also claimed by us in pending
applications, we may be required to participate in interference
proceedings in the United States Patent and Trademark Office to
determine priority of invention. We, or our licensors, also
could be required to participate in interference proceedings
involving our issued patents and pending applications of another
entity. An adverse outcome in an interference proceeding could
require us to cease using the technology or to license rights
from prevailing third parties. There is no guarantee that any
prevailing party would offer us a license or that such a
license, if made available to us, could be acquired on
commercially-acceptable terms.

A third party may claim that we are using inventions claimed by
their patents and may seek a court order to stop us from
engaging in our normal operations and activities, such as
research and development and the sale of any future products.
Such lawsuits are expensive and time consuming. In addition,
there is a risk that the court will decide that we are
infringing the third partys patents and will order us to
stop the activities claimed by the patents. There is also a risk
that a court will order us to pay the third party damages for
the patent infringement. Moreover, there is no guarantee that
the prevailing patent owner would offer us a license so that we
could continue to engage in activities claimed by the patent, or
that such a license, if made available to us, could be acquired
on commercially-acceptable terms. In addition, third parties
may, in the, assert other intellectual property infringement
claims against us with respect to our product candidates,
technologies or other matters.

Our success also depends upon the skills, knowledge and
experience of our scientific and technical personnel. The
confidentiality agreements that we enter into with our employees
and other parties may not provide adequate protection for our
trade secrets, know-how or other confidential information or
prevent any unauthorized use or disclosure of such information.
If any of our confidential intellectual property is disclosed,
our business may suffer. In addition, many of our scientific and
management personnel were previously employed by other
biotechnology and pharmaceutical companies where they were
conducting research in areas similar to those that we pursue. As
a result, we could be subject to allegations of trade-secret
violations and other claims relating to the intellectual
property rights of these companies.

If we fail to recruit, retain and motivate skilled personnel
our product development programs and our research and
development efforts may be delayed.

We are a small company with 58 employees, and our success
depends on our continued ability to recruit, retain and motivate
highly qualified management and scientific personnel, for which
competition is intense. In particular, our product development
programs depend on our ability to recruit and retain highly
skilled chemists and clinical development personnel. Our loss of
the services of any key personnel, in particular, Roger S.
Newton, Ph.D., our Chief Executive Officer, could
significantly impede the achievement of our research and
development objectives and could delay our product development
programs and approval and commercialization of our product
candidates. We maintain key man life insurance on
Dr. Newton in the amount of $5 million, but do not
have similar insurance on any of our other key employees. In
addition, we will need to hire additional personnel as we
continue to expand our research and development activities.

If our competitors develop and commercialize products faster
than we do or any competing products are superior to our product
candidates, our commercial opportunities will be reduced or
eliminated.

30



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##### Table of Contents



The extent to which any of our product candidates achieve market
acceptance will depend on competitive factors, many of which are
beyond our control. Competition in the pharmaceutical industry
is intense and has been accentuated by the rapid pace of
technological development. Our competitors include large
integrated pharmaceutical companies, biotechnology companies,
universities and public and private research institutions.
Almost all of these entities have substantially greater research
and development capabilities and financial, scientific,
manufacturing, marketing and sales resources than we do, as well
as more experience in research and development, clinical trials,
regulatory matters, manufacturing, marketing and sales. These
organizations also compete with us to:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | attract parties for acquisitions, joint ventures or other
	collaborations;               
|
| |  | license the proprietary technology that is competitive with the
	technology we are using;
|
| |  | attract funding; and                                                                     
|
| |  | attract, hire and retain scientific talent.                                              

Our competitors may succeed in developing and commercializing
products earlier and obtaining regulatory approvals from the FDA
more rapidly than we do. Our competitors may also develop
products or technologies that are superior to those we are
developing, and render our product candidates or technologies
obsolete or non-competitive. If we cannot successfully compete
with new or existing products our marketing and sales will
suffer and we may never be profitable.

If product liability lawsuits are successfully brought
against us, we may incur substantial liabilities and may be
required to limit commercialization of our products.

Our business exposes us to product liability risks, that are
inherent in the testing, manufacturing, marketing and sale of
pharmaceutical products. We may not be able to avoid product
liability claims. Product liability insurance for the
pharmaceutical industry is generally expensive, if available at
all. We do not currently have any product liability insurance.
If we are unable to obtain sufficient insurance coverage on
reasonable terms or to otherwise protect against potential
product liability claims, we may be unable to commercialize our
product candidates. A successful product liability claim brought
against for damages in an amount that exceeds our insurance
coverage, if any, may cause us to incur substantial liabilities
and our business may fail.

If we use biological and hazardous materials in a manner that
causes injury, we may be liable for damages.

Our research and development activities involve the controlled
use of potentially harmful biological materials as well as
hazardous materials, chemicals and various radioactive
compounds. We cannot completely eliminate the risk of accidental
contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for damages, and such liability
could exceed our resources. We are subject to federal, state and
local laws and regulations governing the use, storage, handling
and disposal of these materials and specified waste products.
The cost of compliance with these laws and regulations could be
significant.

Item 7A.  Quantitative and Qualitative Disclosures
about Market Risk

Our exposure to market risk for changes in interest rates
relates primarily to the increase or decrease in the amount of
interest income we can earn on our investment portfolio and on
the increase or decrease in the amount of interest expense we
must pay with respect to our various outstanding debt
instruments. Under our current policies, we do not use interest
rate derivative instruments to manage our exposure to interest
rate changes. We ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk
and reinvestment risk. We mitigate default risk by investing in
investment grade securities. A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate
yield curve would not materially affect the fair value of our
interest sensitive financial instruments at December 31,
2000. Declines in interest rates over time will, however, reduce
our interest income while increases in interest rates over time
will increase our interest expense.

31



---



##### Table of Contents



Item 8.  Financial Statements and Supplementary Data




INDEX TO FINANCIAL STATEMENTS

ESPERION THERAPEUTICS, INC.

(A Company in the Development Stage)


|                                                                                                         |  |      |    | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                         |  | Page
|                                                                                                         |  |     
|Report of Arthur Andersen LLP, Independent Public
	Accountants                                           |  |      | 33 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Consolidated Balance Sheets as of December 31, 2000 and 1999                                             |  |      | 34 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Consolidated Statements of Operations for the periods ended
	December 31, 2000, 1999, and 1998           |  |      | 35 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Consolidated Statements of Stockholders Equity for the
	periods ended December 31, 2000, 1999, and 1998 |  |      | 36 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Consolidated Statements of Cash Flows for the periods ended
	December 31, 2000, 1999, and 1998           |  |      | 37 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Notes to Consolidated Financial Statements                                                               |  |      | 38 | 

32



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##### Table of Contents






REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Esperion
Therapeutics, Inc.:

We have audited the accompanying consolidated balance sheets of
Esperion Therapeutics, Inc. (a Delaware corporation in the
development stage) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the two
years then ended, the period from inception (May 18, 1998)
to December 31, 1998, and the period from inception to
December 31, 2000. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with 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 Esperion Therapeutics, Inc. and subsidiaries as of
December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2000, the period from inception
to December 31, 1998, and the period from inception to
December 31, 2000, in conformity with accounting principles
generally accepted in the United States.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Ann Arbor, Michigan,



33



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES

(A Company in the Development Stage)







CONSOLIDATED BALANCE SHEETS


|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |         |       | 
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------ | ------------ | ------ | - | ----- | ------- | ----- | 
|                                                                                                                       |                                                                                                                                                                                                                                | December 31,               |        | December 31,
|                                                                                                                       |                                                                                                                                                                                                                                | 2000                       |        | 1999        
|In thousands, except share data                                                                                        |                                                                                                                                                                                                                                |                            |        |             
|ASSETS                                                                                                                 |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Current Assets:                                                                                                        |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Cash and cash equivalents                                                                                                                                                                                                      |                            | $      | 70,228       |        |   | $     | 5,904   |      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Prepaid expenses and other                                                                                                                                                                                                     |                            |        | 1,112        |        |   |       | 139     |      
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                       |                                                                                                                                                                                                                                | Total current assets       |        |              | 71,340 |   |       |         | 6,043 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Furniture and equipment, less accumulated depreciation of $1,256
	and $472 at December 31, 2000 and 1999, respectively |                                                                                                                                                                                                                                |                            | 2,503  |              |        |   | 1,956 |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Goodwill, less accumulated amortization of $250 at
	December 31, 2000                                                  |                                                                                                                                                                                                                                |                            | 3,500  |              |        |   |      |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Deposits and other assets                                                                                              |                                                                                                                                                                                                                                |                            | 534    |              |        |   |      |        
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                       |                                                                                                                                                                                                                                | $                          | 77,877 |              |        | $ | 7,999 |        
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                   |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Current Liabilities:                                                                                                   |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Current portion of long-term debt                                                                                                                                                                                              |                            | $      | 697          |        |   | $     | 495     |      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accounts payable                                                                                                                                                                                                               |                            |        | 3,936        |        |   |       | 1,425   |      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accrued liabilities                                                                                                                                                                                                            |                            |        | 2,526        |        |   |       | 980     |      
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                       |                                                                                                                                                                                                                                | Total current liabilities  |        |              | 7,159  |   |       |         | 2,900 | 
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|Long-term debt, less current portion above                                                                             |                                                                                                                                                                                                                                |                            | 3,027  |              |        |   | 2,284 |        
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|Commitments and Contingencies (Note 7)                                                                                 |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Stockholders Equity:                                                                                                  |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Preferred stock, $0.01 par value; 5,000,000 and 15,000,000
	shares authorized at December 31, 2000 and 1999,
	respectively, 0 and 10,500,000 shares issued and
	outstanding at December 31, 2000 and 1999, respectively        |                            |        |             |        |   |       | 105     |      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Common stock, $0.001 par value; 50,000,000 and 20,000,000
	shares authorized at December 31, 2000 and 1999,
	respectively, 25,774,485 and 1,936,299 shares issued and
	outstanding at December 31, 2000 and 1999, respectively |                            |        | 26           |        |   |       | 2       |      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Additional paid-in capital                                                                                                                                                                                                     |                            |        | 110,650      |        |   |       | 16,467  |      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Notes receivable                                                                                                                                                                                                               |                            |        | (67          | )      |   |       | (106    | )    
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accumulated deficit during the development stage                                                                                                                                                                               |                            |        | (40,389      | )      |   |       | (12,813 | )    
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Deferred stock compensation                                                                                                                                                                                                    |                            |        | (2,774       | )      |   |       | (838    | )    
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accumulated other comprehensive income/(loss)                                                                                                                                                                                  |                            |        | 245          |        |   |       | (2      | )    
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                       |                                                                                                                                                                                                                                | Total stockholders equity |        |              | 67,691 |   |       |         | 2,815 | 
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        
|                                                                                                                       |                                                                                                                                                                                                                                | $                          | 77,877 |              |        | $ | 7,999 |        
|                                                                                                                       |                                                                                                                                                                                                                                |                            |        |              |        |   |       |        

The accompanying notes are an integral part of these
consolidated balance sheets.

