##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934          
|  
|   |  | For the fiscal year ended December 31, 2004                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

Commission file number 0-29993


IntraBiotics Pharmaceuticals, Inc.


(Exact name of Registrant as specified in its charter)


|                                                                                              |  |                                      
|--------------------------------------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                                                      |  | 94-3200380                           
|(State or Other Jurisdiction of
     Incorporation or Organization)                           |  | (IRS Employer
    Identification No.)
|                                                                                             
|2483 East Bayshore Road,
    Suite 100, Palo Alto, CA(Address of principal executive offices) |  | 94303(Zip code)                      

Registrants telephone number, including area code:


(650) 526-6800


Securities registered under Section 12(b) of the
Exchange Act:


None.


Securities registered under Section 12(g) of the
Exchange Act:


Common Stock, par value $.001 per share


(Title of Class)


þ o


þ


o þ












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TABLE OF CONTENTS


|              |  |                                                                                                                      |  |      |    |  |  | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  |  | 
|              |  |                                                                                                                      |  | Page |   
|              |  |                                                                                                                      |  |      |   
|PART I       
|Item 1.       |  | Business                                                                                                             |  |      | 1  | 
|Item 2.       |  | Properties                                                                                                           |  |      | 3  | 
|Item 3.       |  | Legal Proceedings                                                                                                    |  |      | 3  | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 3  | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 3  | 
|Item 6.       |  | Selected Financial Data                                                                                              |  |      | 5  | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 6  | 
|Item 7A.      |  | Quantitative and Qualitative Disclosure
    About Market Risk                                                        |  |      | 16 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 18 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 42 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |  |      | 42 | 
|Item 9B.      |  | Other Information                                                                                                    |  |      | 44 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 44 | 
|Item 11.      |  | Executive Compensation                                                                                               |  |      | 48 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management                                                   |  |      | 53 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 57 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                               |  |      | 57 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |  |      | 58 | 
|EXHIBIT 10.34
|EXHIBIT 23.1 
|EXHIBIT 23.2 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 





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##### Table of Contents






PART I


This report contains forward-looking statements. These
forward-looking statements are based on our current
expectations, estimates, projections and assumptions about our
business and industry. In some cases, these statements may be
identified by terminology such as may,
will, should, expects,
plans, anticipates,
believes, estimates,
predicts, potential or
continue, or the negative of such terms and other
comparable terminology. These statements involve known and
unknown risks and uncertainties that may cause our or our
industrys results, levels of activity, performance or
achievements to be materially different from those expressed or
implied by the forward-looking statements. Factors that may
cause or contribute to such differences include, among others,
those discussed under the captions Business,
Factors That Could Affect Future Results and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Except as required by
law, we undertake no obligation to update any forward-looking
statement to reflect events after the date of this report.







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

Overview






Clinical Supplies and Manufacturing




Clinical Pipeline






Marketing and Sales




1



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##### Table of Contents



Competition




Intellectual Property




Government Regulation




Employees




Available Information




2



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##### Table of Contents








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








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










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






PART II





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


Market for Common Equity




|                                     |  |      |       |  |     |   |       | 
|------------------------------------ |  | ---- | ----- |  | --- | - | ----- | 
|                                     |  | High |       |  | Low |  
|                                     |  |      |       |  |     |  
|1st Quarter ended March 31, 2003     |  | $    | 4.08  |  |     | $ | 1.56  | 
|2nd Quarter ended June 30, 2003      |  | $    | 6.48  |  |     | $ | 1.54  | 
|3rd Quarter ended September 30, 2003 |  | $    | 15.60 |  |     | $ | 3.08  | 
|4th Quarter ended December 31, 2003  |  | $    | 17.50 |  |     | $ | 10.50 | 
|1st Quarter ended March 31, 2004     |  | $    | 19.25 |  |     | $ | 13.25 | 
|2nd Quarter ended June 30, 2004      |  | $    | 18.00 |  |     | $ | 3.70  | 
|3rd Quarter ended September 30, 2004 |  | $    | 4.38  |  |     | $ | 3.35  | 
|4th Quarter ended December 31, 2004  |  | $    | 4.20  |  |     | $ | 3.46  | 



3



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Dividend Policy




4



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



|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |          |        |   |   |         |        |  
|------------------------------------------------------------------------------------------------- | -------------------------------- | ---------------------------------------- | -------- | ------ | ---- | - | -------- | ----- |  | - | -------- | ------ | - | ---- | -------- | ------ | - | - | ------- | ------ | -
|                                                                                                  |                                  | Year Ended December 31,                  |         
|                                                                                                  |                                  |                                          |         
|                                                                                                  |                                  | 2004                                     |          |        | 2003 |   |          | 2002  |  |   | 2001     |        |   | 2000 |         
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|                                                                                                  |                                  | (In thousands, except per share amounts) |         
|Statement of Operations Data:                                                                     |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |          |        |   |   |         |       
|Operating expenses:                                                                               |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |          |        |   |   |         |       
|                                                                                                  | Research and development         |                                          | $        | 11,519 |      |   | $        | 7,727 |  |   | $        | 23,053 |   |      | $        | 38,034 |   |   | $       | 39,152 |  
|                                                                                                  | General and administrative       |                                          |          | 4,819  |      |   |          | 5,782 |  |   |          | 8,617  |   |      |          | 9,202  |   |   |         | 11,560 |  
|                                                                                                  | Restructuring and other charges  |                                          |          | 858    |      |   |          |      |  |   |          | 6,118  |   |      |          | 21,956 |   |   |         |       |  
|                                                                                                  | Arbitration settlement           |                                          |          |       |      |   |          |      |  |   |          | (3,600 | ) |      |          |       |   |   |         |       |  
|                                                                                                  | Impairment of acquired workforce |                                          |          |       |      |   |          |      |  |   |          | 1,365  |   |      |          |       |   |   |         |       |  
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Total operating expenses                                                                          |                                  |                                          | 17,196   |        |      |   | 13,509   |       |  |   | 35,553   |        |   |      | 69,192   |        |   |   | 50,712  |       
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Operating loss                                                                                    |                                  |                                          | (17,196  | )      |      |   | (13,509  | )     |  |   | (35,553  | )      |   |      | (69,192  | )      |   |   | (50,712 | )     
|                                                                                                  | Interest income                  |                                          |          | 700    |      |   |          | 166   |  |   |          | 703    |   |      |          | 2,843  |   |   |         | 5,699  |  
|                                                                                                  | Interest expense                 |                                          |          |       |      |   |          |      |  |   |          | (459   | ) |      |          | (1,110 | ) |   |         | (563   | )
|                                                                                                  | Other income/(expense), net      |                                          |          | (204   | )    |   |          | 31    |  |   |          | 856    |   |      |          | 93     |   |   |         |       |  
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Net loss                                                                                          |                                  |                                          | (16,700  | )      |      |   | (13,312  | )     |  |   | (34,453  | )      |   |      | (67,366  | )      |   |   | (45,576 | )     
|Non-cash deemed dividend related to beneficial conversion
    feature of Series A preferred stock |                                  |                                          |         |        |      |   | (1,436   | )     |  |   |         |        |   |      |         |        |   |   |        |       
|Non-cash dividends on Series A preferred stock                                                    |                                  |                                          | (260     | )      |      |   | (182     | )     |  |   |         |        |   |      |         |        |   |   |        |       
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Net loss applicable to common stockholders                                                        |                                  | $                                        | (16,960  | )      |      | $ | (14,930  | )     |  | $ | (34,453  | )      |   | $    | (67,366  | )      |   | $ | (45,576 | )     
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Basic and diluted net loss per share applicable to common
    stockholders                        |                                  | $                                        | (2.24    | )      |      | $ | (4.01    | )     |  | $ | (11.25   | )      |   | $    | (27.47   | )      |   | $ | (24.29  | )     
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Shares used to compute basic and diluted net loss per share
    applicable to common stockholders |                                  |                                          | 7,559    |        |      |   | 3,720    |       |  |   | 3,064    |        |   |      | 2,453    |        |   |   | 1,876   |       
|                                                                                                  |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |         
|Balance Sheet Data:                                                                               |                                  |                                          |          |        |      |   |          |       |  |   |          |        |   |      |          |        |   |   |         |       
|Cash, cash equivalents, restricted cash and short-term
    investments                            |                                  | $                                        | 50,743   |        |      | $ | 26,644   |       |  | $ | 13,315   |        |   | $    | 35,470   |        |   | $ | 86,065  |       
|Working capital                                                                                   |                                  |                                          | 50,462   |        |      |   | 25,424   |       |  |   | 15,191   |        |   |      | 29,629   |        |   |   | 86,142  |       
|Total assets                                                                                      |                                  |                                          | 51,185   |        |      |   | 27,326   |       |  |   | 16,226   |        |   |      | 42,465   |        |   |   | 108,288 |       
|Long term obligations, less current portion                                                       |                                  |                                          |         |        |      |   |         |       |  |   |         |        |   |      | 5,000    |        |   |   | 8,309   |       
|Accumulated deficit                                                                               |                                  |                                          | (232,159 | )      |      |   | (215,199 | )     |  |   | (200,269 | )      |   |      | (165,816 | )      |   |   | (98,450 | )     
|Total stockholders equity                                                                        |                                  |                                          | 50,508   |        |      |   | 25,628   |       |  |   | 15,480   |        |   |      | 26,212   |        |   |   | 89,955  |       

5



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

The following discussion and analysis of our financial
condition and results of operations should be read together with
our financial statements and related notes appearing elsewhere
in this Form 10-K. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and
assumptions. The actual results may differ materially from those
anticipated in these forward-looking statements as a result of
many factors, including but not limited to those set forth under
Factors That Could Affect Future Results. All
forward-looking statements included in this document are based
on information available to us on the date of this document and
we assume no obligation to update any forward-looking statements
contained in this Form  10-K.


Overview









6



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Critical Accounting Policies and Estimates








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



Accounting
for Stock-Based Compensation Accounting for
Stock-Based Compensation  Transition and
Disclosure,


7



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Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services




| |                        
| | -----------------------
| | Clinical Trial Accruals



Results of Operations




| |                                                               
| | --------------------------------------------------------------
| | Comparison of Years Ended December 31, 2004, 2003 and
    2002



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





| |         
| | --------
| | Expenses



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

|                         |  |                |        |  |        |  |      |      |  |   |        |  |  |      |       |    |  |   |        | 
|------------------------ |  | -------------- | ------ |  | ------ |  | ---- | ---- |  | - | ------ |  |  | ---- | ----- | -- |  | - | ------ | 
|                         |  | 2004           |        |  | Change |  |      | 2003 |  |   | Change |  |  | 2002 |      
|                         |  |                |        |  |        |  |      |      |  |   |        |  |  |      |      
|                         |  | (In thousands) |       
|Research and development |  | $              | 11,519 |  |        |  | 49.1 | %    |  | $ | 7,727  |  |  |      | (66.5 | )% |  | $ | 23,053 | 



8



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| |                           
| | --------------------------
| | General and Administrative

|                           |  |                |       |  |        |  |       |      |  |   |        |  |  |      |       |    |  |   |       | 
|-------------------------- |  | -------------- | ----- |  | ------ |  | ----- | ---- |  | - | ------ |  |  | ---- | ----- | -- |  | - | ----- | 
|                           |  | 2004           |       |  | Change |  |       | 2003 |  |   | Change |  |  | 2002 |      
|                           |  |                |       |  |        |  |       |      |  |   |        |  |  |      |      
|                           |  | (In thousands) |      
|General and administrative |  | $              | 4,819 |  |        |  | (16.7 | )%   |  | $ | 5,782  |  |  |      | (32.9 | )% |  | $ | 8,617 | 









| |                                
| | -------------------------------
| | Restructuring and Other Charges

|                                |  |                |      |  |      |  |    |      |  |  |        | 
|------------------------------- |  | -------------- | ---- |  | ---- |  | -- | ---- |  |  | ------ | 
|                                |  | 2004           |      |  | 2003 |  |    | 2002 | 
|                                |  |                |      |  |      |  |    |      | 
|                                |  | (In thousands) |     
|Restructuring and other charges |  |                | $858 |  |      |  | $ |      |  |  | $6,118 | 