34



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES

(A Company in the Development Stage)







CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |        |         |  
|------------------------------------------------------------------------ | --------------------------------------------- | ------------------------ | ---------- | ------------ | ------- | ------------ | --------- | ------------ | ------- | - | --------- | ----- | ------ | - | ------- | ------ | ------- | -
|                                                                         |                                               | Year Ended               |            | Year Ended   |         | Inception to |           | Inception to
|                                                                         |                                               | December 31,             |            | December 31, |         | December 31, |           | December 31,
|                                                                         |                                               | 2000                     |            | 1999         |         | 1998         |           | 2000        
|In thousands, except share and per share data                            |                                               |                          |            |              |         |              |           |             
|Operating expenses:                                                      |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Research and development                      |                          | $          | 21,789       |         |              | $         | 8,484        |         |   | $         | 1,923 |        |   | $       | 32,196 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | General and administrative                    |                          |            | 2,949        |         |              |           | 2,239        |         |   |           | 464   |        |   |         | 5,652  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Deferred stock amortization                   |                          |            | 1,014        |         |              |           | 279          |         |   |           |      |        |   |         | 1,293  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Goodwill amortization                         |                          |            | 250          |         |              |           |             |         |   |           |      |        |   |         | 250    |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Purchased in-process research and development |                          |            | 4,000        |         |              |           |             |         |   |           |      |        |   |         | 4,000  |        
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|                                                                         |                                               | Total operating expenses |            |              | 30,002  |              |           |              | 11,002  |   |           |       | 2,387  |   |         |        | 43,391  |  
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|                                                                         |                                               | Loss from operations     |            |              | (30,002 | )            |           |              | (11,002 | ) |           |       | (2,387 | ) |         |        | (43,391 | )
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Other income (expense):                                                  |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Interest income                               |                          |            | 2,633        |         |              |           | 424          |         |   |           | 246   |        |   |         | 3,303  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Interest expense                              |                          |            | (408         | )       |              |           | (92          | )       |   |           |      |        |   |         | (500   | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Other, net                                    |                          |            | 201          |         |              |           |             |         |   |           | (2    | )      |   |         | 199    |        
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|                                                                         |                                               | Total other income       |            |              | 2,426   |              |           |              | 332     |   |           |       | 244    |   |         |        | 3,002   |  
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Net loss before taxes                                                    |                                               |                          | (27,576    | )            |         |              | (10,670   | )            |         |   | (2,143    | )     |        |   | (40,389 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Provision for income taxes                                               |                                               |                          |           |              |         |              |          |              |         |   |          |       |        |   |        |       
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Net loss                                                                 |                                               |                          | (27,576    | )            |         |              | (10,670   | )            |         |   | (2,143    | )     |        |   | (40,389 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Beneficial conversion feature upon issuance of preferred stock           |                                               |                          | (22,870    | )            |         |              |          |              |         |   |          |       |        |   | (22,870 | )     
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Net loss attributable to common stockholders                             |                                               | $                        | (50,446    | )            |         | $            | (10,670   | )            |         | $ | (2,143    | )     |        | $ | (63,259 | )     
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Basic and diluted net loss per share                                     |                                               | $                        | (4.50      | )            |         | $            | (5.91     | )            |         | $ | (1.46     | )     |        |   |         |       
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Shares used in computing basic and diluted net loss per share            |                                               |                          | 11,222,319 |              |         |              | 1,806,255 |              |         |   | 1,466,615 |       |        |   |         |       
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Pro forma basic and diluted net loss per share                           |                                               | $                        | (2.45      | )            |         | $            | (1.14     | )            |         |   |           |       |        |   |         |       
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       
|Shares used in computing pro forma basic and diluted net loss
	per share |                                               |                          | 20,603,313 |              |         |              | 9,392,499 |              |         |   |           |       |        |   |         |       
|                                                                         |                                               |                          |            |              |         |              |           |              |         |   |           |       |        |   |         |       

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

35



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES

(A Company in the Development Stage)







CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |   | 
|------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------ | ------------ | ----------- | - | ------ | ---- | ---------- | - | ---------- | -- | ----------- | -- | ------------ | ------- | - | - | - | ---- | - | - | - | ------- | ------- | - | - | ------ | - | 
|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    | Accumulated |    |             
|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    | Deficit     |    |             
|                                                                                                                    |                                         |                          |              | Convertible |   |        |      | Additional |   |            |    | During the  |    | Deferred    
|In thousands,                                                                                                       |                                         | Date of                  |              | Preferred   |   | Common |      | Paid-In    |   | Notes      |    | Development |    | Stock       
|except share                                                                                                        |                                         | Transaction              |              | Stock       |   | Stock  |      | Capital    |   | Receivable |    | Stage       |    | Compensation
|data                                                                                                                |                                         |                          |              |             |   |        |      |            |   |            |    |             |    |             
|Balance  Inception (May 18, 1998)                                                                                  |                                         |                          |              |             |   | $      |     |            |   | $          |   |             |    | $            |        |   |   | $ |     |   |   | $ |        |         |   | $ |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 1,329,399 shares of common stock for cash                                                               |                                         |                          | July 6       |             |   |        |     |            |   |            | 2  |             |    |              |         |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 500,000  shares of Series A preferred
	stock for cash                                                   |                                         |                          | July 6       |             |   |        | 5    |            |   |            |   |             |    |              | 464     |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 10,000,000 shares of Series B preferred
	stock for cash                                                 |                                         |                          | August 11    |             |   |        | 100  |            |   |            |   |             |    |              | 14,760  |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 144,500  shares of common stock                                                                         |                                         |                          | September 1  |             |   |        |     |            |   |            |   |             |    |              | 30      |   |   |   | (30  | ) |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 86,700  shares of common stock for note                                                                 |                                         |                          | November 1   |             |   |        |     |            |   |            |   |             |    |              | 18      |   |   |   | (18  | ) |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 144,500  shares of common stock for note                                                                |                                         |                          | December 11  |             |   |        |     |            |   |            |   |             |    |              | 30      |   |   |   | (30  | ) |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net loss                                |                          |              |             |   |        |      |           |   |            |    |            |    |              |         |  |   |   |      |  |   |   |         | (2,143  | ) |   |        |  | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Foreign currency translation adjustment |                          |              |             |   |        |      |           |   |            |    |            |    |              |         |  |   |   |      |  |   |   |         |        |   |   |        |  | 
|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |  
|                                                                                                                    | Comprehensive loss                      |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |   | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Balance  December 31, 1998                                                                                         |                                         |                          |              |             |   |        | 105  |            |   |            | 2  |             |    |              | 15,302  |   |   |   | (78  | ) |   |   | (2,143  | )       |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 57,800  shares of common stock for notes                                                                |                                         |                          | June 4       |             |   |        |     |            |   |            |   |             |    |              | 12      |   |   |   | (12  | ) |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 173,400  shares of common stock for notes                                                               |                                         |                          | July 1       |             |   |        |     |            |   |            |   |             |    |              | 36      |   |   |   | (36  | ) |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Decrease in notes receivables                                                                                       |                                         |                          |              |             |   |        |     |            |   |            |   |             |    |              |        |   |   |   | 20   |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Deferred stock compensation related to stock options                                                                |                                         |                          |              |             |   |        |     |            |   |            |   |             |    |              | 1,117   |   |   |   |     |   |   |   |        |         |   |   | (1,117 | )
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Amortization of deferred stock compensation                                                                         |                                         |                          |              |             |   |        |     |            |   |            |   |             |    |              |        |   |   |   |     |   |   |   |        |         |   |   | 279    |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net loss                                |                          |              |             |   |        |      |           |   |            |    |            |    |              |         |  |   |   |      |  |   |   |         | (10,670 | ) |   |        |  | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Foreign currency translation adjustment |                          |              |             |   |        |      |           |   |            |    |            |    |              |         |  |   |   |      |  |   |   |         |        |   |   |        |  | 
|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |  
|                                                                                                                    | Comprehensive loss                      |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |   | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Balance  December 31, 1999                                                                                         |                                         |                          |              |             |   |        | 105  |            |   |            | 2  |             |    |              | 16,467  |   |   |   | (106 | ) |   |   | (12,813 | )       |   |   | (838   | )
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 333,966  shares of common stock upon exercise
	of options                                               |                                         | March 1-December 22      |              |             |  |        |      |            |  |            |    |             | 74 |              |         |   |  |   |      |   |  |   |         |         |  |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 10,125,465 shares of Series C preferred
	stock for cash                                                 |                                         |                          | January 7    |             |   |        | 101  |            |   |            |   |             |    |              | 21,770  |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 127,414  shares of Series C preferred
	stock for services                                               |                                         |                          | January 7    |             |   |        | 1    |            |   |            |   |             |    |              | 687     |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 1,136,363 shares of Series D preferred
	stock for cash                                                  |                                         |                          | February 22  |             |   |        | 11   |            |   |            |   |             |    |              | 4,989   |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Repurchase of 29,791 shares of common stock                                                                         |                                         |                          | July 13      |             |   |        |     |            |   |            |   |             |    |              | (6      | ) |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 6,000,000 shares of common stock for initial public
	offering net of $1.6  million in offering expenses |                                         |                          | August 10    |             |   |        |     |            |   |            | 6  |             |    |              | 48,614  |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 900,000 shares of common stock for
	underwriters over-allotment                                        |                                         |                          | September 5  |             |   |        |     |            |   |            | 1  |             |    |              | 7,532   |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 813,008 shares of common stock for acquisition of
	Talaria Therapeutics, Inc.                           |                                         |                          | September 21 |             |   |        |     |            |   |            | 1  |             |    |              | 7,316   |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 6,042 shares of common stock for employee stock
	purchase plan                                          |                                         | September 30-December 31 |              |             |  |        |      |            |  |            |    |             | 55 |              |         |   |  |   |      |   |  |   |         |         |  |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Conversion of preferred stock                                                                                       |                                         |                          | August 9     |             |   |        | (218 | )          |   |            | 16 |             |    |              | 202     |   |   |   |     |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Deferred stock compensation related to stock options                                                                |                                         |                          |              |             |   |        |     |            |   |            |   |             |    |              | 2,950   |   |   |   |     |   |   |   |        |         |   |   | (2,950 | )
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Amortization of deferred stock compensation                                                                         |                                         |                          |              |             |   |        |     |            |   |            |   |             |    |              |         |   |   |   |     |   |   |   |        |         |   |   | 1,014  |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Decrease in notes receivable                                                                                        |                                         |                          |              |             |   |        |     |            |   |            |    |             |    |              |        |   |   |   | 39   |   |   |   |        |         |   |   |       |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net loss                                |                          |              |             |   |        |      |           |   |            |    |            |    |              |         |  |   |   |      |  |   |   |         | (27,576 | ) |   |        |  | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Foreign currency translation adjustment |                          |              |             |   |        |      |           |   |            |    |            |    |              |         |  |   |   |      |  |   |   |         |        |   |   |        |  | 
|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |  
|                                                                                                                    | Comprehensive loss                      |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |   | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Balance  December 31, 2000                                                                                         |                                         |                          |              |             |   | $      |     |            |   | $          | 26 |             |    | $            | 110,650 |   |   | $ | (67  | ) |   | $ | (40,389 | )       |   | $ | (2,774 | )
|                                                                                                                    |                                         |                          |              |             |   |        |      |            |   |            |    |             |    |              |         |   |   |   |      |   |   |   |         |         |   |   |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------- | --- | ------------- | - | ------------- | ------ | ------- | - |  | - | ------- | -
|                                                                                                                    |                                         | Accumulated   |     |               |   |              
|                                                                                                                    |                                         | Other         |     | Total         |   |              
|In thousands,                                                                                                       |                                         | Comprehensive |     | Stockholders |   | Comprehensive
|except share                                                                                                        |                                         | Income/(Loss) |     | Equity        |   | Loss         
|data                                                                                                                |                                         |               |     |               |   |              
|Balance  Inception (May 18, 1998)                                                                                  |                                         | $             |    |               |   | $             |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 1,329,399 shares of common stock for cash                                                               |                                         |               |    |               |   |               | 2      |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 500,000  shares of Series A preferred
	stock for cash                                                   |                                         |               |    |               |   |               | 469    |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 10,000,000 shares of Series B preferred
	stock for cash                                                 |                                         |               |    |               |   |               | 14,860 |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 144,500  shares of common stock                                                                         |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 86,700  shares of common stock for note                                                                 |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 144,500  shares of common stock for note                                                                |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net loss                                |               |     |              |   |               |        | (2,143  | ) |  | $ | (2,143  | )
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Foreign currency translation adjustment |               |     | (1            | ) |               |        | (1      | ) |  |   | (1      | )
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        
|                                                                                                                    | Comprehensive loss                      |               |     |               |   |               |        |         |   |  | $ | (2,144  | )
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        
|Balance  December 31, 1998                                                                                         |                                         |               | (1  | )             |   |               | 13,187 |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 57,800  shares of common stock for notes                                                                |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 173,400  shares of common stock for notes                                                               |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Decrease in notes receivables                                                                                       |                                         |               |    |               |   |               | 20     |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Deferred stock compensation related to stock options                                                                |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Amortization of deferred stock compensation                                                                         |                                         |               |    |               |   |               | 279    |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net loss                                |               |     |              |   |               |        | (10,670 | ) |  | $ | (10,670 | )
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Foreign currency translation adjustment |               |     | (1            | ) |               |        | (1      | ) |  |   | (1      | )
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        
|                                                                                                                    | Comprehensive loss                      |               |     |               |   |               |        |         |   |  | $ | (10,671 | )
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        
|Balance  December 31, 1999                                                                                         |                                         |               | (2  | )             |   |               | 2,815  |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 333,966  shares of common stock upon exercise
	of options                                               |                                         |               |    |               |   |               | 74     |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 10,125,465 shares of Series C preferred
	stock for cash                                                 |                                         |               |    |               |   |               | 21,871 |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 127,414  shares of Series C preferred
	stock for services                                               |                                         |               |    |               |   |               | 688    |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 1,136,363 shares of Series D preferred
	stock for cash                                                  |                                         |               |    |               |   |               | 5,000  |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Repurchase of 29,791 shares of common stock                                                                         |                                         |               |    |               |   |               | (6     | )       |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 6,000,000 shares of common stock for initial public
	offering net of $1.6  million in offering expenses |                                         |               |    |               |   |               | 48,620 |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 900,000 shares of common stock for
	underwriters over-allotment                                        |                                         |               |    |               |   |               | 7,533  |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 813,008 shares of common stock for acquisition of
	Talaria Therapeutics, Inc.                           |                                         |               |    |               |   |               | 7,317  |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Issuance of 6,042 shares of common stock for employee stock
	purchase plan                                          |                                         |               |    |               |   |               | 55     |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Conversion of preferred stock                                                                                       |                                         |               |    |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Deferred stock compensation related to stock options                                                                |                                         |               |     |               |   |               |       |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Amortization of deferred stock compensation                                                                         |                                         |               |    |               |   |               | 1,014  |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Decrease in notes receivable                                                                                        |                                         |               |    |               |   |               | 39     |         |   |  |   |        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net loss                                |               |     |              |   |               |        | (27,576 | ) |  | $ | (27,576 | )
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Foreign currency translation adjustment |               |     | 247           |   |               |        | 247     |   |  |   | 247     |  
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        
|                                                                                                                    | Comprehensive loss                      |               |     |               |   |               |        |         |   |  | $ | (27,329 | )
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        
|Balance  December 31, 2000                                                                                         |                                         | $             | 245 |               |   | $             | 67,691 |         |   |  |   |        
|                                                                                                                    |                                         |               |     |               |   |               |        |         |   |  |   |        

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

36



---



##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES

(A Company in the Development Stage)







CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |         |        |         |  
|------------------------------------------------ | ----------------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------- | ------------ | ------ | ------------ | ------ | ------------ | ----- | ------ | ------ | ------ | --- | ------ | ------ | ------- | ------ | ------- | -
|                                                 |                                                                               | Year Ended                                    |                                           | Year Ended   |        | Inception to |        | Inception to
|                                                 |                                                                               | December 31,                                  |                                           | December 31, |        | December 31, |        | December 31,
|                                                 |                                                                               | 2000                                          |                                           | 1999         |        | 1998         |        | 2000        
|In thousands                                     |                                                                               |                                               |                                           |              |        |              |        |             
|Cash Flows from Operating Activities:            |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Net loss                                                                      |                                               | $                                         | (27,576      | )      |              | $      | (10,670      | )     |        | $      | (2,143 | )   |        | $      | (40,389 | )     
|                                                 | Adjustments to reconcile net loss to net cash used in operating
	activities  |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Purchased in-process research and development |                                           |              | 4,000  |              |        |              |      |        |        |        |    |        |        |         | 4,000  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Depreciation and amortization                 |                                           |              | 2,050  |              |        |              | 683   |        |        |        | 68  |        |        |         | 2,801  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Stock-based compensation expense              |                                           |              | 413    |              |        |              | 275   |        |        |        |    |        |        |         | 688    |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Decrease in notes receivable                  |                                           |              | 39     |              |        |              | 20    |        |        |        |    |        |        |         | 59     |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Non-cash interest included in long-term debt  |                                           |              | 145    |              |        |              | 15    |        |        |        |    |        |        |         | 160    |        
|                                                 | Increase (decrease) in cash resulting from changes in                        |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Prepaid expenses and other                    |                                           |              | (1,256 | )            |        |              | (63   | )      |        |        | (75 | )      |        |         | (1,394 | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Other assets                                  |                                           |              | (85    | )            |        |              |      |        |        |        |    |        |        |         | (85    | )      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Accounts payable                              |                                           |              | 2,619  |              |        |              | 1,317 |        |        |        | 78  |        |        |         | 4,014  |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                               | Accrued liabilities                           |                                           |              | 1,697  |              |        |              | 571   |        |        |        | 147 |        |        |         | 2,415  |        
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|                                                 |                                                                               |                                               | Net cash used in operating activities     |              |        | (17,954      | )      |              |       | (7,852 | )      |        |     | (1,925 | )      |         |        | (27,731 | )
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|Cash Flows from Investing Activities:            |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchases of furniture and equipment                                          |                                               |                                           | (1,341       | )      |              |        | (1,563       | )     |        |        | (864   | )   |        |        | (3,768  | )     
|                                                
|                                                
|                                                
|                                                
|                                                 | Deposit on equipment                                                          |                                               |                                           | (450         | )      |              |        |             |       |        |        |       |     |        |        | (450    | )     
|                                                
|                                                
|                                                
|                                                
|                                                 | Acquisition of Talaria Therapeutics, Inc.                                     |                                               |                                           | (233         | )      |              |        |             |       |        |        |       |     |        |        | (233    | )     
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|                                                 |                                                                               |                                               | Net cash used in investing activities     |              |        | (2,024       | )      |              |       | (1,563 | )      |        |     | (864   | )      |         |        | (4,451  | )
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|Cash Flows from Financing Activities:            |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from issuance of convertible preferred stock                     |                                               |                                           | 26,871       |        |              |        |             |       |        |        | 15,329 |     |        |        | 42,200  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from initial public offering                                     |                                               |                                           | 56,153       |        |              |        |             |       |        |        |       |     |        |        | 56,153  |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from issuance of common stock                                        |                                               |                                           | 123          |        |              |        |             |       |        |        | 2      |     |        |        | 125     |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from long-term debt                                                  |                                               |                                           | 1,489        |        |              |        | 3,027        |       |        |        |       |     |        |        | 4,516   |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayments of long-term debt                                                  |                                               |                                           | (518         | )      |              |        | (248         | )     |        |        |       |     |        |        | (766    | )     
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|                                                 |                                                                               |                                               | Net cash provided by financing activities |              |        | 84,118       |        |              |       | 2,779  |        |        |     | 15,331 |        |         |        | 102,228 |  
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|Effect of Exchange Rate Changes on Cash          |                                                                               |                                               | 184                                       |              |        |              | (1     | )            |       |        | (1     | )      |     |        | 182    |        
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|Increase (Decrease) in Cash and Cash Equivalents |                                                                               |                                               | 64,324                                    |              |        |              | (6,637 | )            |       |        | 12,541 |        |     |        | 70,228 |        
|                                                
|                                                
|                                                
|                                                
|Cash and Cash Equivalents  Beginning of Period  |                                                                               |                                               | 5,904                                     |              |        |              | 12,541 |              |       |        |       |        |     |        |       |        
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        
|Cash and Cash Equivalents  End of Period        |                                                                               | $                                             | 70,228                                    |              |        | $            | 5,904  |              |       | $      | 12,541 |        |     | $      | 70,228 |        
|                                                 |                                                                               |                                               |                                           |              |        |              |        |              |       |        |        |        |     |        |        |        

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

37



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES

(A Company in the Development Stage)







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Description of the Business

Esperion Therapeutics, Inc. (formerly
Metapharma, Inc.) was incorporated on May 18, 1998.
Esperion Therapeutics, Inc. and its subsidiaries, Esperion
AB and Esperion LUV Development, Inc. (collectively referred to
as the Company), are devoting substantially all of
their efforts towards conducting drug discovery and development,
initiating clinical trials, pursuing regulatory approval for
products under development, recruiting personnel, raising
capital, and building infrastructure. The Companys main
focus is the research and development of pharmaceutical product
candidates for cardiovascular and metabolic diseases.

In the course of such activities, the Company has sustained
significant operating losses and expects such losses, which will
likely increase as the Company expands its research and
development activities, to continue for at least the next
several years. The Company has not generated any revenues or
product sales and has not achieved profitable operations or
positive cash flows from operations. The Companys
accumulated deficit during the development stage totaled
approximately $40.4 million through December 31, 2000.
The Company plans to finance its operations with a combination
of stock issuances, license payments, payments from strategic
research and development arrangements and, in the longer term,
revenues from product sales. There are no assurances that the
Company will be successful in obtaining an adequate level of
financing needed for the long-term development and
commercialization of its planned products.

(2)  Significant Accounting Policies



| |                                            
| | -------------------------------------------
| | Principles of Consolidation and Translation

The accompanying consolidated financial statements include the
accounts of Esperion Therapeutics, Inc., Esperion AB
(Sweden) and Esperion LUV Development, Inc. All
significant intercompany accounts and transactions have been
eliminated in consolidation.

The financial statements of Sweden are translated using exchange
rates in effect at the end of the period for assets and
liabilities and at average rates during the period for results
of operations. The resulting foreign currency translation
adjustment is reflected as a separate component of
stockholders equity. Other foreign currency transaction
gains and losses are included in other income in the statement
of operations.



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

Research and development expenses include employee payroll and
other related costs attributable to research and development
activities and are expensed as incurred. Research and
development expenses also include an allocation of overhead
expenses incurred by the Company.



| |                                
| | -------------------------------
| | Licensed Technology and Patents

Costs incurred in obtaining the license rights to certain
technology and patents in the development stage are expensed as
incurred due to the uncertainty regarding potential alternative
future uses and the uncertainty regarding future operating cash
flows expected to be derived from the licensed technology and
patents.



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

The Company considers all financial instruments purchased with
initial maturities of three months or less to be cash
equivalents.



| |                        
| | -----------------------
| | Furniture and Equipment

Additions to furniture and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets ranging from
three to seven years.

38



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



| |         
| | --------
| | Goodwill

Goodwill represents the unamortized cost in excess of fair value
of net assets acquired and is amortized on a straight-line basis
over five years.



| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, if indicators of impairment exist, the
Company assesses the recoverability of the affected long-lived
assets by determining whether the carrying value of such assets
can be recovered through undiscounted future operating cash
flows. If impairment is indicated, the Company measures the
amount of such impairment by comparing the carrying value of the
assets to the present value of the expected future cash flows
associated with the use of the asset. The Companys
long-lived assets consist primarily of goodwill and computer and
lab equipment that are amortized or depreciated over short
useful lives to prevent impairment issues. The Company believes
that the fair value of the assets approximates the assets
carrying value, and accordingly the Company has not recognized
any impairment losses through December 31, 2000.