9



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| |                       
| | ----------------------
| | Arbitration Settlement





| |                            
| | ---------------------------
| | Interest Income and Expense

|                 |  |                |     |  |        |  |       |      |  |   |        |  |  |      |        |    |  |   |      |  
|---------------- |  | -------------- | --- |  | ------ |  | ----- | ---- |  | - | ------ |  |  | ---- | ------ | -- |  | - | ---- | -
|                 |  | 2004           |     |  | Change |  |       | 2003 |  |   | Change |  |  | 2002 |       
|                 |  |                |     |  |        |  |       |      |  |   |        |  |  |      |       
|                 |  | (In thousands) |    
|Interest income  |  | $              | 656 |  |        |  | 295.2 | %    |  | $ | 166    |  |  |      | (76.4  | )% |  | $ | 703  |  
|Interest expense |  | $              |    |  |        |  | n/m   |      |  | $ |       |  |  |      | (100.0 | )  |  |   | (459 | )







| |                            
| | ---------------------------
| | Other Income/(Expense), net

|                            |  |                |      |   |        |  |         |      |  |   |        |  |  |      |       |    |  |   |     | 
|--------------------------- |  | -------------- | ---- | - | ------ |  | ------- | ---- |  | - | ------ |  |  | ---- | ----- | -- |  | - | --- | 
|                            |  | 2004           |      |   | Change |  |         | 2003 |  |   | Change |  |  | 2002 |      
|                            |  |                |      |   |        |  |         |      |  |   |        |  |  |      |      
|                            |  | (In thousands) |     
|Other income/(expense), net |  | $              | (175 | ) |        |  | (564.5% | )    |  | $ | 31     |  |  |      | (96.4 | )% |  | $ | 856 | 





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Income Taxes




Liquidity and Capital Resources


|                                                                       |  |                        |        |  |        |  |      |      |  |   |        |  |  |      |       |   |  |   |        | 
|---------------------------------------------------------------------- |  | ---------------------- | ------ |  | ------ |  | ---- | ---- |  | - | ------ |  |  | ---- | ----- | - |  | - | ------ | 
|                                                                       |  | 2004                   |        |  | Change |  |      | 2003 |  |   | Change |  |  | 2002 |      
|                                                                       |  |                        |        |  |        |  |      |      |  |   |        |  |  |      |      
|                                                                       |  | (Dollars in thousands) |       
|Cash, cash equivalents, restricted cash and short-term
    investments |  | $                      | 50,743 |  |        |  | 90.4 | %    |  | $ | 26,644 |  |  |      | 100.1 | % |  | $ | 13,315 | 



|                                                     |  |                |         |   |      |   |        |      |  |   |         |  
|---------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                     |  | 2004           |         |   | 2003 |   |        | 2002 | 
|                                                     |  |                |         |   |      |   |        |      | 
|                                                     |  | (In thousands) |        
|Net cash used in operating activities                |  | $              | (17,242 | ) |      | $ | (8,823 | )    |  | $ | (26,347 | )
|Net cash used in investing activities                |  |                | (37,043 | ) |      |   | (9,211 | )    |  |   | (1,552  | )
|Net cash provided by financing activities            |  |                | 41,754  |   |      |   | 22,150 |      |  |   | 10,087  |  
|                                                     |  |                |         |   |      |   |        |      | 
|Net increase (decrease) in cash and cash equivalents |  | $              | (12,531 | ) |      | $ | 4,116  |      |  | $ | (17,812 | )
|                                                     |  |                |         |   |      |   |        |      | 



11



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In May 2004, in a public offering on Form S-1, the Company
    sold 3,450,000 shares of newly issued common stock,
    $0.001 par value, at $13.00 per share resulting in net
    cash proceeds of $41.5 million after issuance costs of
    $3.3 million.                                                                                                                                                                                                                                                                                                  
|
| |  | In October 2003, in a private placement transaction, the Company
    sold 1,774,000 shares of newly issued common stock,
    $0.001 par value, at $10.85 per share, and issued
    warrants to purchase 354,800 shares of the
    Companys common stock, resulting in net cash proceeds of
    $18.5 million. The warrants have an exercise price of
    $10.85 per share, subject to adjustment upon a subdivision
    or combination of the Companys outstanding common stock,
    and will expire on October 10, 2008, if not previously
    exercised.
|
| |  | In May 2003, the Company sold 350 shares of a newly created
    Series A convertible preferred stock and issued warrants to
    purchase 920,699 shares of common stock, resulting in
    net cash proceeds of $3.2 million. The warrants have an
    exercise price of $2.066 per share, subject to adjustment
    upon a subdivision or combination of the Companys
    outstanding common stock, and expire in May 1, 2008, if not
    previously exercised.                                                                                            
|
| |  | Cash provided by financing activities in 2002 was primarily due
    to net proceeds of approximately $14.0 million and
    $5.0 million from two private placements of common stock,
    partially offset by $9.4 million in payments on financing
    obligations to a bank.                                                                                                                                                                                                                                                                               
|
| |  | Cash proceeds from exercises of stock options were $242,000,
    $380,000 and $481,000 for the years ended December 31,
    2004, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                              



| |                        
| | -----------------------
| | Contractual Obligations

|                              |  |                        |    |           |        |   |     |       |  |     |       |           |         |   |   |  |  |   |   | 
|----------------------------- |  | ---------------------- | -- | --------- | ------ | - | --- | ----- |  | --- | ----- | --------- | ------- | - | - |  |  | - | - | 
|                              |  | Payments Due by Period
|                              |  |                       
|                              |  |                        |    | Less than |        |   | 1-3 |       |  | 3-5 |       | More than
|                              |  | Total                  |    |           | 1 Year |   |     | Years |  |     | Years |           | 5 Years
|                              |  |                        |    |           |        |   |     |       |  |     |       |           |        
|                              |  | (In thousands)        
|Operating leases              |  | $                      | 67 |           |        | $ | 66  |       |  | $   | 1     |           |         | $ |  |  |  | $ |  | 
|Total contractual commitments |  | $                      | 67 |           |        | $ | 66  |       |  | $   | 1     |           |         | $ |  |  |  | $ |  | 





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| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements





| |                 
| | ----------------
| | Indemnifications





| |                            
| | ---------------------------
| | Future Capital Requirements



Recent Accounting Pronouncements




13



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| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FASB issued revised SFAS No. 132(R) (revised 2003),
    Employers Disclosures about Pensions and Other
    Post-Retirement Benefits  An Amendment of FASB
    Statements No. 87, 88, and 106; and
|
| |  | EITF Issue No. 03-1, The Meaning of
    Other-Than-Temporary Impairment and Its Application to Certain
    Investments.                                                                            

Factors That Could Affect Future Results


Our business faces significant risks and the risks described
below may not be the only risks we face. Additional risks that
we do not know of, or that we currently believe are immaterial,
may also impair our business operations. If any of the events or
circumstances described in the following risks actually occurs,
our business, financial condition, or results of operations
could be materially adversely affected.




| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are currently a party to a securities litigation class
    action lawsuit, which, if determined adversely, could negatively
    affect or limit our strategic alternatives, our financial
    results or business.





| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Directors, executive officers, principal stockholders and
    affiliated entities beneficially own or control at least 47% of
    our capital stock and may be able to exert control over our
    activities, and the results of our operations and financial
    condition may suffer.



14



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| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The holders of our Series A preferred stock have
    voting and other rights that they could exercise against your
    best interests.







| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions in our charter documents and
    under Delaware law may make it more difficult to acquire
    us.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | provide for a classified board of directors of which
    approximately one-third of the directors will be elected each
    year;                                                                                                                                                                                                                                                                                            
|
| |  | allow the authorized number of directors to be changed only by
    resolution of the Board;                                                                                                                                                                                                                                                                                                                                 
|
| |  | require that stockholder actions must be effected at a duly
    called stockholder meeting and prohibit stockholder action by
    written consent;                                                                                                                                                                                                                                                                          
|
| |  | establish advance notice requirements for nominations to the
    Board or for proposals that can be acted on at stockholder
    meetings;                                                                                                                                                                                                                                                                                   
|
| |  | require the approval from the holders of Series A preferred
    stock, prior to May 1, 2005, for i) any merger into or
    consolidation with any other corporation, or ii) the completion
    of any transaction, or series of related transactions, in which
    fifty percent or more of our voting power is transferred, or
    iii) the sale, lease or other disposition of all or
    substantially all of our assets;
|
| |  | authorize our Board to issue blank check preferred stock to
    increase the amount of outstanding shares; and                                                                                                                                                                                                                                                                                                              
|
| |  | limit who may call stockholder meetings.                                                                                                                                                                                                                                                                                                                                                                                    



15



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| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Our stock price has been, and will be volatile, and the
    value of your investment may continue to decline.





| |                                                 
| | ------------------------------------------------
| | We expect to continue to incur operating losses.






| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to complete the strategic alternative
    we initially elect to pursue, resulting in increased expenses
    and a delay in finally completing a selected alternative.





| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face risks associated with clinical trial liability
    claims in the event that the prior use, or misuse, of our
    product candidates in clinical trials, that have since been
    terminated, results in personal injury or death.








|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure About Market
    Risk



16



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|                       |  |       |        |           |       |   |         |          |  |  |      |  
|---------------------- |  | ----- | ------ | --------- | ----- | - | ------- | -------- |  |  | ---- | -
|                       |  |       |        | Estimated |       |   | Average |         
|                       |  | Total |        |           | Fair  |   |         | Interest | 
|Short-Term Investments |  | Cost  |        |           | Value |   |         | Rate     | 
|                       |  |       |        |           |       |   |         |          | 
|December 31, 2004      |  | $     | 49,055 |           |       | $ | 48,988  |          |  |  | 2.39 | %
|December 31, 2003      |  | $     | 12,106 |           |       | $ | 12,108  |          |  |  | 1.36 | %



|                                            |                                      |                   |        |        |            |       |            |   |           |       |     |     |   |   |        |        | 
|------------------------------------------- | ------------------------------------ | ----------------- | ------ | ------ | ---------- | ----- | ---------- | - | --------- | ----- | --- | --- | - | - | ------ | ------ | 
|                                            |                                      | December 31, 2004 |       
|                                            |                                      |                   |       
|                                            |                                      |                   |        | Gross  |            | Gross |            |   | Estimated |      
|                                            |                                      | Amortized         |        |        | Unrealized |       | Unrealized |   |           | Fair  |    
|                                            |                                      | Cost              |        |        | Gains      |       | Losses     |   |           | Value |    
|                                            |                                      |                   |        |        |            |       |            |   |           |       |    
|US government agencies                      |                                      | $                 | 30,590 |        |            | $     |           |   |           | $     | (67 | )   |   | $ | 30,523 |       
|Auction rate securities                     |                                      |                   | 18,465 |        |            |       |           |   |           |       |    |     |   |   | 18,465 |       
|Money market funds                          |                                      |                   | 784    |        |            |       |           |   |           |       |    |     |   |   | 784    |       
|                                            |                                      |                   |        |        |            |       |            |   |           |       |     |    
|                                            | Total available-for-sale investments |                   | $      | 49,839 |            |       | $          |  |           |       | $   | (67 | ) |   |        | 49,772 | 
|                                            |                                      |                   |        |        |            |       |            |   |           |       |     |    
|Less amounts classified as cash equivalents |                                      |                   |        |        |            |       |            |   |           |       |     |     |   |   | (784   | )     
|                                            |                                      |                   |        |        |            |       |            |   |           |       |     |    
|                                            |                                      |                   |        |        |            |       |            |   |           |       |     |     |   | $ | 48,988 |       
|                                            |                                      |                   |        |        |            |       |            |   |           |       |     |    