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

Accrued liabilities consist of the following (in thousands):

|                            |  |              |       |      |  |   |     | 
|--------------------------- |  | ------------ | ----- | ---- |  | - | --- | 
|                            |  |             
|                            |  | Year Ended  
|                            |  | December 31,
|                            |  |             
|                            |  | 2000         |       | 1999
|                           
|                           
|Accrued manufacturing costs |  | $            | 1,211 |      |  | $ | 231 | 
|                           
|                           
|                           
|                           
|Accrued professional fees   |  |              | 828   |      |  |   | 205 | 
|                           
|                           
|                           
|                           
|Accrued compensation        |  |              | 406   |      |  |   | 434 | 
|                           
|                           
|                           
|                           
|Accrued other               |  |              | 81    |      |  |   | 110 | 
|                            |  |              |       |      |  |   |     | 
|                            |  | $            | 2,526 |      |  | $ | 980 | 
|                            |  |              |       |      |  |   |     | 



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

The Company accounts for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair
value of the Companys common stock as of the date of the
grant over the amount the employee must pay to acquire the
stock. As supplemental information, the Company has provided pro
forma disclosures of stock options in Note 5, in accordance
with the requirements of SFAS No. 123, Accounting for
Stock-Based Compensation.



| |                                                  
| | -------------------------------------------------
| | Supplemental Disclosures of Cash Flow Information

The Company paid cash for interest of approximately $282,000,
$66,000, $0 and 348,000 in 2000, 1999 1998 and the period from
inception to December 31, 2000, respectively.



| |                                                
| | -----------------------------------------------
| | Basic, Diluted and Pro Forma Net Loss per Share

Basic and diluted net loss per share amounts have been
calculated using the weighted average number of shares of common
stock outstanding during the respective period. Pro forma basic
and diluted net loss per

39



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

share includes the shares used in computing basic and diluted
net loss per share and the assumed conversion of all outstanding
shares of preferred stock from the original date of issuance.

In 2000, 1999 and 1998, 898,736, 0 and 0 options, respectively,
for the purchase of common stock were not included in the
calculation of diluted loss per share as doing so would have
been anti-dilutive.

The following table presents the calculation of pro forma basic
and diluted net loss per share:

|                                                                                                         |  |              |            |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | --------- | -
|                                                                                                         |  |             
|                                                                                                         |  | December 31,
|                                                                                                         |  |             
|In thousands, except share and per share data                                                            |  | 2000         |            | 1999
|                                                                                                        
|                                                                                                        
|Net loss attributable to common stockholders                                                             |  | $            | (50,446    | )    |  | $ | (10,670   | )
|                                                                                                         |  |              |            |      |  |   |           |  
|Shares used in computing basic and diluted net loss per share                                            |  |              | 11,222,319 |      |  |   | 1,806,255 |  
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Pro forma adjustment to reflect assumed conversion of
	Series A and Series B convertible preferred stock |  |              | 4,614,965  |      |  |   | 7,586,244 |  
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Pro forma adjustment to reflect assumed conversion of
	Series C and Series D convertible preferred stock |  |              | 4,766,029  |      |  |   |          |  
|                                                                                                         |  |              |            |      |  |   |           |  
|Shares used in computing pro forma basic and diluted net loss
	per share                                 |  |              | 20,603,313 |      |  |   | 9,392,499 |  
|                                                                                                         |  |              |            |      |  |   |           |  
|Pro forma basic and diluted net loss per share                                                           |  | $            | (2.45      | )    |  | $ | (1.14     | )
|                                                                                                         |  |              |            |      |  |   |           |  

Comprehensive Loss

Effective in 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income, which establishes
standards for reporting and display of comprehensive income and
its components in a full set of financial statements.
Comprehensive loss is the total of net loss and all other
non-owner changes in equity. The difference between net loss, as
reported in the accompanying consolidated statements of
operations, and comprehensive loss is the foreign currency
translation adjustment for the respective periods. Accumulated
other comprehensive loss consists solely of the cumulative
translation adjustment as presented in the accompanying
consolidated balance sheets.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments. The Company has
not yet quantified the impact of this statement on the
Companys financial statements.

The Company adopted Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25, effective July 1, 2000.
There was no impact on our consolidated financial position or
results of operations.



| |                 
| | ----------------
| | 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 as of the date
of the financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from
those estimates.

40



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



| |                  
| | -----------------
| | Reclassifications

Certain amounts from the 1999 and 1998 financial statements have
been reclassified to conform to the 2000 presentation.

(3)  Stockholders Equity

On March 24, 2000, the stockholders of the Company approved an
amendment and restatement to the Companys certificate of
incorporation that, as of August 9, 2000, effected
(i) an increase in the authorized shares of common stock to
50,000,000, (ii) a reduction in the authorized shares of
preferred stock from 15,000,000 with certain privileges to
5,000,000 with privileges to be determined by the board of
directors when issued. All references in the consolidated
financial statements and accompanying notes have also been
adjusted to reflect the amendment and restatement of the
certificate of incorporation.



| |                    
| | -------------------
| | Reverse Stock Split

The Company effected a 0.7225-for-1 reverse stock split of all
outstanding common stock and stock options as of March 24,
2000. All references to the number of shares and per share
amounts have been retroactively restated to reflect this reverse
stock split.



| |             
| | ------------
| | Common Stock

Holders of common stock are entitled to one vote per share on
all matters submitted to a vote of holders of shares of common
stock, and do not have any cumulative voting rights. In the
event of a liquidation, dissolution, or winding-up of the
Company, the holders of shares of common stock are entitled to
share equally and ratably in the assets of the Company, if any,
remaining after payment of debts and liabilities of the Company,
subject to prior liquidation rights of any outstanding shares of
preferred stock.

In August 2000, the Company completed an initial public
offering of its common stock, which resulted in the issuance of
6,000,000 shares of common stock at $9.00 per share. In
connection with the offering, all of the outstanding preferred
stock was converted to common stock. In September 2000, an
additional 900,000 shares of common stock were sold by the
Company at $9.00 per share to cover the underwriters
over-allotment. The Company received gross proceeds of
$62.1 million, of which $4.3 million was paid as an
underwriting discount. Expenses related to the offering totaled
approximately $1.6 million. The proceeds have been invested
in highly-liquid, interest-bearing, investment-grade securities.



| |                
| | ---------------
| | Preferred Stock

The Board of Directors is authorized to issue up to 5,000,000
shares of preferred stock in one or more series. Under each
issuance of a series of preferred stock, the Board of Directors
is permitted to fix the designations, preferences, powers and
relative rights and restrictions thereof, including without
limitations, the dividend rate, conversion rights, voting
rights, redemption price, and liquidation preference.



| |                              
| | -----------------------------
| | Conversion of Preferred Stock

In connection with the initial public offering, each of the
Companys outstanding shares of Series A,
Series B, Series C and Series D preferred stock
(Series A, Series B,
Series C and Series D,
respectively, together Preferred Stock) was
automatically converted into approximately 0.7225 shares of
common stock.

41



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



| |                      
| | ---------------------
| | Series C and Series D

In January and February 2000, the Company issued shares of
Series C and Series D. Total cash proceeds to the
Company were approximately $21.9 million and
$5.0 million relating to the issuance of
10,252,879 shares of Series C and
1,136,363 shares of Series D, respectively. As a part
of the Series C, the Company issued 127,414 shares to
the chief executive officer and another member of the Board of
Directors for services rendered to the Company during 1999. The
Company recorded the related expense of $275,215 as an increase
to compensation expense during 1999 and recorded the related
liability as an increase in accrued liabilities as of
December 31, 1999.

In accordance with EITF 98-5, the Company recorded approximately
$22.9 million relating to the beneficial conversion feature
of the Series C and Series D in the first quarter of
fiscal 2000 through equal and offsetting adjustments to
additional paid-in capital with no net impact on
stockholders equity, as the preferred stock was
convertible immediately on the date of issuance. The beneficial
conversion feature was considered in the determination of the
Companys loss per common share amounts. The Company also
recorded an additional $412,819 relating to the Series C
shares issued to the chief executive officer and a Board member
in the first quarter of fiscal 2000. This non-cash charge was
reflected through entries to compensation expense and additional
paid-in-capital.

(4)  Acquisition

On September 21, 2000, the Company acquired all of the
outstanding shares of stock of Talaria Therapeutics, Inc.
(Talaria) in exchange for the issuance of 813,008
shares of the Companys restricted common stock to Talaria
stockholders, valued at a price of $9.00 per share.
Additionally, the merger agreement provides for the following
additional consideration to Talaria stockholders:
(i) payment by the Company of up to $6.3 million in
cash and/or common stock based on the achievement of four future
development milestones; and (ii) payment by the Company of
royalties in cash and/or common stock based on net annual sales
of large unilamellar vesicles, or LUVs, in North America. The
milestones are due upon the enrollment of the first patient in
certain future clinical trials and upon each of the filing and
approval of a new drug application in the United States. These
milestone payments will increase the amount of the purchase
price in the period when the milestone is achieved, and the
Company will include these additional amounts in goodwill. The
royalty payments will be included in cost of sales in the period
when the respective sales are recognized. The combined milestone
payments and royalties are subject to a maximum aggregate
ceiling of $20.0 million.

The acquisition was accounted for under the purchase method of
accounting. In connection with this acquisition, the Company
recorded a one-time charge to operations in 2000 of
$4.0 million, associated with the write-off of in-process
research and development acquired in the transaction that had
not reached technological feasibility. The allocation of the
purchase price was based on an independent appraisal of the fair
values on the closing date. The Company recorded approximately
$3.75 million as goodwill, representing the excess of the
purchase price over the fair value of net assets acquired. This
amount included $265,000 of accrued liabilities related to
acquisition costs. The goodwill is being amortized on a
straight-line basis over a period of five years. The operating
results of Talaria have been included in the consolidated
results of operations from the date of the merger.

42



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The purchase price allocation based on the net assets of Talaria
at the closing date is as follows (in thousands):

|                                    |                      |   |       |       | 
|----------------------------------- | -------------------- | - | ----- | ----- | 
|                                   
|                                   
|                                   
|                                   
|Net assets (liabilities)            |                      | $ | (168  | )    
|                                   
|                                   
|                                   
|                                   
|In-process research and development |                      |   | 4,000 |      
|                                   
|                                   
|                                   
|                                   
|Goodwill                            |                      |   | 3,750 |      
|                                    |                      |   |       |      
|                                    | Total purchase price |   | $     | 7,582 | 
|                                    |                      |   |       |      

The unaudited pro forma operations for the year ended
December 31, 2000 and 1999, set forth below, reports
results as if the Company and Talaria had been combined as of
the beginning of the year. The pro forma results include
estimates and assumptions which management believes are
reasonable. However, pro forma results do not include the
write-off of in-process research and development, any
anticipated cost savings or other effects of the planned
integration of the Company and Talaria, and are not necessarily
indicative of the results which would have occurred if the
business combination had been in effect for the periods
presented below, or which may result in the future.

|                                                              |  |                         |            |      |  |   |           |  
|------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | - | --------- | -
|                                                              |  |                        
|                                                              |  | Pro forma              
|                                                              |  | Year ended December 31,
|                                                              |  |                        
|In thousands, except per share data                           |  | 2000                    |            | 1999
|                                                             
|                                                             
|Operating expenses                                            |  | $                       | 27,941     |      |  | $ | 13,834    |  
|                                                             
|                                                             
|                                                             
|                                                             
|Net loss                                                      |  |                         | (29,682    | )    |  |   | (13,438   | )
|                                                             
|                                                             
|                                                             
|                                                             
|Basic and diluted net loss per share                          |  | $                       | (2.51      | )    |  | $ | (5.13     | )
|                                                             
|                                                             
|                                                             
|                                                             
|Shares used in computing basic and diluted net loss per share |  |                         | 11,809,492 |      |  |   | 2,619,263 |  

(5)  Equity Compensation Plans



| |                              
| | -----------------------------
| | 2000 Equity Compensation Plan

In 2000, the Company established the 2000 Equity Compensation
Plan (the 2000 Plan). The 2000 Plan
provides for grants of incentive stock options, nonqualified
stock options, stock awards and performance units to the
Companys employees, advisors, consultants and non-employee
directors.

The 2000 Plan authorizes the issuance of up to 1,000,000 shares
of common stock. No stock awards or performance units have been
granted to date under the 2000 Plan. Grants may be made to any
of the Companys employees, members of our board of
directors, and consultants and advisors who perform services for
us. The exercise price of options will be determined by the
compensation committee, and may be equal to or greater than the
fair market value of the Companys common stock on the date
the option is granted. Options generally become exercisable over
a period of four years from the date of grant, and expire ten
years after the grant date. Activity related to stock options
under the 2000 Plan is summarized as follows:

|                                 |                   |           |         |          |  |   |       |       | 
|-------------------------------- | ----------------- | --------- | ------- | -------- |  | - | ----- | ----- | 
|                                 |                   |           |         | Weighted
|                                 |                   |           |         | Average 
|                                 |                   | Number of |         | Exercise
|                                 |                   | Shares    |         | Price   
|                                 |                   |           |         |         
|Outstanding at December 31, 1999 |                   |           |        |          |  |   |       |      
|                                
|                                
|                                
|                                
|                                 | Options granted   |           |         | 160,000  |  |   | $     | 11.53 | 
|                                
|                                
|                                
|                                
|                                 | Options cancelled |           |         |         |  |   |       |       | 
|                                
|                                
|                                
|                                
|                                 | Options exercised |           |         |         |  |   |       |       | 
|                                 |                   |           |         |          |  |   |       |      
|Outstanding at December 31, 2000 |                   |           | 160,000 |          |  | $ | 11.53 |      

43



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The options outstanding and exercisable at December 31,
2000 are as follows:

|          |       |             |  |          |         |             |  |             |       |          |  |  |     |  |  |  |       |  |  |   |       | 
|--------- | ----- | ----------- |  | -------- | ------- | ----------- |  | ----------- | ----- | -------- |  |  | --- |  |  |  | ----- |  |  | - | ----- | 
|          |       |             |  |          |         | Weighted    |  |             |       |         
|          |       |             |  | Weighted |         | Average     |  |             |       | Weighted
|          |       |             |  | Average  |         | Contractual |  |             |       | Average 
|Price Per |       | Options     |  | Exercise |         | Remaining   |  | Options     |       | Exercise
|Share     |       | Outstanding |  | Price    |         | Life        |  | Exercisable |       | Price   
|          |       |             |  |          |         |             |  |             |       |         
|          |       |             |  |          |         | (years)     |  |             |       |         
|$         | 9.00  |             |  |          | 100,000 |             |  | $           | 9.00  |          |  |  | 9.6 |  |  |  | 6,250 |  |  | $ | 9.00  | 
|$         | 13.75 |             |  |          | 30,000  |             |  | $           | 13.75 |          |  |  | 9.9 |  |  |  | 0     |  |  | $ | 13.75 | 
|$         | 17.75 |             |  |          | 30,000  |             |  | $           | 17.75 |          |  |  | 9.9 |  |  |  | 0     |  |  | $ | 17.75 | 
|          |       |             |  |          |         |             |  |             |       |          |  |  |     |  |  |  |       |  |  |   |       | 
|          |       |             |  |          | 160,000 |             |  |             |       |          |  |  |     |  |  |  | 6,250 |  |  |   |       | 
|          |       |             |  |          |         |             |  |             |       |          |  |  |     |  |  |  |       |  |  |   |       | 

As of December 31, 2000, there were 840,000 shares of
common stock available for issuance under the 2000 Plan.



| |                       
| | ----------------------
| | 1998 Stock Option Plan

In 1998, the Company established the 1998 Stock Option Plan (the
1998 Plan) to increase its ability to attract and
retain key individuals. Options granted under the 1998 Plan may
be either incentive stock options, which are granted at the fair
market value of the common stock on the date of grant or higher
(as determined under the plan), or nonqualified stock options,
which may be granted at less than the fair market value of the
common stock on the date of grant. Options are granted at the
discretion of the Board of Directors. The maximum number of
shares that may be granted under the 1998 Plan is 1,784,575.
Options granted generally become exercisable over a period of
four years from the date of grant. Outstanding options generally
expire nine years after the date of grant.

Activity related to stock options under the 1998 Plan is
summarized as follows:

|                                        |                   |           |           |          |   |   |      |      | 
|--------------------------------------- | ----------------- | --------- | --------- | -------- | - | - | ---- | ---- | 
|                                        |                   |           |           | Weighted
|                                        |                   |           |           | Average 
|                                        |                   | Number of |           | Exercise
|                                        |                   | Shares    |           | Price   
|                                        |                   |           |           |         
|Outstanding at inception (May 18, 1998) |                   |           |          |          |   |   |      |     
|                                       
|                                       
|                                       
|                                       
|                                        | Options granted   |           |           | 324,763  |   |   | $    | 0.15 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Options cancelled |           |           |         |   |   |      |      | 
|                                       
|                                       
|                                       
|                                       
|                                        | Options exercised |           |           |         |   |   |      |      | 
|                                        |                   |           |           |          |   |   |      |     
|Outstanding at December 31, 1998        |                   |           | 324,763   |          |   | $ | 0.15 |     
|                                       
|                                       
|                                       
|                                       
|                                        | Options granted   |           |           | 542,867  |   |   | $    | 0.29 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Options cancelled |           |           |         |   |   |      |      | 
|                                       
|                                       
|                                       
|                                       
|                                        | Options exercised |           |           |         |   |   |      |      | 
|                                        |                   |           |           |          |   |   |      |     
|Outstanding at December 31, 1999        |                   |           | 867,630   |          |   | $ | 0.24 |     
|                                       
|                                       
|                                       
|                                       
|                                        | Options granted   |           |           | 904,291  |   |   | $    | 4.86 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Options cancelled |           |           | (5,104   | ) |   | $    | 5.40 | 
|                                       
|                                       
|                                       
|                                       
|                                        | Options exercised |           |           | (333,966 | ) |   | $    | 0.22 | 
|                                        |                   |           |           |          |   |   |      |     
|Outstanding at December 31, 2000        |                   |           | 1,432,851 |          |   | $ | 3.14 |     
|                                        |                   |           |           |          |   |   |      |     

44



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The options outstanding and exercisable at December 31,
2000 under the 1998 Plan are as follows:

|          |              |             |  |          |           |             |  |             |      |          |  |  |     |  |  |  |         |  |  |   |      | 
|--------- | ------------ | ----------- |  | -------- | --------- | ----------- |  | ----------- | ---- | -------- |  |  | --- |  |  |  | ------- |  |  | - | ---- | 
|          |              |             |  |          |           | Weighted    |  |             |      |         
|          |              |             |  | Weighted |           | Average     |  |             |      | Weighted
|          |              |             |  | Average  |           | Contractual |  |             |      | Average 
|Price Per |              | Options     |  | Exercise |           | Remaining   |  | Options     |      | Exercise
|Share     |              | Outstanding |  | Price    |           | Life        |  | Exercisable |      | Price   
|          |              |             |  |          |           |             |  |             |      |         
|          | $0.14-$0.32  |             |  |          | 521,562   |             |  | $           | 0.19 |          |  |  | 7.1 |  |  |  | 123,914 |  |  | $ | 0.19 | 
|          | $2.22-$2.91  |             |  |          | 381,229   |             |  | $           | 2.28 |          |  |  | 8.1 |  |  |  | 94,628  |  |  | $ | 2.46 | 
|          | $4.57-$7.59  |             |  |          | 319,113   |             |  | $           | 4.71 |          |  |  | 8.2 |  |  |  | 58,010  |  |  | $ | 4.66 | 
|          | $8.90-$18.88 |             |  |          | 210,947   |             |  | $           | 9.63 |          |  |  | 8.6 |  |  |  | 7,285   |  |  | $ | 8.94 | 
|          |              |             |  |          |           |             |  |             |      |          |  |  |     |  |  |  |         |  |  |   |      | 
|          |              |             |  |          | 1,432,851 |             |  |             |      |          |  |  |     |  |  |  | 283,837 |  |  |   |      | 
|          |              |             |  |          |           |             |  |             |      |          |  |  |     |  |  |  |         |  |  |   |      | 

The options outstanding and exercisable at December 31,
1999 under the 1998 Plan are as follows:

|          |      |             |  |          |         |             |  |             |      |          |  |  |     |  |  |  |         |  |  |   |      | 
|--------- | ---- | ----------- |  | -------- | ------- | ----------- |  | ----------- | ---- | -------- |  |  | --- |  |  |  | ------- |  |  | - | ---- | 
|          |      |             |  |          |         | Weighted    |  |             |      |         
|          |      |             |  | Weighted |         | Average     |  |             |      | Weighted
|          |      |             |  | Average  |         | Contractual |  |             |      | Average 
|Price Per |      | Options     |  | Exercise |         | Remaining   |  | Options     |      | Exercise
|Share     |      | Outstanding |  | Price    |         | Life        |  | Exercisable |      | Price   
|          |      |             |  |          |         |             |  |             |      |         
|          |      |             |  |          |         | (years)     |  |             |      |         
|$         | 0.14 |             |  |          | 260,100 |             |  | $           | 0.14 |          |  |  | 7.5 |  |  |  | 81,281  |  |  | $ | 0.14 | 
|$         | 0.21 |             |  |          | 586,127 |             |  | $           | 0.21 |          |  |  | 8.3 |  |  |  | 158,952 |  |  | $ | 0.21 | 
|$         | 0.32 |             |  |          | 5,057   |             |  | $           | 0.32 |          |  |  | 8.9 |  |  |  |        |  |  | $ | 0.32 | 
|$         | 2.91 |             |  |          | 16,346  |             |  | $           | 2.91 |          |  |  | 8.7 |  |  |  | 16,346  |  |  | $ | 2.91 | 
|          |      |             |  |          |         |             |  |             |      |          |  |  |     |  |  |  |         |  |  |   |      | 
|          |      |             |  |          | 867,630 |             |  |             |      |          |  |  |     |  |  |  | 256,579 |  |  |   |      | 
|          |      |             |  |          |         |             |  |             |      |          |  |  |     |  |  |  |         |  |  |   |      | 

As of December 31, 2000, there were 17,758 shares of common
stock remaining to be issued under the 1998 Plan.

Using the intrinsic value method under APB 25, no compensation
expense has been recognized in the accompanying consolidated
statements of operations for options granted to employees at
fair value. Had compensation expense been determined based on
the fair value at the date of grant consistent with SFAS
No. 123, the reported net loss would have increased to the
following pro forma amounts, which may not be representative of
that to be expected in future years (in thousands):

|                                  |             |              |   |         |   |      |   |         |   |  |   |        |  
|--------------------------------- | ----------- | ------------ | - | ------- | - | ---- | - | ------- | - |  | - | ------ | -
|                                  |             |             
|                                  |             | December 31,
|                                  |             |             
|                                  |             | 2000         |   | 1999    |   | 1998
|                                  |             |              |   |         |   |     
|Net loss:                         |             |              |   |         |   |      |   |         |   |  |   |       
|                                 
|                                 
|                                 
|                                 
|                                  | As Reported |              | $ | (50,446 | ) |      | $ | (10,670 | ) |  | $ | (2,143 | )
|                                 
|                                 
|                                 
|                                 
|                                  | Pro Forma   |              | $ | (51,267 | ) |      | $ | (10,688 | ) |  | $ | (2,144 | )
|                                 
|                                 
|                                 
|                                 
|Basic and diluted loss per share: |             |              |   |         |   |      |   |         |   |  |   |       
|                                 
|                                 
|                                 
|                                 
|                                  | As Reported |              | $ | (4.50   | ) |      | $ | (5.91   | ) |  | $ | (1.46  | )
|                                 
|                                 
|                                 
|                                 
|                                  | Pro Forma   |              | $ | (4.57   | ) |      | $ | (5.92   | ) |  | $ | (1.46  | )

The fair value of options was estimated at the date of grant
using the Black Scholes Single Option valuation method under
SFAS No. 123 with the following assumptions as of
December 31, 2000, 1999 and 1998, respectively: weighted
average risk free interest rate of 4.98%, 5.32% and 5.33%;
dividend yield of 0%; volatility of 130.22%, 0% and 0%; and
expected life of options of five years. The weighted-average
fair value of options granted during 2000, 1999 and 1998 were
$5.08, $0.18 and $0.03 per share, respectively. Option
valuation models require the input of highly subjective
assumptions. Because changes in subjective input

45



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

assumptions can materially affect the fair value estimate, in
managements opinion, the existing model does not
necessarily provide a reliable single measure of the fair value
of the Companys stock options.