|                                            |                                      |                   |        |        |            |   |       |            |           |       |   |   |  |   |         |        | 
|------------------------------------------- | ------------------------------------ | ----------------- | ------ | ------ | ---------- | - | ----- | ---------- | --------- | ----- | - | - |  | - | ------- | ------ | 
|                                            |                                      | December 31, 2003 |       
|                                            |                                      |                   |       
|                                            |                                      |                   |        | Gross  |            |   | Gross |            | Estimated |      
|                                            |                                      | Amortized         |        |        | Unrealized |   |       | Unrealized |           | Fair  |  
|                                            |                                      | Cost              |        |        | Gains      |   |       | Losses     |           | Value |  
|                                            |                                      |                   |        |        |            |   |       |            |           |       |  
|Money market funds                          |                                      | $                 | 13,845 |        |            | $ |      |            |           | $     |  |   |  | $ | 13,845  |       
|Auction rate securities                     |                                      |                   | 8,200  |        |            |   |      |            |           |       |  |   |  |   | 8,200   |       
|US government agencies                      |                                      |                   | 3,906  |        |            |   | 2     |            |           |       |  |   |  |   | 3,908   |       
|                                            |                                      |                   |        |        |            |   |       |            |           |       |   |  
|                                            | Total available-for-sale investments |                   | $      | 25,951 |            |   | $     | 2          |           |       | $ |  |  |   |         | 25,953 | 
|                                            |                                      |                   |        |        |            |   |       |            |           |       |   |  
|Less amounts classified as cash equivalents |                                      |                   |        |        |            |   |       |            |           |       |   |   |  |   | (13,845 | )     
|                                            |                                      |                   |        |        |            |   |       |            |           |       |   |  
|                                            |                                      |                   |        |        |            |   |       |            |           |       |   |   |  | $ | 12,108  |       
|                                            |                                      |                   |        |        |            |   |       |            |           |       |   |  





|                          |  |                   |        |  |                   |   |        |           |  |   |            |  |  |   |        | 
|------------------------- |  | ----------------- | ------ |  | ----------------- | - | ------ | --------- |  | - | ---------- |  |  | - | ------ | 
|                          |  | December 31, 2004 |        |  | December 31, 2003 |  
|                          |  |                   |        |  |                   |  
|                          |  | Amortized         |        |  | Estimated         |   |        | Amortized |  |   | Estimated  | 
|                          |  | Cost              |        |  | Fair Value        |   |        | Cost      |  |   | Fair Value | 
|                          |  |                   |        |  |                   |   |        |           |  |   |            | 
|Due in less than one year |  | $                 | 38,248 |  |                   | $ | 38,202 |           |  | $ | 24,201     |  |  | $ | 24,202 | 
|Due in one year or more   |  |                   | 11,591 |  |                   |   | 11,570 |           |  |   | 1,750      |  |  |   | 1,751  | 
|                          |  |                   |        |  |                   |   |        |           |  |   |            | 
|                          |  | $                 | 49,839 |  |                   | $ | 49,772 |           |  | $ | 25,951     |  |  | $ | 25,953 | 
|                          |  |                   |        |  |                   |   |        |           |  |   |            | 

17



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

INTRABIOTICS PHARMACEUTICALS, INC.


INDEX TO FINANCIAL STATEMENTS


|                                                                                        |  |  |    | 
|--------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Stonefield Josephson, Inc.,
    Independent Registered Public Accounting Firm |  |  | 19 | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm          |  |  | 20 | 
|Balance Sheets                                                                          |  |  | 21 | 
|Statements of Operations                                                                |  |  | 22 | 
|Statements of Stockholders Equity                                                      |  |  | 23 | 
|Statements of Cash Flows                                                                |  |  | 25 | 
|Notes to Financial Statements                                                           |  |  | 26 | 

18



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF


INTRABIOTICS PHARMACEUTICALS INC.:










| |                                  
| | ---------------------------------
| | /s/Stonefield
    Josephson, Inc.
| | Stonefield Josephson, Inc.       





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REPORT OF ERNST & YOUNG, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM














| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP





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INTRABIOTICS PHARMACEUTICALS, INC.





BALANCE SHEETS


|                                           |                                                                                                                                                                                                |                             |        |          |        |   |        |          |        | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | -------- | ------ | - | ------ | -------- | ------ | 
|                                           |                                                                                                                                                                                                | December 31,                |       
|                                           |                                                                                                                                                                                                |                             |       
|                                           |                                                                                                                                                                                                | 2004                        |        |          | 2003   |  
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|                                           |                                                                                                                                                                                                | (In thousands, except share |       
|                                           |                                                                                                                                                                                                | and per share amounts)      |       
|ASSETS                                    
|Current assets:                            |                                                                                                                                                                                                |                             |        |          |        |   |        |         
|                                           | Cash and cash equivalents                                                                                                                                                                      |                             | $      | 1,755    |        |   | $      | 14,286   |       
|                                           | Restricted cash                                                                                                                                                                                |                             |        |         |        |   |        | 250      |       
|                                           | Short-term investments                                                                                                                                                                         |                             |        | 48,988   |        |   |        | 12,108   |       
|                                           | Prepaid expenses and other current assets                                                                                                                                                      |                             |        | 396      |        |   |        | 478      |       
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|                                           |                                                                                                                                                                                                | Total current assets        |        |          | 51,139 |   |        |          | 27,122 | 
|Property and equipment, net                |                                                                                                                                                                                                |                             | 46     |          |        |   | 20     |         
|Other assets                               |                                                                                                                                                                                                |                             |       |          |        |   | 184    |         
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|                                           |                                                                                                                                                                                                | Total assets                |        | $        | 51,185 |   |        | $        | 27,326 | 
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Current liabilities:                       |                                                                                                                                                                                                |                             |        |          |        |   |        |         
|                                           | Accounts payable                                                                                                                                                                               |                             | $      | 154      |        |   | $      | 141      |       
|                                           | Accrued clinical liabilities                                                                                                                                                                   |                             |        | 161      |        |   |        | 1,046    |       
|                                           | Accrued employee liabilities                                                                                                                                                                   |                             |        | 89       |        |   |        | 101      |       
|                                           | Other accrued liabilities                                                                                                                                                                      |                             |        | 273      |        |   |        | 410      |       
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|                                           |                                                                                                                                                                                                | Total current liabilities   |        |          | 677    |   |        |          | 1,698  | 
|Commitments (Note 6)                       |                                                                                                                                                                                                |                             |        |          |        |   |        |         
|Stockholders equity:                      |                                                                                                                                                                                                |                             |        |          |        |   |        |         
|                                           | Convertible preferred stock, $0.001 par value:
    5,000,000 shares authorized; 325 shares outstanding
    and $3,250 aggregate liquidation preference at December 31,
    2004 and 2003       |                             |        | 1,771    |        |   |        | 1,771    |       
|                                           | Common stock, $0.001 par value: 70,000,000 shares
    authorized at December 31, 2004 and 2003; 8,880,344 and
    5,298,206 shares outstanding at December 31, 2004 and
    2003, respectively |                             |        | 9        |        |   |        | 5        |       
|                                           | Additional paid-in capital                                                                                                                                                                     |                             |        | 281,068  |        |   |        | 239,237  |       
|                                           | Deferred stock compensation                                                                                                                                                                    |                             |        | (114     | )      |   |        | (188     | )     
|                                           | Accumulated other comprehensive (loss) income                                                                                                                                                  |                             |        | (67      | )      |   |        | 2        |       
|                                           | Accumulated deficit                                                                                                                                                                            |                             |        | (232,159 | )      |   |        | (215,199 | )     
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|Total stockholders equity                 |                                                                                                                                                                                                |                             | 50,508 |          |        |   | 25,628 |         
|                                           |                                                                                                                                                                                                |                             |        |          |        |  
|Total liabilities and stockholders equity |                                                                                                                                                                                                | $                           | 51,185 |          |        | $ | 27,326 |         
|                                           |                                                                                                                                                                                                |                             |        |          |        |  



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INTRABIOTICS PHARMACEUTICALS, INC.





STATEMENTS OF OPERATIONS


|                                                                                                  |                                  |                                 |         |        |        |   |         |       |        |   |         |        |        | 
|------------------------------------------------------------------------------------------------- | -------------------------------- | ------------------------------- | ------- | ------ | ------ | - | ------- | ----- | ------ | - | ------- | ------ | ------ | 
|                                                                                                  |                                  | Year Ended December 31,         |        
|                                                                                                  |                                  |                                 |        
|                                                                                                  |                                  | 2004                            |         |        | 2003   |   |         | 2002  |       
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|                                                                                                  |                                  | (In thousands, except per share |        
|                                                                                                  |                                  | amounts)                        |        
|Operating expenses:                                                                               |                                  |                                 |         |        |        |   |         |       |        |   |         |       
|                                                                                                  | Research and development         |                                 | $       | 11,519 |        |   | $       | 7,727 |        |   | $       | 23,053 |       
|                                                                                                  | General and administrative       |                                 |         | 4,819  |        |   |         | 5,782 |        |   |         | 8,617  |       
|                                                                                                  | Restructuring and other charges  |                                 |         | 858    |        |   |         |      |        |   |         | 6,118  |       
|                                                                                                  | Arbitration settlement           |                                 |         |       |        |   |         |      |        |   |         | (3,600 | )     
|                                                                                                  | Impairment of acquired workforce |                                 |         |       |        |   |         |      |        |   |         | 1,365  |       
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|                                                                                                  |                                  | Total operating expenses        |         |        | 17,196 |   |         |       | 13,509 |   |         |        | 35,553 | 
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|Operating loss                                                                                    |                                  |                                 | (17,196 | )      |        |   | (13,509 | )     |        |   | (35,553 | )     
|                                                                                                  | Interest income                  |                                 |         | 700    |        |   |         | 166   |        |   |         | 703    |       
|                                                                                                  | Interest expense                 |                                 |         |       |        |   |         |      |        |   |         | (459   | )     
|                                                                                                  | Other income/(expense), net      |                                 |         | (204   | )      |   |         | 31    |        |   |         | 856    |       
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|Net loss                                                                                          |                                  |                                 | (16,700 | )      |        |   | (13,312 | )     |        |   | (34,453 | )     
|Non-cash deemed dividend related to beneficial conversion
    feature of Series A preferred stock |                                  |                                 |        |        |        |   | (1,436  | )     |        |   |        |       
|Non-cash dividends on Series A preferred stock                                                    |                                  |                                 | (260    | )      |        |   | (182    | )     |        |   |        |       
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|Net loss applicable to common stockholders                                                        |                                  | $                               | (16,960 | )      |        | $ | (14,930 | )     |        | $ | (34,453 | )     
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|Basic and diluted net loss per share applicable to common
    stockholders                        |                                  | $                               | (2.24   | )      |        | $ | (4.01   | )     |        | $ | (11.25  | )     
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       
|Shares used to compute basic and diluted net loss per share
    applicable to common stockholders |                                  |                                 | 7,559   |        |        |   | 3,720   |       |        |   | 3,064   |       
|                                                                                                  |                                  |                                 |         |        |        |   |         |       |       



22



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INTRABIOTICS PHARMACEUTICALS, INC.





STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                                    |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |   |   |  |   |          |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------- | ----------------------------- | --------------- | - | - | ------------ | - | ----- | ---------- |  |  | ----------- | - |  | ------------- | - | - | ------------ | - | ------- | ------------- |  | - | ------- | - |  | ------ | - | - |  | - | -------- | ------- | - | - | ------- | ------- | -
|                                                                                                                    |                               | Convertible     |   |   |              |   |       |            |  |  | Accumulated |   |  |               |   |  
|                                                                                                                    |                               | Preferred Stock |   |   | Common Stock |   |       | Additional |  |  | Deferred    |   |  | Other         |   |   |              |   | Total   |              
|                                                                                                                    |                               |                 |   |   |              |   |       | Paid-In    |  |  | Stock       |   |  | Comprehensive |   |   | Accumulated  |   |         | Stockholders | 
|                                                                                                                    |                               | Shares          |   |   | Amount       |   |       | Shares     |  |  | Amount      |   |  | Capital       |   |   | Compensation |   |         | Income (Loss) |  |   | Deficit |   |  | Equity |  
|                                                                                                                    |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |  
|                                                                                                                    |                               | (In thousands)  |  
|Balances at December 31, 2001                                                                                       |                               |                 |  |   |              | $ |      |            |  |  | 2,483       |   |  | $             | 2 |   |              | $ | 196,603 |               |  | $ | (4,577  | ) |  | $      |  |   |  | $ | (165,816 | )       |   | $ | 26,212  |        
|Issuance of common stock upon exercise of options for cash                                                          |                               |                 |  |   |              |   |      |            |  |  | 29          |   |  |               |  |   |              |   | 471     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 471     |        
|Issuance of common stock on private placement for cash                                                              |                               |                 |  |   |              |   |      |            |  |  | 596         |   |  |               | 1 |   |              |   | 18,980  |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 18,981  |        
|Issuance of common stock on acquisition of Apothogen Inc.                                                           |                               |                 |  |   |              |   |      |            |  |  | 37          |   |  |               |  |   |              |   | 1,924   |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 1,924   |        
|Stock compensation for consultant services                                                                          |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | 512     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 512     |        
|Issuance of common stock for the employee stock purchase plan
    for cash                                          |                               |                 |  |   |              |   |      |            |  |  | 1           |   |  |               |  |   |              |   | 10      |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 10      |        
|Issuance of warrants to purchase 4 shares of common stock                                                           |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | 7       |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 7       |        
|Issuance of of common stock for services                                                                            |                               |                 |  |   |              |   |      |            |  |  | 123         |   |  |               |  |   |              |   | 545     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 545     |        
|Amortization of deferred stock compensation                                                                         |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   |        |               |  |   | 1,271   |   |  |        |  |   |  |   |         |         |   |   | 1,271   |        
|Cancellation of stock options related to employee terminations                                                      |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | (2,586  | )             |  |   | 2,586   |   |  |        |  |   |  |   |         |         |   |   |        |        
|Net loss and comprehensive loss                                                                                     |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   |        |               |  |   |        |   |  |        |  |   |  |   | (34,453  | )       |   |   | (34,453 | )      
|                                                                                                                    |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |  
|Balances at December 31, 2002                                                                                       |                               |                 |  |   |              |   |      |            |  |  | 3,269       |   |  |               | 3 |   |              |   | 216,466 |               |  |   | (720    | ) |  |        |  |   |  |   | (200,269 | )       |   |   | 15,480  |        
|Issuance of common stock upon exercise of options for cash                                                          |                               |                 |  |   |              |   |      |            |  |  | 50          |   |  |               |  |   |              |   | 380     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 380     |        
|Issuance of common stock and warrants on private placement, net
    of $710 issuance costs                          |                               |                 |  |   |              |   |      |            |  |  | 1,774       |   |  |               | 2 |   |              |   | 18,536  |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 18,538  |        
|Issuance of Series A preferred stock and common stock
    warrants on private placement, net of $268 issuance costs |                               |                 |  |   |              |   | 1,906 |            |  |  |            |   |  |               |  |   |              |   | 1,326   |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 3,232   |        
|Beneficial conversion feature on Series A preferred stock                                                           |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | 1,436   |               |  |   |        |   |  |        |  |   |  |   | (1,436   | )       |   |   |        |        
|Issuance of common stock upon conversion of Series A
    preferred stock                                            |                               |                 |  |   |              |   | (135  | )          |  |  | 132         |   |  |               |  |   |              |   | 135     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   |        |        
|Issuance of common stock as dividend on series A preferred
    stock                                                |                               |                 |  |   |              |   |      |            |  |  | 18          |   |  |               |  |   |              |   | 117     |               |  |   |        |   |  |        |  |   |  |   | (182     | )       |   |   | (65     | )      
|Issuance of common stock upon exercise of warrants                                                                  |                               |                 |  |   |              |   |      |            |  |  | 55          |   |  |               |  |   |              |   |        |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   |        |        
|Amortization of deferred stock compensation                                                                         |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   |        |               |  |   | 126     |   |  |        |  |   |  |   |         |         |   |   | 126     |        
|Stock compensation for variable option awards                                                                       |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | 993     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 993     |        
|Stock compensation for consultant services                                                                          |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | 254     |               |  |   |        |   |  |        |  |   |  |   |         |         |   |   | 254     |        
|Cancellation of stock options related to employee terminations                                                      |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | (406    | )             |  |   | 406     |   |  |        |  |   |  |   |         |         |   |   |        |        
|Comprehensive loss:                                                                                                 |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |   |   |  |   |          |         |   |   |         |        
|                                                                                                                    | Net loss                      |                 |   |  |              |   |       |           |  |  |             |  |  |               |   |  |              |   |         |              |  |   |         |  |  |        |   |  |  |   |          | (13,312 | ) |   |         | (13,312 | )
|                                                                                                                    | Unrealized gain on securities |                 |   |  |              |   |       |           |  |  |             |  |  |               |   |  |              |   |         |              |  |   |         |  |  |        |   | 2 |  |   |          |        |   |   |         | 2       |  
|                                                                                                                    |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |  
|Comprehensive loss                                                                                                  |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |   |   |  |   |          |         |   |   | (13,310 | )      
|                                                                                                                    |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |  

23



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INTRABIOTICS PHARMACEUTICALS, INC.


STATEMENTS OF STOCKHOLDERS
EQUITY  (Continued)


|                                                                                |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |     |     |   |   |          |         |   |   |         |         |  
|------------------------------------------------------------------------------- | ----------------------------- | --------------- | - | - | ------------ | - | ----- | ---------- |  |  | ----------- | - |  | ------------- | - | - | ------------ | - | ------- | ------------- |  | - | ------- | - |  | ------ | --- | --- | - | - | -------- | ------- | - | - | ------- | ------- | -
|                                                                                |                               | Convertible     |   |   |              |   |       |            |  |  | Accumulated |   |  |               |   |  
|                                                                                |                               | Preferred Stock |   |   | Common Stock |   |       | Additional |  |  | Deferred    |   |  | Other         |   |   |              |   | Total   |              
|                                                                                |                               |                 |   |   |              |   |       | Paid-In    |  |  | Stock       |   |  | Comprehensive |   |   | Accumulated  |   |         | Stockholders | 
|                                                                                |                               | Shares          |   |   | Amount       |   |       | Shares     |  |  | Amount      |   |  | Capital       |   |   | Compensation |   |         | Income (Loss) |  |   | Deficit |   |  | Equity |    
|                                                                                |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |    
|                                                                                |                               | (In thousands)  |  
|Balances at December 31, 2003                                                   |                               |                 |  |   |              |   | 1,771 |            |  |  | 5,298       |   |  |               | 5 |   |              |   | 239,237 |               |  |   | (188    | ) |  |        | 2   |     |   |   | (215,199 | )       |   |   | 25,628  |        
|Issuance of common stock upon exercise of options for cash                      |                               |                 |  |   |              |   |      |            |  |  | 87          |   |  |               | 1 |   |              |   | 241     |               |  |   |        |   |  |        |    |     |   |   |         |         |   |   | 242     |        
|Issuance of common stock in a public offering, net of $3,337
    issuance costs |                               |                 |  |   |              |   |      |            |  |  | 3,450       |   |  |               | 3 |   |              |   | 41,509  |               |  |   |        |   |  |        |    |     |   |   |         |         |   |   | 41,512  |        
|Issuance of common stock as dividend on series A preferred
    stock            |                               |                 |  |   |              |   |      |            |  |  | 41          |   |  |               |  |   |              |   | 260     |               |  |   |        |   |  |        |    |     |   |   | (260     | )       |   |   |        |        
|Issuance of common stock upon exercise of warrants                              |                               |                 |  |   |              |   |      |            |  |  | 4           |   |  |               |  |   |              |   |        |               |  |   |        |   |  |        |    |     |   |   |         |         |   |   |        |        
|Amortization of deferred stock compensation                                     |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   |        |               |  |   | 61      |   |  |        |    |     |   |   |         |         |   |   | 61      |        
|Stock compensation for variable option awards                                   |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | (638    | )             |  |   |        |   |  |        |    |     |   |   |         |         |   |   | (638    | )      
|Stock compensation for consultant services                                      |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | 472     |               |  |   |        |   |  |        |    |     |   |   |         |         |   |   | 472     |        
|Cancellation of stock options related to employee terminations                  |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   | (13     | )             |  |   | 13      |   |  |        |    |     |   |   |         |         |   |   |        |        
|Comprehensive loss:                                                             |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |     |     |   |   |          |         |   |   |         |        
|                                                                                | Net loss                      |                 |   |  |              |   |       |           |  |  |             |  |  |               |   |  |              |   |         |              |  |   |         |  |  |        |     |    |   |   |          | (16,700 | ) |   |         | (16,700 | )
|                                                                                | Unrealized loss on securities |                 |   |  |              |   |       |           |  |  |             |  |  |               |   |  |              |   |         |              |  |   |         |  |  |        |     | (69 | ) |   |          |        |   |   |         | (69     | )
|                                                                                |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |    
|Comprehensive loss                                                              |                               |                 |  |   |              |   |      |            |  |  |            |   |  |               |  |   |              |   |        |               |  |   |        |   |  |        |    |     |   |   |         |         |   |   | (16,769 | )      
|                                                                                |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |    
|Balances at December 31, 2004                                                   |                               |                 |  |   |              | $ | 1,771 |            |  |  | 8,880       |   |  | $             | 9 |   |              | $ | 281,068 |               |  | $ | (114    | ) |  | $      | (67 | )   |   | $ | (232,159 | )       |   | $ | 50,508  |        
|                                                                                |                               |                 |   |   |              |   |       |            |  |  |             |   |  |               |   |   |              |   |         |               |  |   |         |   |  |        |    



24



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INTRABIOTICS PHARMACEUTICALS, INC.





STATEMENTS OF CASH FLOWS


|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |        |        |  
|------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | ------- | ------- | ---- | - | ------- | ------- | ----- | - | ------- | ------ | ------ | -
|                                                                                |                                                                                  | Year Ended December 31,                   |        
|                                                                                |                                                                                  |                                           |        
|                                                                                |                                                                                  | 2004                                      |         |         | 2003 |   |         | 2002    |      
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|                                                                                |                                                                                  | (In thousands)                            |        
|Operating activities                                                            |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|Net loss                                                                        |                                                                                  | $                                         | (16,700 | )       |      | $ | (13,312 | )       |       | $ | (34,453 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|                                                                                | Stock compensation for variable option awards                                    |                                           |         | (638    | )    |   |         | 993     |       |   |         |       |       
|                                                                                | Amortization of deferred stock compensation                                      |                                           |         | 61      |      |   |         | 126     |       |   |         | 1,271  |       
|                                                                                | Stock compensation for consultant services                                       |                                           |         | 472     |      |   |         | 254     |       |   |         | 512    |       
|                                                                                | Stock compensation for services                                                  |                                           |         |        |      |   |         |        |       |   |         | 545    |       
|                                                                                | Depreciation and amortization                                                    |                                           |         | 35      |      |   |         | 92      |       |   |         | 725    |       
|                                                                                | Write down of property and equipment                                             |                                           |         | 33      |      |   |         |        |       |   |         | 274    |       
|                                                                                | Acquired workforce write down and amortization                                   |                                           |         |        |      |   |         |        |       |   |         | 1,694  |       
|                                                                                | Gain on sale of pre-clinical programs                                            |                                           |         |        |      |   |         |        |       |   |         | (975   | )     
|                                                                                | Fair value of warrants issued                                                    |                                           |         |        |      |   |         |        |       |   |         | 7      |       
|                                                                                | Change in assets and liabilities:                                                |                                           |         |         |      |   |         |         |       |   |         |        |       
|                                                                                |                                                                                  | Restricted cash                           |         |         | 250  |   |         |         |      |   |         |        | 7,238  |  
|                                                                                |                                                                                  | Prepaid expenses and other current assets |         |         | 82   |   |         |         | 2,144 |   |         |        | 3,087  |  
|                                                                                |                                                                                  | Other assets                              |         |         | 184  |   |         |         | (7    | ) |         |        | 41     |  
|                                                                                |                                                                                  | Accounts payable                          |         |         | 13   |   |         |         | (204  | ) |         |        | (245   | )
|                                                                                |                                                                                  | Accrued clinical liabilities              |         |         | (885 | ) |         |         | 1,046 |   |         |        | (1,663 | )
|                                                                                |                                                                                  | Accrued employee liabilities              |         |         | (12  | ) |         |         | (34   | ) |         |        | (475   | )
|                                                                                |                                                                                  | Accrued restructuring charges             |         |         | 5    |   |         |         | (64   | ) |         |        | (2,797 | )
|                                                                                |                                                                                  | Deferred rent                             |         |         |     |   |         |         |      |   |         |        | (618   | )
|                                                                                |                                                                                  | Other accrued liabilities                 |         |         | (142 | ) |         |         | 143   |   |         |        | (515   | )
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Net cash used in operating activities                                           |                                                                                  |                                           | (17,242 | )       |      |   | (8,823  | )       |       |   | (26,347 | )     
|Investing activities                                                            |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|                                                                                | Capital expenditures                                                             |                                           |         | (94     | )    |   |         |        |       |   |         | (41    | )     
|                                                                                | Proceeds from sale of property and equipment                                     |                                           |         |        |      |   |         |        |       |   |         | 526    |       
|                                                                                | Proceeds from sale of pre-clinical programs                                      |                                           |         |        |      |   |         |        |       |   |         | 800    |       
|                                                                                | Purchase of short term investments                                               |                                           |         | (65,167 | )    |   |         | (12,106 | )     |   |         | (2,895 | )     
|                                                                                | Proceeds from sale or maturity of short-term investments                         |                                           |         | 28,218  |      |   |         | 2,895   |       |   |         |       |       
|                                                                                | Cash received in acquisition of subsidiary                                       |                                           |         |        |      |   |         |        |       |   |         | 58     |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Net cash used in investing activities                                           |                                                                                  |                                           | (37,043 | )       |      |   | (9,211  | )       |       |   | (1,552  | )     
|Financing activities                                                            |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|                                                                                | Proceeds from issuance of Series A preferred stock in
    private placement, net |                                           |         |        |      |   |         | 3,232   |       |   |         |       |       
|                                                                                | Proceeds from issuance of common stock in private placements, net                |                                           |         |        |      |   |         | 18,538  |       |   |         | 18,981 |       
|                                                                                | Proceeds from issuance of common stock in a public offering, net                 |                                           |         | 41,512  |      |   |         |        |       |   |         |       |       
|                                                                                | Proceeds from issuance of common stock upon exercise of options                  |                                           |         | 242     |      |   |         | 380     |       |   |         | 481    |       
|                                                                                | Payments on financing obligations                                                |                                           |         |        |      |   |         |        |       |   |         | (9,375 | )     
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Net cash provided by financing activities                                       |                                                                                  |                                           | 41,754  |         |      |   | 22,150  |         |       |   | 10,087  |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Net increase (decrease) in cash and cash equivalents                            |                                                                                  |                                           | (12,531 | )       |      |   | 4,116   |         |       |   | (17,812 | )     
|Cash and cash equivalents at beginning of the year                              |                                                                                  |                                           | 14,286  |         |      |   | 10,170  |         |       |   | 27,982  |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Cash and cash equivalents at end of the year                                    |                                                                                  | $                                         | 1,755   |         |      | $ | 14,286  |         |       | $ | 10,170  |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Supplemental disclosure of cash flow information:                               |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|                                                                                | Interest paid                                                                    |                                           | $       |        |      |   | $       |        |       |   | $       | 459    |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Supplemental disclosure of non-cash information:                                |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|                                                                                | Net deferred stock compensation (cancellations due to employee
    termination)  |                                           | $       | (13     | )    |   | $       | (406    | )     |   | $       | (2,586 | )     
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|                                                                                | Beneficial conversion feature on Series A preferred stock                        |                                           | $       |        |      |   | $       | (1,436  | )     |   | $       |       |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|                                                                                | Issuance of common stock dividend on Series A preferred
    stock                |                                           | $       | (260    | )    |   | $       | (182    | )     |   | $       |       |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|                                                                                | Issuance of common stock upon conversion of Series A
    preferred stock         |                                           | $       |        |      |   | $       | (135    | )     |   | $       |       |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|                                                                                | Other assets received from sale of pre-clinical programs                         |                                           | $       |        |      |   | $       |        |       |   | $       | 375    |       
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|Cash flow for acquisition of subsidiary:                                        |                                                                                  |                                           |         |         |      |   |         |         |       |   |         |       
|                                                                                | Acquired workforce                                                               |                                           | $       |        |      |   | $       |        |       |   | $       | 1,694  |       
|                                                                                | Other current assets acquired                                                    |                                           |         |        |      |   |         |        |       |   |         | 297    |       
|                                                                                | Property and equipment acquired                                                  |                                           |         |        |      |   |         |        |       |   |         | 56     |       
|                                                                                | Liabilities assumed                                                              |                                           |         |        |      |   |         |        |       |   |         | (75    | )     
|                                                                                | Acquisition costs incurred                                                       |                                           |         |        |      |   |         |        |       |   |         | (106   | )     
|                                                                                | Common stock issued                                                              |                                           |         |        |      |   |         |        |       |   |         | (1,924 | )     
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      
|                                                                                | Cash received in acquisition                                                     |                                           | $       |        |      |   | $       |        |       |   | $       | (58    | )     
|                                                                                |                                                                                  |                                           |         |         |      |   |         |         |      



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##### Table of Contents






NOTES TO FINANCIAL STATEMENTS




|   |                        
|-- | -----------------------
|1. | Description of Business






|   |                                                                          
|-- | -------------------------------------------------------------------------
|2. | Summary of Significant Accounting Policies and Concentrations
    of Risk



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







| |                                                                          
| | -------------------------------------------------------------------------
| | Concentrations of Credit Risk and Fair Value of Financial
    Instruments







| |                                            
| | -------------------------------------------
| | Cash Equivalents and Short-Term Investments



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NOTES TO FINANCIAL STATEMENTS  (Continued)




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





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





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





| |                      
| | ---------------------
| | Restructuring Charges





| |                        
| | -----------------------
| | Clinical Trial Accruals





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

Accounting
for Stock-Based Compensation Accounting for
Stock-Based Compensation  Transition and
Disclosure,


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NOTES TO FINANCIAL STATEMENTS  (Continued)






Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services






|                                                                                                                                  |                                 |                                 |         |       |      |   |         |       |   |   |         |        |  
|--------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ------ | -
|                                                                                                                                  |                                 | Year Ended December 31,         |        
|                                                                                                                                  |                                 |                                 |        
|                                                                                                                                  |                                 | 2004                            |         |       | 2003 |   |         | 2002  |  
|                                                                                                                                  |                                 |                                 |         |       |      |   |         |       |  
|                                                                                                                                  |                                 | (In thousands, except per share |        
|                                                                                                                                  |                                 | amounts)                        |        
|Net loss applicable to common stockholders, as reported                                                                           |                                 | $                               | (16,960 | )     |      | $ | (14,930 | )     |   | $ | (34,453 | )     
|Add: Stock-based employee compensation expense
    (recovery) included in reported net loss applicable to
    common stockholders |                                 |                                 | (577    | )     |      |   | 1,119   |       |   |   | 1,271   |       
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards               |                                 |                                 | (7,049  | )     |      |   | (1,577  | )     |   |   | (6,084  | )     
|                                                                                                                                  |                                 |                                 |         |       |      |   |         |       |  
|Net loss applicable to common stockholders, pro forma                                                                             |                                 | $                               | (24,586 | )     |      | $ | (15,388 | )     |   | $ | (39,266 | )     
|                                                                                                                                  |                                 |                                 |         |       |      |   |         |       |  
|Net loss per share applicable to common stockholders:                                                                             |                                 |                                 |         |       |      |   |         |       |   |   |         |       
|                                                                                                                                  | Basic and diluted  as reported |                                 | $       | (2.24 | )    |   | $       | (4.01 | ) |   | $       | (11.25 | )
|                                                                                                                                  |                                 |                                 |         |       |      |   |         |       |  
|                                                                                                                                  | Basic and diluted  pro forma   |                                 | $       | (3.25 | )    |   | $       | (4.14 | ) |   | $       | (12.82 | )
|                                                                                                                                  |                                 |                                 |         |       |      |   |         |       |  

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NOTES TO FINANCIAL STATEMENTS  (Continued)




|                        |  |                         |         |   |      |  |         |      |  |  |         |  
|----------------------- |  | ----------------------- | ------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | Year Ended December 31, |        
|                        |  |                         |        
|                        |  | 2004                    |         |   | 2003 |  |         | 2002 | 
|                        |  |                         |         |   |      |  |         |      | 
|Risk-free interest rate |  |                         | 3.55    | % |      |  | 2.92    | %    |  |  | 2.89    | %
|Volatility              |  |                         | 1.00    |   |      |  | 1.00    |      |  |  | 1.00    |  
|Dividend yield          |  |                         | 0.00    | % |      |  | 0.00    | %    |  |  | 0.00    | %
|Expected life of option |  |                         | 5 years |   |      |  | 5 years |      |  |  | 5 years |  







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



|                                                        |                    |                         |         |         |      |   |         |         |   |   |         |         |  
|------------------------------------------------------- | ------------------ | ----------------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                        |                    | Year Ended December 31, |        
|                                                        |                    |                         |        
|                                                        |                    | 2004                    |         |         | 2003 |   |         | 2002    |  
|                                                        |                    |                         |         |         |      |   |         |         |  
|Net loss                                                |                    | $                       | (16,700 | )       |      | $ | (13,312 | )       |   | $ | (34,453 | )      
|Unrealized gain (loss) on available-for-sale securities |                    |                         | (69     | )       |      |   | 2       |         |   |   |        |        
|                                                        |                    |                         |         |         |      |   |         |         |  
|                                                        | Comprehensive loss |                         | $       | (16,769 | )    |   | $       | (13,310 | ) |   | $       | (34,453 | )
|                                                        |                    |                         |         |         |      |   |         |         |  



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

Earnings Per Share




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



29



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  (Continued)




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









| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FASB issued revised SFAS No. 132(R) (revised 2003),
    Employers Disclosures about Pensions and Other
    Post-Retirement Benefits  An Amendment of FASB
    Statements No. 87, 88, and 106; and
|
| |  | EITF Issue No. 03-1, The Meaning of
    Other-Than-Temporary Impairment and Its Application to Certain
    Investments.                                                                            