Deferred Stock
Compensation

The Company recorded approximately $2.9 million and
$1.1 million of deferred stock compensation in 2000 and
1999, respectively, relating to stock options granted to
employees at less than the board of directors estimate of
fair value. These amounts are included as a reduction in
stockholders equity and are being amortized on a
straight-line basis to expense over the related vesting periods.
For the year ended December 31, 2000 and 1999, the Company
recorded deferred stock compensation amortization of
approximately $1.0 million and $279,000, respectively,
which is included in operating expenses.

Employee Stock Purchase Plan

The Companys Employee Stock Purchase Plan (the
Purchase Plan) was approved by the Companys
Board of Directors in 2000. A total of 500,000 shares of common
stock have been reserved for issuance under the Purchase Plan.
The Purchase Plan provides that the Company will sell shares to
employees who elect to participate in the Purchase Plan at a
price equal to 85% of the lesser of the fair market value of the
common stock on the first trading day of an offering period or
the last trading day of such offering period.

Under the Purchase Plan, the Company issued 6,042 shares of
common stock in 2000 to various employees. These shares were
issued with a weighted average price per share of $9.14. As of
December 31, 2000, there were 493,958 shares of common
stock remaining to be issued under the Purchase Plan.

(6)  Income Taxes

As of December 31, 2000 and 1999, the Company had net
operating loss carryforwards of approximately $25.2 million
and $9.8 million, respectively. These net operating loss
carryforwards begin to expire in 2018 through 2020.
Additionally, utilization of net operating loss carryforwards
may be limited under Section 382 of the Internal Revenue
Code. These and other deferred income tax assets are fully
reserved by a valuation allowance as management has determined
that it is more likely than not that the deferred tax assets
will not be realized.

The effective tax rate of zero differs from the statutory rate
primarily due to providing a valuation allowance against
deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets for financial
reporting and the amount used for income tax purposes.
Significant components of the Companys deferred tax assets
are as follows (in thousands):

|                                |  |              |         |      |  |      |        |   |  |   |      |  
|------------------------------- |  | ------------ | ------- | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                |  |             
|                                |  | December 31,
|                                |  |             
|                                |  | 2000         |         | 1999 |  | 1998
|                                |  |              |         |      |  |     
|Start-up costs                  |  | $            | 3,230   |      |  | $    | 191    |   |  | $ | 191  |  
|                               
|                               
|                               
|                               
|Net operating loss carryforward |  |              | 8,555   |      |  |      | 3,317  |   |  |   | 527  |  
|                               
|                               
|                               
|                               
|Asset basis differences         |  |              | 50      |      |  |      | (150   | ) |  |   |     |  
|                               
|                               
|                               
|                               
|Less  Valuation allowance      |  |              | (11,835 | )    |  |      | (3,358 | ) |  |   | (718 | )
|                                |  |              |         |      |  |      |        |   |  |   |      |  
|                                |  | $            |        |      |  | $    |       |   |  | $ |     |  
|                                |  |              |         |      |  |      |        |   |  |   |      |  

46



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(7)  Commitments and Contingencies



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

The Company leases its office space under operating leases which
expire at various dates through December 2003. Total rent
expense under all leases was approximately $505,000, $386,000
and $124,000 in 2000, 1999 and 1998, respectively. Future
minimum payments under noncancellable operating leases at
December 31, 2000, are as follows (in thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|    
|    
|    
|    
|2001 |  | $ | 596   | 
|    
|    
|    
|    
|2002 |  |   | 382   | 
|    
|    
|    
|    
|2003 |  |   | 360   | 
|     |  |   |       | 
|     |  | $ | 1,338 | 
|     |  |   |       | 



| |                   
| | ------------------
| | License Agreements

In June 1998 and March 1999, the Company entered into license
agreements with separate pharmaceutical companies for different
product candidates (the 1998 Agreement and the
1999 Agreement, respectively). The Company paid
initial license fees of $750,000 under the 1998 Agreement
and $250,000 under the 1999 Agreement and these amounts
were charged to operations and included in research and
development expenses.

In September 1999, the Company entered into a license agreement
with a group of inventors for a series of product candidates.
The initial license fee of $50,000 is included in accrued
liabilities as of December 31, 1999 and was charged to
research and development expenses.

In February 2000, the Company entered into a license agreement
with a European entity for a new product candidate. The Company
made an initial license payment of $25,000 and may be obligated
to make royalty payments on future sales.

In September 2000, the Company acquired all of the outstanding
shares of stock of Talaria. The Company may be obligated to make
payments upon reaching certain milestones as discussed in
Note 4.

In connection with the above agreements, the Company may be
obligated to make various milestone and future royalty payments,
as defined in the agreements, up to an aggregate amount of
$29.2 million, not including royalty payments on future
sales. At the present time, the Company can give no assurances
as to the likelihood that such future milestones will be
achieved.



| |                    
| | -------------------
| | Purchase Commitment

On November 23, 1999, the Company entered into an agreement
with a scientific instrument manufacturer to purchase a
specialized piece of equipment. The Company is obligated to pay
a total of $1,000,000 for the equipment. As of December 31,
2000 the equipment has not been received, however, a deposit of
$450,000 was paid and is included in deposits and other assets
in the accompanying consolidated balance sheet. No liability or
expense was recorded in 2000 or 1999 relating to this purchase
commitment.



| |                               
| | ------------------------------
| | Contingent repurchase of stock

The Company may be required to repurchase approximately
47,000 shares of common stock sold to certain employees and
others under the Companys directed share program. The
Company believes that the maximum liability arising from this
repurchase would be approximately $423,000 plus interest. A
liability has not been recorded in the financial statements as
management believes that the potential repurchase of these
shares is not likely.

47



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



| |                      
| | ---------------------
| | Employee Benefit Plan

The Company maintains a 401(k) plan covering substantially all
of its employees in the United States. At the discretion of the
Board of Directors, the Company may make matching contributions
on behalf of all participants who have elected to make deferrals
to the 401(k) plan. No matching contributions have been made
since inception.

(8)  Long-Term Debt

In December 2000, the Company entered into an equipment
loan facility with a bank whereby the Company may borrow up to
$2.5 million for equipment purchases. Borrowings under the
facility are collateralized by the related equipment, are
payable in equal monthly principal payments over 42 months,
and bear a reasonable rate of interest. As of December 31,
2000, the Company had outstanding borrowings under this facility
of $775,000 at an interest rate of 12%.

In April 1999, the Company entered into an equipment loan
facility with a bank whereby the Company may borrow up to
$1.5 million for equipment purchases. Borrowings under the
facility are collateralized by the related equipment, bear
interest at the banks prime rate (9.5% and 8.5% at
December 31, 2000 and 1999, respectively) plus 1%, and are
payable in equal monthly principal payments over 36 months.
As of December 31, 2000 and 1999, outstanding borrowings
under this facility were $743,000 and $1.2 million
respectively. The loan facility subjects the Company to various
financial covenants which, among other restrictions, requires
the Company to maintain certain minimum levels of tangible net
worth and liquidity. Management has determined that the Company
is in compliance with these covenants at December 31, 2000
and 1999.

The Company has a credit facility, totalling 50 million
Swedish kronor (approximately $5.3 million and
$5.9 million at December 31, 2000 and 1999,
respectively), with a Swedish entity that may only be used to
finance the development of a certain product candidate. If a
related product is not developed or does not succeed in the
market, as defined under that credit facility, the
Companys obligation to repay the loan may be forgiven.
Borrowings under the loan agreement bear interest at 17.0% of
which 9.5% is payable quarterly. The remaining 7.5% of interest
along with principal are payable in five equal annual
installments starting December 30, 2004. The Company made a
draw on the loan facility of 13 million Swedish kronor in
December 1999 and 6.5 million Swedish kronor in August
2000. This outstanding principal balance has been classified as
long-term debt. Management has determined that the carrying
value of the debt approximates fair value in accordance with
SFAS No. 107, Disclosures about Fair Value of
Financial Instruments. Managements estimate of fair
value is determined by reference to various market data for
comparable financial instruments, requires considerable judgment
by management, and is not necessarily indicative of the amounts
that could be realized in a current market exchange.

As of December 31, 2000, maturities of long-term debt are
as follows (in thousands):

|                       |  |   |       |  
|---------------------- |  | - | ----- | -
|                      
|                      
|                      
|                      
|2001                   |  | $ | 673   |  
|                      
|                      
|                      
|                      
|2002                   |  |   | 466   |  
|                      
|                      
|                      
|                      
|2003                   |  |   | 246   |  
|                      
|                      
|                      
|                      
|2004                   |  |   | 575   |  
|                      
|                      
|                      
|                      
|2005                   |  |   | 441   |  
|                      
|                      
|                      
|                      
|Thereafter             |  |   | 1,323 |  
|                       |  |   |       |  
|                       |  |   | 3,724 |  
|                      
|                      
|                      
|                      
|Less  current portion |  |   | (697  | )
|                       |  |   |       |  
|                       |  | $ | 3,027 |  
|                       |  |   |       |  

48



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(9)  Related Party Transactions

Certain stockholders have provided consulting and other
professional services to the Company. Total expense for these
services was $423,000 in 2000, $236,000 in 1999 and $108,000 in
1998, respectively. At December 31, 2000 and 1999, amounts
due to related parties totaled $151,000 and $42,000,
respectively, and are classified as accounts payable or accrued
liabilities in the accompanying consolidated balance sheets.

(10) Subsequent Event

In January 2001, the Company achieved the first milestone under
certain licensing agreements totaling $850,000. This liability
will be settled through the payment of $100,000 and the issuance
of approximately 58,600 shares of common stock.