30



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NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                               
|-- | ------------------------------
|3. | Available-For-Sale Investments



|                                            |                                      |                   |        |        |            |       |            |   |  |            |     |     |   |   |        |        | 
|------------------------------------------- | ------------------------------------ | ----------------- | ------ | ------ | ---------- | ----- | ---------- | - |  | ---------- | --- | --- | - | - | ------ | ------ | 
|                                            |                                      | December 31, 2004 |       
|                                            |                                      |                   |       
|                                            |                                      |                   |        | Gross  |            | Gross |            |   | 
|                                            |                                      | Amortized         |        |        | Unrealized |       | Unrealized |   |  | Estimated  |    
|                                            |                                      | Cost              |        |        | Gains      |       | Losses     |   |  | Fair Value |    
|                                            |                                      |                   |        |        |            |       |            |   |  |            |    
|US government agencies                      |                                      | $                 | 30,590 |        |            | $     |           |   |  | $          | (67 | )   |   | $ | 30,523 |       
|Auction rate securities                     |                                      |                   | 18,465 |        |            |       |           |   |  |            |    |     |   |   | 18,465 |       
|Money market funds                          |                                      |                   | 784    |        |            |       |           |   |  |            |    |     |   |   | 784    |       
|                                            |                                      |                   |        |        |            |       |            |   |  |            |     |    
|                                            | Total available-for-sale investments |                   | $      | 49,839 |            |       | $          |  |  |            | $   | (67 | ) |   |        | 49,772 | 
|                                            |                                      |                   |        |        |            |       |            |   |  |            |     |    
|Less amounts classified as cash equivalents |                                      |                   |        |        |            |       |            |   |  |            |     |     |   |   | (784   | )     
|                                            |                                      |                   |        |        |            |       |            |   |  |            |     |    
|                                            |                                      |                   |        |        |            |       |            |   |  |            |     |     |   | $ | 48,988 |       
|                                            |                                      |                   |        |        |            |       |            |   |  |            |     |    

|                                            |                                      |                   |        |        |            |   |       |            |  |            |   |   |  |   |         |        | 
|------------------------------------------- | ------------------------------------ | ----------------- | ------ | ------ | ---------- | - | ----- | ---------- |  | ---------- | - | - |  | - | ------- | ------ | 
|                                            |                                      | December 31, 2003 |       
|                                            |                                      |                   |       
|                                            |                                      |                   |        | Gross  |            |   | Gross |            | 
|                                            |                                      | Amortized         |        |        | Unrealized |   |       | Unrealized |  | Estimated  |  
|                                            |                                      | Cost              |        |        | Gains      |   |       | Losses     |  | Fair Value |  
|                                            |                                      |                   |        |        |            |   |       |            |  |            |  
|Money market funds                          |                                      | $                 | 13,845 |        |            | $ |      |            |  | $          |  |   |  | $ | 13,845  |       
|Auction rate securities                     |                                      |                   | 8,200  |        |            |   |      |            |  |            |  |   |  |   | 8,200   |       
|US government agencies                      |                                      |                   | 3,906  |        |            |   | 2     |            |  |            |  |   |  |   | 3,908   |       
|                                            |                                      |                   |        |        |            |   |       |            |  |            |   |  
|                                            | Total available-for-sale investments |                   | $      | 25,951 |            |   | $     | 2          |  |            | $ |  |  |   |         | 25,953 | 
|                                            |                                      |                   |        |        |            |   |       |            |  |            |   |  
|Less amounts classified as cash equivalents |                                      |                   |        |        |            |   |       |            |  |            |   |   |  |   | (13,845 | )     
|                                            |                                      |                   |        |        |            |   |       |            |  |            |   |  
|                                            |                                      |                   |        |        |            |   |       |            |  |            |   |   |  | $ | 12,108  |       
|                                            |                                      |                   |        |        |            |   |       |            |  |            |   |  





|                          |  |                   |        |  |                   |   |        |           |  |   |            |  |  |   |        | 
|------------------------- |  | ----------------- | ------ |  | ----------------- | - | ------ | --------- |  | - | ---------- |  |  | - | ------ | 
|                          |  | December 31, 2004 |        |  | December 31, 2003 |  
|                          |  |                   |        |  |                   |  
|                          |  | Amortized         |        |  | Estimated         |   |        | Amortized |  |   | Estimated  | 
|                          |  | Cost              |        |  | Fair Value        |   |        | Cost      |  |   | Fair Value | 
|                          |  |                   |        |  |                   |   |        |           |  |   |            | 
|Due in less than one year |  | $                 | 38,248 |  |                   | $ | 38,202 |           |  | $ | 24,201     |  |  | $ | 24,202 | 
|Due in one year or more   |  |                   | 11,591 |  |                   |   | 11,570 |           |  |   | 1,750      |  |  |   | 1,751  | 
|                          |  |                   |        |  |                   |   |        |           |  |   |            | 
|                          |  | $                 | 49,839 |  |                   | $ | 49,772 |           |  | $ | 25,951     |  |  | $ | 25,953 | 
|                          |  |                   |        |  |                   |   |        |           |  |   |            | 

31



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NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|4. | Property and Equipment



|                              |                             |              |      |    |      |   |      |    | 
|----------------------------- | --------------------------- | ------------ | ---- | -- | ---- | - | ---- | -- | 
|                              |                             | December 31, |     
|                              |                             |              |     
|                              |                             | 2004         |      |    | 2003 |  
|                              |                             |              |      |    |      |  
|Machinery and equipment       |                             | $            | 373  |    |      | $ | 328  |   
|Less accumulated depreciation |                             |              | (327 | )  |      |   | (308 | ) 
|                              |                             |              |      |    |      |  
|                              | Property and equipment, net |              | $    | 46 |      |   | $    | 20 | 
|                              |                             |              |      |    |      |  





|   |                          
|-- | -------------------------
|5. | Other Accrued Liabilities



|                                                          |                                 |              |     |     |      |   |     |     | 
|--------------------------------------------------------- | ------------------------------- | ------------ | --- | --- | ---- | - | --- | --- | 
|                                                          |                                 | December 31, |    
|                                                          |                                 |              |    
|                                                          |                                 | 2004         |     |     | 2003 |  
|                                                          |                                 |              |     |     |      |  
|Accrued professional fees                                 |                                 | $            | 144 |     |      | $ | 300 |    
|Accrued dividends on Series A convertible preferred stock |                                 |              | 65  |     |      |   | 65  |    
|Other accrued liabilities                                 |                                 |              | 64  |     |      |   | 45  |    
|                                                          |                                 |              |     |     |      |  
|                                                          | Total other accrued liabilities |              | $   | 273 |      |   | $   | 410 | 
|                                                          |                                 |              |     |     |      |  



|   |            
|-- | -----------
|6. | Commitments









|   |                                
|-- | -------------------------------
|7. | Restructuring and Other Charges



| |                   
| | ------------------
| | 2001 Restructuring



32



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NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                   |  |            |        |   |               |            |               |            |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ---------- | ------ | - | ------------- | ---------- | ------------- | ---------- |  | - | ------ | - |  | - | ------ | -
|                                                   |  |            |        |   |               | Terminated |               |            | 
|                                                   |  | Costs for  |        |   |               |            | Collaboration |            |  |  
|                                                   |  | Terminated |        |   | Facilities    |            |               | Agreements |  |   |       
|                                                   |  | Employees  |        |   | Consolidation |            |               | and Other  |  |   | Total  |  
|                                                   |  |            |        |   |               |            |               |            |  |   |        |  
|2001 Activity                                      |  |            |        |   |               |            |               |            |  |   |        |   |  |   |        |  
|Original restructuring charges                     |  | $          | 2,911  |   |               | $          | 3,150         |            |  | $ | 4,060  |   |  | $ | 10,121 |  
|Cash refund (payments)                             |  |            | (2,675 | ) |               |            | (2,219        | )          |  |   | (3,983 | ) |  |   | (8,877 | )
|Non-cash expenses  issuance of warrants           |  |            |       |   |               |            |              |            |  |   | (560   | ) |  |   | (560   | )
|Adjustment to reflect revised estimates            |  |            | (236   | ) |               |            | 1,930         |            |  |   | 483    |   |  |   | 2,177  |  
|                                                   |  |            |        |   |               |            |               |            |  |   |        |  
|Accrued restructuring charges at December 31, 2001 |  |            |       |   |               |            | 2,861         |            |  |   |       |   |  |   | 2,861  |  
|2002 Activity                                      |  |            |        |   |               |            |               |            |  |   |        |   |  |   |        |  
|Cash refund (payments)                             |  |            | 75     |   |               |            | (8,464        | )          |  |   | (166   | ) |  |   | (8,555 | )
|Non-cash expenses  issuance of common stock       |  |            |       |   |               |            | (437          | )          |  |   |       |   |  |   | (437   | )
|Reclass deferred rent liability                    |  |            |       |   |               |            | 861           |            |  |   |       |   |  |   | 861    |  
|Adjustment to reflect revised estimates            |  |            | (75    | ) |               |            | 5,179         |            |  |   | 166    |   |  |   | 5,270  |  
|                                                   |  |            |        |   |               |            |               |            |  |   |        |  
|Accrued restructuring charges at December 31, 2002 |  | $          |       |   |               | $          |              |            |  | $ |       |   |  | $ |       |  
|                                                   |  |            |        |   |               |            |               |            |  |   |        |  



| |                   
| | ------------------
| | 2002 Restructuring





| |                   
| | ------------------
| | 2004 Restructuring





33



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NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |            
|-- | -----------
|8. | Acquisition









|   |                     
|-- | --------------------
|9. | Stockholders Equity



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





34



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  (Continued)














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





35



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                                          
| | -----------------------------------------
| | Common Stock Reserved for Future Issuance



|                                     |                                           |  |           |           | 
|------------------------------------ | ----------------------------------------- |  | --------- | --------- | 
|Equity incentive plans               |                                           |  | 2,224,145 |          
|Warrants                             |                                           |  | 1,262,235 |          
|Series A convertible preferred stock |                                           |  | 1,709,875 |          
|                                     |                                           |  |          
|                                     | Total shares reserved for future issuance |  |           | 5,196,255 | 
|                                     |                                           |  |          



| |         
| | --------
| | Warrants







|    |                       
|--- | ----------------------
|10. | Employee Benefit Plans



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







36



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  (Continued)












|                             |           |                     |           |           |                  |   |       |       | 
|---------------------------- | --------- | ------------------- | --------- | --------- | ---------------- | - | ----- | ----- | 
|                             |           | Outstanding Options |          
|                             |           |                     |          
|                             |           |                     |           | Weighted- |                 
|                             |           | Number of           |           |           | Average Exercise |  
|                             |           | Shares              |           |           | Price            |  
|                             |           |                     |           |           |                  |  
|Balance at December 31, 2001 |           |                     | 312,370   |           |                  | $ | 52.08 |      
|                             | Granted   |                     |           | 477,083   |                  |   | $     | 34.68 | 
|                             | Exercised |                     |           | (28,924   | )                |   | $     | 15.96 | 
|                             | Cancelled |                     |           | (129,194  | )                |   | $     | 54.12 | 
|                             |           |                     |           |           |                  |  
|Balance at December 31, 2002 |           |                     | 631,335   |           |                  | $ | 39.24 |      
|                             | Granted   |                     |           | 822,527   |                  |   | $     | 2.97  | 
|                             | Exercised |                     |           | (49,863   | )                |   | $     | 7.68  | 
|                             | Cancelled |                     |           | (581,018  | )                |   | $     | 40.93 | 
|                             |           |                     |           |           |                  |  
|Balance at December 31, 2003 |           |                     | 822,981   |           |                  | $ | 3.73  |      
|                             | Granted   |                     |           | 1,064,750 |                  |   | $     | 15.01 | 
|                             | Exercised |                     |           | (87,423   | )                |   | $     | 2.75  | 
|                             | Cancelled |                     |           | (638,575  | )                |   | $     | 13.97 | 
|                             |           |                     |           |           |                  |  
|Balance at December 31, 2004 |           |                     | 1,161,733 |           |                  | $ | 8.51  |      
|                             |           |                     |           |           |                  |  

37



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NOTES TO FINANCIAL STATEMENTS  (Continued)




|                         |  |                     |           |                  |                     |  |           |          |  |   |           |           |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ---------------- | ------------------- |  | --------- | -------- |  | - | --------- | --------- |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |                  | Options Exercisable | 
|                         |  |                     |           |                  |                     | 
|                         |  |                     |           | Weighted-Average |                     |  | Weighted- |          |  |   |           | Weighted- | 
|                         |  |                     |           | Remaining        |                     |  | Average   |          |  |   |           | Average   | 
|                         |  | Number of           |           |                  | Contractual Life    |  |           | Exercise |  |   | Number of |           |  | Exercise |        
|Range of Exercise Prices |  | Shares              |           |                  | (Years)             |  |           | Price    |  |   | Shares    |           |  | Price    |        
|                         |  |                     |           |                  |                     |  |           |          |  |   |           |           |  |          |        
|$ 2.28-$ 2.40            |  |                     | 21,788    |                  |                     |  | 5.75      |          |  | $ | 2.33      |           |  |          | 10,069  |  |  | $ | 2.38  | 
|$ 2.76-$ 2.76            |  |                     | 521,238   |                  |                     |  | 5.86      |          |  | $ | 2.76      |           |  |          | 235,343 |  |  | $ | 2.76  | 
|$ 3.66-$ 5.52            |  |                     | 72,812    |                  |                     |  | 9.34      |          |  | $ | 4.21      |           |  |          | 10,562  |  |  | $ | 5.52  | 
|$13.06-$13.53            |  |                     | 155,749   |                  |                     |  | 9.31      |          |  | $ | 13.12     |           |  |          | 32,664  |  |  | $ | 13.18 | 
|$13.93-$14.13            |  |                     | 176,500   |                  |                     |  | 9.41      |          |  | $ | 13.96     |           |  |          | 44,081  |  |  | $ | 14.01 | 
|$15.60-$48.24            |  |                     | 213,646   |                  |                     |  | 8.96      |          |  | $ | 16.77     |           |  |          | 37,368  |  |  | $ | 18.16 | 
|                         |  |                     |           |                  |                     |  |           |          |  |   |           |           |  |          |        
|                         |  |                     | 1,161,733 |                  |                     |  | 7.65      |          |  | $ | 8.51      |           |  |          | 370,087 |  |  | $ | 6.64  | 
|                         |  |                     |           |                  |                     |  |           |          |  |   |           |           |  |          |        



| |                                  
| | ---------------------------------
| | 2000 Employee Stock Purchase Plan







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



|                                                    |                                  |                         |      |      |      |   |     |       |  |   |       |       | 
|--------------------------------------------------- | -------------------------------- | ----------------------- | ---- | ---- | ---- | - | --- | ----- |  | - | ----- | ----- | 
|                                                    |                                  | Year Ended December 31, |     
|                                                    |                                  |                         |     
|                                                    |                                  | 2004                    |      |      | 2003 |   |     | 2002  | 
|                                                    |                                  |                         |      |      |      |   |     |       | 
|Stock compensation for variable option awards       |                                  | $                       | (638 | )    |      | $ | 993 |       |  | $ |      |      
|Amortization of deferred stock compensation expense |                                  |                         | 61   |      |      |   | 126 |       |  |   | 1,271 |      
|Stock compensation for consultant services          |                                  |                         | 472  |      |      |   | 254 |       |  |   | 512   |      
|Stock compensation for services                     |                                  |                         |     |      |      |   |    |       |  |   | 545   |      
|                                                    |                                  |                         |      |      |      |   |     |       | 
|                                                    | Total stock compensation expense |                         | $    | (105 | )    |   | $   | 1,373 |  |   | $     | 2,328 | 
|                                                    |                                  |                         |      |      |      |   |     |       | 

Stock Compensation for Variable Option Awards.


38



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NOTES TO FINANCIAL STATEMENTS  (Continued)




Amortization of Deferred Stock Compensation Expense.


Stock Compensation for Consultant Services.


Stock Compensation for Services.




| |                        
| | -----------------------
| | Retirement Savings Plan





|    |                                 
|--- | --------------------------------
|11. | Development and Supply Contracts





39



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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS  (Continued)




|    |             
|--- | ------------
|12. | Income Taxes



|                                           |                                 |                         |        |       |      |   |        |       |  |   |         |        | 
|------------------------------------------ | ------------------------------- | ----------------------- | ------ | ----- | ---- | - | ------ | ----- |  | - | ------- | ------ | 
|                                           |                                 | Year Ended December 31, |       
|                                           |                                 |                         |       
|                                           |                                 | 2004                    |        |       | 2003 |   |        | 2002  | 
|                                           |                                 |                         |        |       |      |   |        |       | 
|U.S. federal tax benefit at statutory rate |                                 | $                       | (5,678 | )     |      | $ | (4,526 | )     |  | $ | (11,714 | )     
|                                           | State taxes                     |                         |        |      |      |   |        |      |  |   |         |       | 
|                                           | Unutilized net operating losses |                         |        | 5,875 |      |   |        | 4,050 |  |   |         | 10,916 | 
|                                           | Stock based compensation        |                         |        | (200  | )    |   |        | 467   |  |   |         | 791    | 
|                                           | Other                           |                         |        | 3     |      |   |        | 9     |  |   |         | 7      | 
|                                           |                                 |                         |        |       |      |   |        |       | 
|Total                                      |                                 | $                       |       |       |      | $ |       |       |  | $ |        |       
|                                           |                                 |                         |        |       |      |   |        |       | 



|                                                  |  |              |         |   |      |   |         |  
|------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                  |  | December 31, |        
|                                                  |  |              |        
|Deferred Tax Assets                               |  | 2004         |         |   | 2003 |  
|                                                  |  |              |         |   |      |  
|Net operating loss carryforwards                  |  | $            | 74,000  |   |      | $ | 67,700  |  
|Research and development tax credit carryforwards |  |              | 5,500   |   |      |   | 5,500   |  
|Capitalized research and development costs        |  |              | 8,200   |   |      |   | 7,500   |  
|Other, net                                        |  |              | 100     |   |      |   |        |  
|                                                  |  |              |         |   |      |  
|Gross deferred tax assets                         |  |              | 87,800  |   |      |   | 80,700  |  
|Valuation allowance                               |  |              | (87,800 | ) |      |   | (80,700 | )
|                                                  |  |              |         |   |      |  
|Total deferred tax assets                         |  | $            |        |   |      | $ |        |  
|                                                  |  |              |         |   |      |  









|    |                  
|--- | -----------------
|13. | Legal Proceedings



40



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NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                                     
|--- | ------------------------------------
|14. | Quarterly Financial Data (Unaudited)

|                                                                           |  |                                          |        |   |        |   |        |       |  |   |        |   |  |       |        |   |        |   |        |       |  |   |        |   |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ------ | - | ------ | ----- |  | - | ------ | - |  | ----- | ------ | - | ------ | - | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                           |  | 2004                                     |        |   | 2003   |  
|                                                                           |  |                                          |        |   |        |  
|                                                                           |  | First                                    |        |   | Second |   |        | Third |  |   | Fourth |   |  | First |        |   | Second |   |        | Third |  |   | Fourth |  
|                                                                           |  |                                          |        |   |        |   |        |       |  |   |        |   |  |       |        |   |        |   |        |       |  |   |        |  
|                                                                           |  | (In thousands, except per share amounts) |       
|Operating loss                                                             |  | $                                        | (6,310 | ) |        | $ | (5,252 | )     |  | $ | (4,007 | ) |  | $     | (1,627 | ) |        | $ | (1,933 | )     |  | $ | (2,395 | ) |  | $ | (4,766 | ) |  | $ | (4,415 | )
|Net loss                                                                   |  |                                          | (6,237 | ) |        |   | (5,138 | )     |  |   | (3,961 | ) |  |       | (1,364 | ) |        |   | (1,907 | )     |  |   | (2,350 | ) |  |   | (4,738 | ) |  |   | (4,317 | )
|Net loss applicable to common stockholders                                 |  |                                          | (6,302 | ) |        |   | (5,203 | )     |  |   | (4,026 | ) |  |       | (1,429 | ) |        |   | (1,907 | )     |  |   | (3,815 | ) |  |   | (4,808 | ) |  |   | (4,400 | )
|Basic and diluted net loss per share applicable to common
    stockholders |  | $                                        | (1.19  | ) |        | $ | (0.73  | )     |  | $ | (0.46  | ) |  | $     | (0.16  | ) |        | $ | (0.58  | )     |  | $ | (1.17  | ) |  | $ | (1.46  | ) |  | $ | (0.87  | )

41



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##### Table of Contents








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












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



| |                                                               
| | --------------------------------------------------------------
| | Controls Evaluation and Related CEO and PFO
    Certifications







| |                                   
| | ----------------------------------
| | Disclosure Controls and Procedures



42



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| |                                             
| | --------------------------------------------
| | Limitations on the Effectiveness of Controls





| |                                 
| | --------------------------------
| | Scope of the Controls Evaluation







| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control Over Financial
    Reporting





| |            
| | -----------
| | Conclusions



43



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##### Table of Contents












|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







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



| |                                 
| | --------------------------------
| | Executive Officers and Directors



|                             |  |     |    |  |                           |                                                         
|---------------------------- |  | --- | -- |  | ------------------------- | --------------------------------------------------------
|Name                         |  | Age |    |  | Position with the Company
|                             |  |     |    |  |                          
|Ernest Mario, Ph.D.(1)       |  |     | 66 |  |                           | Chairman of the Board                                   
|Henry J. Fuchs, M.D.         |  |     | 47 |  |                           | President, Chief Executive Officer and Director         
|Jerry T. Jackson(1)(2)(3)    |  |     | 63 |  |                           | Director                                                
|Gary A. Lyons(2)(3)          |  |     | 53 |  |                           | Director                                                
|Mark L. Perry, J.D.(1)(2)(3) |  |     | 49 |  |                           | Director                                                
|Jack S. Remington, M.D.      |  |     | 74 |  |                           | Director                                                
|Kevin C. Tang                |  |     | 37 |  |                           | Director                                                
|Kathleen A. Stafford         |  |     | 47 |  |                           | Principal Financial Officer                             
|Steven B. Ketchum, Ph. D.    |  |     | 40 |  |                           | Senior Vice President of Operations & Regulatory Affairs






|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Member of the Nominating and Corporate Governance Committee
|   
|(2) | Member of the Compensation Committee                       
|   
|(3) | Member of the Audit Committee                              

Ernest Mario, Ph.D.


44



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Henry J. Fuchs, M.D.


Jerry T. Jackson.


Gary A. Lyons.


Mark L. Perry, J.D.


Jack S. Remington, M.D.


Kevin C. Tang.


45



---



##### Table of Contents





Kathleen A. Stafford.


Steven B. Ketchum Ph.D.


Section 16(a) Beneficial Ownership Reporting
Compliance






Code of Business Conduct and Ethics




46



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##### Table of Contents



Board Committees and Meetings






Audit Committee.


Compensation Committee.


Nominating and Corporate Governance Committee.