(11) Quarterly Results of Operations (Unaudited)

The following table summarized selected unaudited quarterly
financial information for 2000 and 1999. The Company believes
that all adjustments, consisting of normal recurring adjustments
considered necessary for a fair presentation, have been included
in the selected quarterly information (in thousands, except for
per share data).

|                                             |  |                    |        |            |  |               |        |              |  |              |         |   |  |   |        |   |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------ | ---------- |  | ------------- | ------ | ------------ |  | ------------ | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                             |  |                    |        |           
|                                             |  | Three Months Ended |        | Year Ended
|                                             |  |                    |        |           
|                                             |  | March 31,          |        | June 30,   |  | September 30, |        | December 31, |  | December 31,
|                                             |  | 2000               |        | 2000       |  | 2000          |        | 2000         |  | 2000        
|                                             |  |                    |        |            |  |               |        |              |  |             
|Operating expense                            |  | $                  | 5,069  |            |  | $             | 6,823  |              |  | $            | 11,375  |   |  | $ | 6,735  |   |  | $ | 30,002  |  
|                                            
|                                            
|                                            
|                                            
|Operating loss                               |  |                    | (5,069 | )          |  |               | (6,823 | )            |  |              | (11,375 | ) |  |   | (6,735 | ) |  |   | (30,002 | )
|                                            
|                                            
|                                            
|                                            
|Net loss                                     |  |                    | (4,693 | )          |  |               | (6,514 | )            |  |              | (10,804 | ) |  |   | (5,565 | ) |  |   | (27,576 | )
|                                            
|                                            
|                                            
|                                            
|Basic and diluted net loss per common  share |  | $                  | (13.91 | )          |  | $             | (2.95  | )            |  | $            | (0.74   | ) |  | $ | (0.22  | ) |  | $ | (4.50   | )

|                                             |  |                    |        |            |  |               |        |              |  |              |        |   |  |   |        |   |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------ | ---------- |  | ------------- | ------ | ------------ |  | ------------ | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                             |  |                    |        |           
|                                             |  | Three Months Ended |        | Year Ended
|                                             |  |                    |        |           
|                                             |  | March 31,          |        | June 30,   |  | September 30, |        | December 31, |  | December 31,
|                                             |  | 1999               |        | 1999       |  | 1999          |        | 1999         |  | 1999        
|                                             |  |                    |        |            |  |               |        |              |  |             
|Operating expense                            |  | $                  | 1,585  |            |  | $             | 2,985  |              |  | $            | 3,009  |   |  | $ | 3,423  |   |  | $ | 11,002  |  
|                                            
|                                            
|                                            
|                                            
|Operating loss                               |  |                    | (1,585 | )          |  |               | (2,985 | )            |  |              | (3,009 | ) |  |   | (3,423 | ) |  |   | (11,002 | )
|                                            
|                                            
|                                            
|                                            
|Net loss                                     |  |                    | (1,450 | )          |  |               | (2,886 | )            |  |              | (2,923 | ) |  |   | (3,411 | ) |  |   | (10,670 | )
|                                            
|                                            
|                                            
|                                            
|Basic and diluted net loss per common  share |  | $                  | (0.85  | )          |  | $             | (1.68  | )            |  | $            | (1.51  | ) |  | $ | (1.76  | ) |  | $ | (2.45   | )

49



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##### Table of Contents



ESPERION THERAPEUTICS, INC. AND SUBSIDIARIES


(A Company in the Development Stage)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



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

None.

50



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##### Table of Contents






PART III

Items 10, 11, 12 and 13.  Directors and Executive
Officers of the Registrant; Executive Compensation; Security
Ownership of Certain Beneficial Owners and Management; Certain
Relationships and Related Transactions

The information called for by Part III (Items 10, 11, 12 and 13)
is incorporated by reference from the Companys definitive
Proxy Statement to be filed in connection with its 2001 Annual
Meeting of Stockholders, except that the information regarding
the Companys executive officers called for by
Item 401(b) of Regulation S-K pursuant to Item 10
has been included in Part I of this report and the
information called for by Items 402(k) and 402(l) of
Regulation S-K pursuant to Item 11 is not incorporated
by reference.

51



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##### Table of Contents








PART IV




|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | Exhibits Financial Statement Schedules and Reports on
	Form 10-K

(a)  Financial Statements

1.  These financial statements are set forth in Item 8.

2. No financial statement schedules are required.

(b)  Reports on Form 8-K

The Company filed a Form 8-K on October 6, 2000, as
amended on November 22, 2000, reporting under Item 2
the acquisition of Talaria Therapeutics, Inc. and filing the
required historical financial statements and pro forma financial
information under Item 7.

(c)  Exhibits

|       |       |         |  |                                                                                                                                                                                                                                                                                                                                                                          
|------ | ----- | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Exhibit
|       |       |        
|       | 2.1  |         |  | Agreement and Plan of Merger and Reorganization by and among
	Esperion Therapeutics, Inc., Esperion Mergerco, Inc. and Talaria
	Therapeutics, Inc. dated as of September 21, 2000.
	Incorporated by reference to Exhibit 2.1 to the
	Companys Current Report on Form 8-K filed
	October 6, 2000.                                                                        
|       | 2.2  |         |  | Indemnification, Escrow and Participation Agreement by and among
	Esperion Therapeutics, Inc., the stockholders of Talaria
	Therapeutics, Inc., Rock Hill Ventures, Inc. and Sills Cummis
	Radin Tischman Epstein & Gross dated as of
	September 21, 2000. Incorporated by reference to
	Exhibit  2.2 to the Companys Current Report on
	Form 8-K filed October 6, 2000.
|       | 2.3   |         |  | Non-Competition Agreement by and among Esperion Therapeutics,
	Inc. Esperion Mergerco, Inc. and certain Talaria Parties dated
	as of September 21, 2000. Incorporated by reference to
	Exhibit 2.3 to the Companys Current Report on
	Form 8-K filed October 6, 2000.                                                                                                   
|       | 3.3   |         |  | Fifth Amended and Restated Certificate of Incorporation of the
	Company. Incorporated by reference to Exhibit 3.3 to the
	Companys Quarterly Report on Form 10-Q for the fiscal
	quarter ended June 30, 2000.                                                                                                                                                           
|       | 3.4   |         |  | Amended and Restated Bylaws of the Company. Incorporated by
	reference to Exhibit 3.4 to the Companys Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	June 30, 2000.                                                                                                                                                                                       
|       | 4.1   |         |  | Form of Common Stock Certificate of the Company. Incorporated by
	reference to Exhibit 4.1 to Amendment No.  2 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on August 4, 2000.                                                                                                                                                       
|       | 10.1  |         |  | Esperion Therapeutics, Inc. 1998 Stock Option Plan. Incorporated
	by reference to Exhibit 10.1 to Amendment No.  1 to
	the Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                                                                                    
|       | 10.2 |         |  | Collaboration and License Agreement between Esperion
	Therapeutics, Inc. and Pharmacia & Upjohn AB dated
	June  24, 1998. Incorporated by reference to
	Exhibit 10.2 to Amendment No. 3 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on August 9, 2000.                                                                              
|       | 10.3 |         |  | License Agreement among Esperion therapeutics, Inc., Jean-Louis
	Dasseux as the Inventors Representative and the Inventors
	named therein dated September 15, 1999. Incorporated by
	reference to Exhibit 10.3 to Amendment No.  3 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on August 9, 2000.                                  
|       | 10.4 |         |  | License Agreement between Inex Pharmaceuticals Corporation and
	Esperion Therapeutics, Inc. dated March 16, 1999.
	Incorporated by reference to Exhibit 10.4 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on February 24, 2000.                                                                                                      

52



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##### Table of Contents



|       |       |         |  |                                                                                                                                                                                                                                                                                                                           
|------ | ----- | ------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Exhibit
|       |       |        
|       | 10.5  |         |  | Letter Agreement among Esperion Therapeutics, Inc., Inex
	Pharmaceuticals Corporation and the University of British
	Columbia dated March 12, 1999. Incorporated by reference to
	Exhibit 10.5 to the Companys Registration Statement
	on Form S-1 (Reg. No. 333-31032) filed on
	February 24, 2000.                     
|       | 10.6  |         |  | License Agreement between Esperion Therapeutics, Inc. and Region
	Wallonne dated February 17, 2000. Incorporated by reference
	to Exhibit 10.6 to the Companys Registration
	Statement on Form S-1 (Reg. No. 333-31032) filed on
	February 24, 2000.                                                                     
|       | 10.7  |         |  | Lease between Esperion Therapeutics, Inc. and State-94 Limited
	Partnership dated November 30, 1998, as amended.
	Incorporated by reference to Exhibit 10.7 to Amendment
	No.  1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                       
|       | 10.8  |         |  | Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated
	January 4, 1999. Incorporated by reference to
	Exhibit 10.8 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                         
|       | 10.9  |         |  | Loan and Security Agreement between Silicon Valley Bank, doing
	business as Silicon Valley East, and Esperion Therapeutics,
	Inc., dated March 31, 1999. Incorporated by reference to
	Exhibit 10.9 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg. No. 
	333-31032) filed on July 10, 2000.
|       | 10.10 |         |  | 2000 Equity Compensation Plan. Incorporated by reference to
	Exhibit 10.10 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                                                          
|       | 10.11 |         |  | Employee Stock Purchase Plan. Incorporated by reference to
	Exhibit 10.11 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                                                           
|       | 10.12 |         |  | Loan Agreement between Stiftelson Industrifonden and Esperion
	Therapeutics, Inc. dated May 19, 1999. Incorporated by
	reference to Exhibit 10.12 to Amendment No. 1 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                   
|       | 10.13 |         |  | Investors Rights Agreement among Esperion Therapeutics,
	Inc. and the parties set forth therein dated July 6, 1998.
	Incorporated by reference to Exhibit 10.13 to Amendment
	No. 1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                   
|       | 10.14 |         |  | Amendment No. 1 to the Investors Rights Agreement
	among Esperion Therapeutics, Inc. and the parties set forth
	therein dated August 11, 1998. Incorporated by reference to
	Exhibit 10.14 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.         
|       | 10.15 |         |  | Amendment No. 2 to the Investors Rights Agreement
	among Esperion Therapeutics, Inc. and the parties set forth
	therein dated January 7, 2000. Incorporated by reference to
	Exhibit 10.15 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.         
|       | 10.16 |         |  | Amendment No. 3 to the Investors Rights Agreement
	among Esperion Therapeutics, Inc. and the parties set forth
	therein dated February 22, 2000. Incorporated by reference
	to Exhibit 10.16 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.       
|       | 10.17 |         |  | Restricted Stock Purchase Agreement between Esperion
	Therapeutics, Inc. and Roger S. Newton dated July 6,
	1998. Incorporated by reference to Exhibit 10.17 to Amendment
	No.  1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                      

53



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##### Table of Contents



|       |        |         |  |                                                                                                                                                                                                                                                                                       
|------ | ------ | ------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        | Exhibit
|       |        |        
|       | 10.18  |         |  | Advisory Relationship letter between Scheer & Company,
	Inc. and Esperion Therapeutics, Inc. dated March 31, 1999.
	Incorporated by reference to Exhibit 10.18 to Amendment
	No.  1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.
|       | 10.19  |         |  | Consulting Agreement between Anders Wiklund and Esperion
	Therapeutics, Inc. dated August 12, 1998. Incorporated by
	reference to Exhibit 10.19 to Amendment No. 1 to the
	Companys Registration Statement on Form S-1 (Reg.
	No.  333-31032) filed on July 10, 2000.                
|       | 10.23  |         |  | Form of Restricted Stock Purchase Agreement. Incorporated by
	reference to Exhibit 10.23 to Amendment No. 2 to the
	Companys Registration Statement on Form S-1 (Reg.
	No.  333-31032) filed on August 4, 2000.                                                                      
|       | 10.24  |         |  | Form of Promissory Note. Incorporated by reference to Exhibit
	10.24 to Amendment No. 2 to the Companys Registration
	Statement on Form S-1 (Reg. No. 333-31032) filed on
	August 4, 2000.                                                                                           
|       | 10.25  |         |  | Form of Stock Pledge Agreement. Incorporated by reference to
	Exhibit 10.25 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                     
|       | 10.27  |         |  | Third Amendment to Lease between Esperion Therapeutics, Inc. and
	State-94 Limited Partnership dated December 20, 2000.                                                                                                                                                               
|       | 10.28  |         |  | Lease Extension between Esperion Therapeutics, Inc. and Maxey,
	LLC dated December 20, 2000.                                                                                                                                                                                          
|       | 10.29@ |         |  | Amendment to License Agreement between Esperion Therapeutics,
	Inc. and Inex Pharmaceuticals Corp. dated October 23, 2000.                                                                                                                                                            
|       | 21.1   |         |  | Subsidiaries of Esperion Therapeutics, Inc.                                                                                                                                                                                                                                           
|       | 23.1   |         |  | Consent of Arthur Andersen LLP.                                                                                                                                                                                                                                                       
|       | 24.1   |         |  | Power of Attorney (included on signature page).                                                                                                                                                                                                                                       



|  |                                                                          
|- | -------------------------------------------------------------------------
| | Confidential treatment granted with respect to portions of this
	Exhibit.



|  |                                                                            
|- | ---------------------------------------------------------------------------
|@ | Confidential treatment requested with respect to portions of
	this Exhibit.

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 report to be signed on its behalf by the undersigned,
thereunto duly authorized, in Ann Arbor, Michigan on
March 30, 2001.



| |                            
| | ---------------------------
| | ESPERION THERAPEUTICS, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ ROGER S. NEWTON

| |                                      
| | -------------------------------------
| |                                      
| | Roger S. Newton                      
| | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed by
the following persons in the capacities indicated on the
30th day of March, 2001. Each person whose individual
signature appears below hereby authorizes Roger S. Newton,
Timothy M. Mayleben and any other person appointed as
attorney-in-fact, or any of them, to execute in the name of each
such person and to file any amendment to this Annual Report, and
appoints Roger S. Newton, Timothy M. Mayleben and any
other person appointed as attorney-in-fact, or any of them, on
his or her behalf individually and in each capacity stated below
and to file any amendments to this Annual Report.

|                                           |  |                                                                               
|------------------------------------------ |  | ------------------------------------------------------------------------------
|Signature                                  |  | Title                                                                         
|                                           |  |                                                                               
|/s/ ROGER S. NEWTONRoger S. Newton         |  | President, Chief Executive Officer and Director
	(Principal Executive Officer)
|                                          
|/s/ TIMOTHY M. MAYLEBENTimothy M. Mayleben |  | Vice President and Chief Financial Officer
	(Principal Financial Officer)     
|                                          
|/s/ FRANK E. THOMASFrank E. Thomas         |  | Director of Finance, Controller (Principal Accounting Officer)                
|                                          
|/s/ DAVID I. SCHEERDavid I. Scheer         |  | Chairman                                                                      
|                                          
|/s/ ANDERS P. WIKLUNDAnders P. Wiklund     |  | Director                                                                      
|                                          
|/s/ CHRISTOPHER MOLLERChristopher Moller   |  | Director                                                                      
|                                          
|/s/ EILEEN M. MOREEileen M. More           |  | Director                                                                      
|                                          
|/s/ SETH A. RUDNICKSeth A. Rudnick         |  | Director                                                                      

55



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##### Table of Contents








INDEX TO EXHIBITS


|       |       |         |  |                                                                                                                                                                                                                                                                                                                                                                          
|------ | ----- | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Exhibit
|       |       |        
|       | 2.1  |         |  | Agreement and Plan of Merger and Reorganization by and among
	Esperion Therapeutics, Inc., Esperion Mergerco, Inc. and Talaria
	Therapeutics, Inc. dated as of September 21, 2000.
	Incorporated by reference to Exhibit 2.1 to the
	Companys Current Report on Form 8-K filed
	October 6, 2000.                                                                        
|       | 2.2  |         |  | Indemnification, Escrow and Participation Agreement by and among
	Esperion Therapeutics, Inc., the stockholders of Talaria
	Therapeutics, Inc., Rock Hill Ventures, Inc. and Sills Cummis
	Radin Tischman Epstein & Gross dated as of
	September 21, 2000. Incorporated by reference to
	Exhibit  2.2 to the Companys Current Report on
	Form 8-K filed October 6, 2000.
|       | 2.3   |         |  | Non-Competition Agreement by and among Esperion Therapeutics,
	Inc. Esperion Mergerco, Inc. and certain Talaria Parties dated
	as of September 21, 2000. Incorporated by reference to
	Exhibit 2.3 to the Companys Current Report on
	Form 8-K filed October 6, 2000.                                                                                                   
|       | 3.3   |         |  | Fifth Amended and Restated Certificate of Incorporation of the
	Company. Incorporated by reference to Exhibit 3.3 to the
	Companys Quarterly Report on Form 10-Q for the fiscal
	quarter ended June 30, 2000.                                                                                                                                                           
|       | 3.4   |         |  | Amended and Restated Bylaws of the Company. Incorporated by
	reference to Exhibit 3.4 to the Companys Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	June 30, 2000.                                                                                                                                                                                       
|       | 4.1   |         |  | Form of Common Stock Certificate of the Company. Incorporated by
	reference to Exhibit 4.1 to Amendment No.  2 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on August 4, 2000.                                                                                                                                                       
|       | 10.1  |         |  | Esperion Therapeutics, Inc. 1998 Stock Option Plan. Incorporated
	by reference to Exhibit 10.1 to Amendment No.  1 to
	the Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                                                                                    
|       | 10.2 |         |  | Collaboration and License Agreement between Esperion
	Therapeutics, Inc. and Pharmacia & Upjohn AB dated
	June  24, 1998. Incorporated by reference to
	Exhibit 10.2 to Amendment No. 3 to the Companys
	Registration Statement non Form S-1 (Reg.
	No. 333-31032) filed on August 9, 2000.                                                                             
|       | 10.3 |         |  | License Agreement among Esperion therapeutics, Inc., Jean-Louis
	Dasseux as the Inventors Representative and the Inventors
	named therein dated September 15, 1999. Incorporated by
	reference to Exhibit 10.3 to Amendment No.  3 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on August 9, 2000.                                  
|       | 10.4 |         |  | License Agreement between Inex Pharmaceuticals Corporation and
	Esperion Therapeutics, Inc. dated March 16, 1999.
	Incorporated by reference to Exhibit 10.4 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on February 24, 2000.                                                                                                      
|       | 10.5  |         |  | Letter Agreement among Esperion Therapeutics, Inc., Inex
	Pharmaceuticals Corporation and the University of British
	Columbia dated March 12, 1999. Incorporated by reference to
	Exhibit 10.5 to the Companys Registration Statement
	on Form S-1 (Reg. No. 333-31032) filed on
	February 24, 2000.                                                                    
|       | 10.6  |         |  | License Agreement between Esperion Therapeutics, Inc. and Region
	Wallonne dated February 17, 2000. Incorporated by reference
	to Exhibit 10.6 to the Companys Registration
	Statement on Form S-1 (Reg. No. 333-31032) filed on
	February 24, 2000.                                                                                                                    
|       | 10.7  |         |  | Lease between Esperion Therapeutics, Inc. and State-94 Limited
	Partnership dated November 30, 1998, as amended.
	Incorporated by reference to Exhibit 10.7 to Amendment
	No.  1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                                                                      

56



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##### Table of Contents



|       |       |         |  |                                                                                                                                                                                                                                                                                                                           
|------ | ----- | ------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Exhibit
|       |       |        
|       | 10.8  |         |  | Lease between Esperion Therapeutics, Inc. and Maxey, LLC dated
	January 4, 1999. Incorporated by reference to
	Exhibit 10.8 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                         
|       | 10.9  |         |  | Loan and Security Agreement between Silicon Valley Bank, doing
	business as Silicon Valley East, and Esperion Therapeutics,
	Inc., dated March 31, 1999. Incorporated by reference to
	Exhibit 10.9 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg. No. 
	333-31032) filed on July 10, 2000.
|       | 10.10 |         |  | 2000 Equity Compensation Plan. Incorporated by reference to
	Exhibit 10.10 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                                                          
|       | 10.11 |         |  | Employee Stock Purchase Plan. Incorporated by reference to
	Exhibit 10.11 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                                                                                           
|       | 10.12 |         |  | Loan Agreement between Stiftelson Industrifonden and Esperion
	Therapeutics, Inc. dated May 19, 1999. Incorporated by
	reference to Exhibit 10.12 to Amendment No. 1 to the
	Companys Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.                                                   
|       | 10.13 |         |  | Investors Rights Agreement among Esperion Therapeutics,
	Inc. and the parties set forth therein dated July 6, 1998.
	Incorporated by reference to Exhibit 10.13 to Amendment
	No. 1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                   
|       | 10.14 |         |  | Amendment No. 1 to the Investors Rights Agreement
	among Esperion Therapeutics, Inc. and the parties set forth
	therein dated August 11, 1998. Incorporated by reference to
	Exhibit 10.14 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.         
|       | 10.15 |         |  | Amendment No. 2 to the Investors Rights Agreement
	among Esperion Therapeutics, Inc. and the parties set forth
	therein dated January 7, 2000. Incorporated by reference to
	Exhibit 10.15 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.         
|       | 10.16 |         |  | Amendment No. 3 to the Investors Rights Agreement
	among Esperion Therapeutics, Inc. and the parties set forth
	therein dated February 22, 2000. Incorporated by reference
	to Exhibit 10.16 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.       
|       | 10.17 |         |  | Restricted Stock Purchase Agreement between Esperion
	Therapeutics, Inc. and Roger S. Newton dated July 6,
	1998. Incorporated by reference to Exhibit 10.17 to Amendment
	No.  1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                      
|       | 10.18 |         |  | Advisory Relationship letter between Scheer & Company,
	Inc. and Esperion Therapeutics, Inc. dated March 31, 1999.
	Incorporated by reference to Exhibit 10.18 to Amendment
	No.  1 to the Companys Registration Statement on
	Form S-1 (Reg. No. 333-31032) filed on July 10,
	2000.                                    
|       | 10.19 |         |  | Consulting Agreement between Anders Wiklund and Esperion
	Therapeutics, Inc. dated August 12, 1998. Incorporated by
	reference to Exhibit 10.19 to Amendment No. 1 to the
	Companys Registration Statement on Form S-1 (Reg.
	No.  333-31032) filed on July 10, 2000.                                                    
|       | 10.23 |         |  | Form of Restricted Stock Purchase Agreement. Incorporated by
	reference to Exhibit 10.23 to Amendment No. 2 to the
	Companys Registration Statement on Form S-1 (Reg.
	No.  333-31032) filed on August 4, 2000.                                                                                                          
|       | 10.24 |         |  | Form of Promissory Note. Incorporated by reference to Exhibit
	10.24 to Amendment No. 2 to the Companys Registration
	Statement on Form S-1 (Reg. No. 333-31032) filed on
	August 4, 2000.                                                                                                                               

57



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##### Table of Contents



|       |        |         |  |                                                                                                                                                                                                  
|------ | ------ | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        | Exhibit
|       |        |        
|       | 10.25  |         |  | Form of Stock Pledge Agreement. Incorporated by reference to
	Exhibit 10.25 to Amendment No. 1 to the Companys
	Registration Statement on Form S-1 (Reg.
	No. 333-31032) filed on July 10, 2000.
|       | 10.27  |         |  | Third Amendment to Lease between Esperion Therapeutics, Inc. and
	State-94 Limited Partnership dated December 20, 2000.                                                                          
|       | 10.28  |         |  | Lease Extension between Esperion Therapeutics, Inc. and Maxey,
	LLC dated December 20, 2000.                                                                                                     
|       | 10.29@ |         |  | Amendment to License Agreement between Esperion Therapeutics,
	Inc. and Inex Pharmaceuticals Corp. dated October 23, 2000.                                                                       
|       | 21.1   |         |  | Subsidiaries of Esperion Therapeutics, Inc.                                                                                                                                                      
|       | 23.1   |         |  | Consent of Arthur Andersen LLP.                                                                                                                                                                  
|       | 24.1   |         |  | Power of Attorney (included on signature page).                                                                                                                                                  



|  |                                                                          
|- | -------------------------------------------------------------------------
| | Confidential treatment granted with respect to portions of this
	Exhibit.



|  |                                                                            
|- | ---------------------------------------------------------------------------
|@ | Confidential treatment requested with respect to portions of
	this Exhibit.

58