47



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##### Table of Contents










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

Directors Compensation


2000 Plan








48



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49



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Executive Compensation


Named Executive
Officers


Summary Compensation Table


|                            |                                       |      |      |                     |            |  |            |              |  |           |         |        |  |                  |         |         |  |  |         |   | 
|--------------------------- | ------------------------------------- | ---- | ---- | ------------------- | ---------- |  | ---------- | ------------ |  | --------- | ------- | ------ |  | ---------------- | ------- | ------- |  |  | ------- | - | 
|                            |                                       |      |      |                     |            |  |            | Long Term    |  |           |        
|                            |                                       |      |      |                     |            |  |            | Compensation |  |           |        
|                            |                                       |      |      |                     |            |  |            |              | 
|                            |                                       |      |      | Annual Compensation |            |  | Securities |              |  |          
|                            |                                       |      |      |                     |            |  | Underlying |              |  | All Other |        
|Name and Principal Position |                                       | Year |      |                     | Salary ($) |  |            | Bonus ($)    |  |           | Options |        |  | Compensation ($) |        
|                            |                                       |      |      |                     |            |  |            |              |  |           |         |        |  |                  |        
|Henry J. Fuchs, M.D.(1)     |                                       |      | 2004 |                     |            |  | 360,000    |              |  |           |        |        |  |                  | 160,000 |         |  |  | 10,808  |  
|                            | President and Chief Executive Officer |      |      | 2003                |            |  |            | 313,750      |  |           |         | 40,000 |  |                  |         | 200,000 |  |  |         |  | 
|                            |                                       |      |      | 2002                |            |  |            | 308,333      |  |           |         | 85,000 |  |                  |         | 41,667  |  |  |         |  | 
|Kathleen A. Stafford(2)     |                                       |      | 2004 |                     |            |  | 150,000    |              |  |           |        |        |  |                  | 22,000  |         |  |  |        |  
|                            | Principal Financial Officer           |      |      | 2003                |            |  |            |             |  |           |         |       |  |                  |         |        |  |  |         |  | 
|                            |                                       |      |      | 2002                |            |  |            |             |  |           |         |       |  |                  |         |        |  |  |         |  | 
|Steven B. Ketchum, Ph. D(3) |                                       |      | 2004 |                     |            |  | 256,515    |              |  |           |        |        |  |                  | 70,000  |         |  |  |        |  
|                            | Senior Vice President of              |      |      | 2003                |            |  |            | 235,083      |  |           |         | 20,000 |  |                  |         | 125,000 |  |  |         |  | 
|                            | Operations & Regulatory Affairs       |      |      | 2002                |            |  |            | 131,250      |  |           |         |       |  |                  |         | 12,500  |  |  |         |  | 
|Detlef Albrecht, M.D.(4)    |                                       |      | 2004 |                     |            |  | 130,272    |              |  |           | 50,000  |        |  |                  | 210,000 |         |  |  | 222,381 |  
|                            | Sr. Vice President, Pre-Clinical and  |      |      | 2003                |            |  |            |             |  |           |         |       |  |                  |         |        |  |  |         |  | 
|                            | Clinical Research and Development     |      |      | 2002                |            |  |            |             |  |           |         |       |  |                  |         |        |  |  |         |  | 
|                            | and Chief Medical Officer             |      |      |                     |            |  |            |              |  |           |         |        |  |                  |         |         |  |  |         |   | 
|David J. Tucker(5)          |                                       |      | 2004 |                     |            |  | 147,000    |              |  |           |        |        |  |                  | 40,500  |         |  |  | 136,432 |  
|                            | Principal Financial Officer           |      |      | 2003                |            |  |            | 100,530      |  |           |         | 3,750  |  |                  |         | 21,000  |  |  |         |  | 
|                            |                                       |      |      | 2002                |            |  |            |             |  |           |         |       |  |                  |         |        |  |  |         |  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Dr. Fuchs was appointed Chief Executive Officer of
    IntraBiotics on January 27, 2003. All other compensation in
    2004 is made up of payments made as a member of the Board of
    Directors ($10,000) and payments for life insurance made by the
    Company on behalf of Mr. Fuchs ($808).                                                                                                                                                                                                                                     
|   
|(2) | Ms. Stafford, has served, and is currently serving, as a
    financial consultant for the Company since February 2004.
    Ms. Stafford was appointed Principal Financial Officer on
    November 12, 2004. Securities underlying options during
    2004 includes an option grant to
    purchase 12,000 shares of common stock which was
    cancelled in part. At the time of the cancellation
    Ms. Stafford retained her right to exercise the option for
    6,000 shares of common stock, in which she was already
    vested.
|   
|(3) | Mr. Ketchum was appointed an officer and Senior Vice
    President of Operations & Regulatory Affairs of
    IntraBiotics on May 7, 2004. Prior to his appointment
    Mr. Ketchum had served as the Companys Vice President
    of Regulatory Affairs since June 2002.                                                                                                                                                                                                                                                               
|   
|(4) | Mr. Albrecht was appointed Sr. Vice President, Pre-Clinical
    and Clinical Research and Development and Chief Medical Officer
    on April 12, 2004 and was terminated, as part of a
    restructuring, on September 30, 2004. Bonus of $50,000
    represents a bonus paid in order to induce Mr. Albrecht to
    join the Company. All other compensation during 2004 is made up
    severance payments ($206,250) and accrued                                                                                                     

50



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| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | vacation ($9,700), paid to Mr. Albrecht, and life insurance
    premiums ($694) and continued health care coverage costs
    ($5,737), paid by the Company on behalf of Mr. Albrecht.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Mr. Tucker was appointed Principal Financial Officer on
    January 5, 2004 and was terminated as part of a
    restructuring on November 15, 2004. Prior to his
    appointment Mr. Tucker had served as the Companys
    Senior Director of Finance since April 2003. All other
    compensation during 2004 is made up severance payments
    ($126,000) and accrued vacation ($6,435), paid to
    Mr. Tucker, and life insurance premiums ($296) and
    continued health care coverage costs ($3,701), paid by the
    Company on behalf of Mr. Tucker.

Option Grants in Last Fiscal Year






|                          |  |                   |         |  |                         |  |      |              |  |                         |            |  |  |    |         |  |     |  |           |  |  |  |           | 
|------------------------- |  | ----------------- | ------- |  | ----------------------- |  | ---- | ------------ |  | ----------------------- | ---------- |  |  | -- | ------- |  | --- |  | --------- |  |  |  | --------- | 
|                          |  | Individual Grants |         |  | Potential Realizable    | 
|                          |  |                   |         |  | Value at Assumed Annual | 
|                          |  | Number of         |         |  | Percent of              |  |      |              |  | Rates of Stock Price    |           
|                          |  | Securities        |         |  | Total Options           |  |      |              |  | Appreciation for Option |           
|                          |  | Underlying        |         |  | Granted to              |  |      |              |  | Term ($)                |           
|                          |  | Options           |         |  | Employees in            |  |      | Exercise     |  |                         | Expiration |  |  |    |        
|Name                      |  | Granted           |         |  | Fiscal Year             |  |      | Price ($/Sh) |  |                         | Date       |  |  | 5% |         |  | 10% | 
|                          |  |                   |         |  |                         |  |      |              |  |                         |            |  |  |    |         |  |     | 
|Henry J. Fuchs, M.D.      |  |                   | 60,000  |  |                         |  | 7.9  | %            |  |                         | 16.49      |  |  |    | 2/2/14  |  |     |  | 622,228   |  |  |  | 1,576,849 | 
|                          |  |                   | 100,000 |  |                         |  | 13.1 | %            |  |                         | 13.06      |  |  |    | 5/7/14  |  |     |  | 821,336   |  |  |  | 2,081,428 | 
|Kathleen A. Stafford(1)   |  |                   | 12,000  |  |                         |  | 1.6  | %            |  |                         | 16.49      |  |  |    | 2/2/14  |  |     |  | 9,007     |  |  |  | 17,977    | 
|                          |  |                   | 10,000  |  |                         |  | 1.3  | %            |  |                         | 13.35      |  |  |    | 5/3/14  |  |     |  | 83,957    |  |  |  | 212,765   | 
|Steven B. Ketchum, Ph. D. |  |                   | 50,000  |  |                         |  | 6.6  | %            |  |                         | 16.10      |  |  |    | 1/1/14  |  |     |  | 506,260   |  |  |  | 1,282,963 | 
|                          |  |                   | 20,000  |  |                         |  | 2.6  | %            |  |                         | 13.06      |  |  |    | 5/7/14  |  |     |  | 164,267   |  |  |  | 416,286   | 
|Detlef Albrecht, M.D.(2)  |  |                   | 210,000 |  |                         |  | 27.6 | %            |  |                         | 17.45      |  |  |    | 4/12/14 |  |     |  | 2,304,584 |  |  |  | 5,840,269 | 
|David J. Tucker(3)        |  |                   | 10,500  |  |                         |  | 1.4  | %            |  |                         | 16.10      |  |  |    | 1/1/14  |  |     |  | 106,315   |  |  |  | 269,422   | 
|                          |  |                   | 30,000  |  |                         |  | 3.9  | %            |  |                         | 13.06      |  |  |    | 5/7/14  |  |     |  | 246,401   |  |  |  | 624,428   | 






|    |                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Ms. Staffords option grant to
    purchase 12,000 shares of common stock was cancelled
    in part. At the time of the cancellation Ms. Stafford
    retained her right to exercise the option for 6,000 shares
    of common stock, in which she was already vested.                             
|   
|(2) | In connection with Mr. Albrechts termination of
    employment on September 30, 2004 all of the option shares
    subject to his option terminated and ceased to be outstanding.
    Mr. Albrecht was not vested in any of the shares subject to
    option grants on the date of his termination.
|   
|(3) | In connection with Mr. Tuckers termination of
    employment on November  15, 2004 all of the option
    shares subject to his option grants made during 2004 terminated
    and ceased to be outstanding.                                                                                        

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Aggregated Option Exercises in Last Fiscal Year and


Fiscal Year-End Option Values




|                          |  |             |   |  |              |                        |                   |             |                         |                          |               |  |  |             |         |  |               |  |         |  |  |  |         | 
|------------------------- |  | ----------- | - |  | ------------ | ---------------------- | ----------------- | ----------- | ----------------------- | ------------------------ | ------------- |  |  | ----------- | ------- |  | ------------- |  | ------- |  |  |  | ------- | 
|                          |  |             |   |  |              | Number of              |                   |             |                        
|                          |  |             |   |  |              | Securities Underlying  |                   |             | Value of Unexercised    |                         
|                          |  |             |   |  |              | Unexercised Options at |                   |             | In-the-Money Options at |                         
|                          |  | Shares      |   |  |              |                        | December 31, 2004 |             |                         | December 31, 2004(1) ($) |              
|                          |  | Acquired on |   |  | Value        |                        |                   |             |                         |                          |               | 
|Name                      |  | Exercise    |   |  | Realized ($) |                        |                   | Exercisable |                         |                          | Unexercisable |  |  | Exercisable |         |  | Unexercisable | 
|                          |  |             |   |  |              |                        |                   |             |                         |                          |               |  |  |             |         |  |               | 
|Henry J. Fuchs, M.D.      |  |             |  |  |              |                        |                  |             |                         |                          | 127,075       |  |  |             | 241,258 |  |               |  | 134,989 |  |  |  | 143,010 | 
|Kathleen A. Stafford      |  |             |  |  |              |                        |                  |             |                         |                          | 11,833        |  |  |             | 4,167   |  |               |  |        |  |  |  |        | 
|Steven B. Ketchum, Ph. D. |  |             |  |  |              |                        |                  |             |                         |                          | 71,664        |  |  |             | 123,336 |  |               |  | 75,623  |  |  |  | 89,377  | 
|Detlef Albrecht, M.D.     |  |             |  |  |              |                        |                  |             |                         |                          |              |  |  |             |        |  |               |  |        |  |  |  |        | 
|David J. Tucker           |  |             |  |  |              |                        |                  |             |                         |                          | 14,248        |  |  |             |        |  |               |  |        |  |  |  |        | 






|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the market price of $4.08 per share, determined on
    the basis of the closing selling price per share of common stock
    on the NASDAQ National Market on December 31, 2004 less the
    option exercise price per share.

Employment Contracts and Termination of Employment and
Change-in-Control Arrangements








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Compensation Committee Interlocks and Insider
Participation.









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



|                                                                |                                |                         |           |  |            |  |      |   | 
|--------------------------------------------------------------- | ------------------------------ | ----------------------- | --------- |  | ---------- |  | ---- | - | 
|                                                                |                                | Beneficial Ownership(1) |          
|                                                                |                                |                         |          
|                                                                |                                | Number of               |           |  | Percent of | 
|Name and Address of Beneficial Owner                            |                                | Shares                  |           |  | Total      | 
|                                                                |                                |                         |           |  |            | 
|Entities affiliated with Baker Biotech Funds(2)                 |                                |                         | 2,109,286 |  |            |  | 23.3 | %
|                                                                | 655 Madison Avenue, 19th Floor |                         |           |  |            |  |      |   | 
|                                                                | New York, NY 10021             |                         |           |  |            |  |      |   | 
|Entities affiliated with Perry Corp(3)                          |                                |                         | 1,710,530 |  |            |  | 18.9 | %
|                                                                | 599 Lexington Ave., 36th Floor |                         |           |  |            |  |      |   | 
|                                                                | New York, NY 10022             |                         |           |  |            |  |      |   | 
|Entities affiliated with Tang Capital Partners(4)               |                                |                         | 1,666,831 |  |            |  | 18.4 | %
|                                                                | 4401 Eastgate Mall             |                         |           |  |            |  |      |   | 
|                                                                | San Diego, CA 92121            |                         |           |  |            |  |      |   | 
|Deutsche Bank AG(5)                                             |                                |                         | 912,916   |  |            |  | 10.1 | %
|                                                                | Taunusanlage 12, D-60325       |                         |           |  |            |  |      |   | 
|                                                                | Frankfurt am Main              |                         |           |  |            |  |      |   | 
|                                                                | Federal Republic of Germany    |                         |           |  |            |  |      |   | 
|Ernest Mario, Ph.D.(6)                                          |                                |                         | 242,410   |  |            |  | 2.7  | %
|Henry J. Fuchs, M.D.(7)                                         |                                |                         | 159,251   |  |            |  | 1.8  | %
|Jerry T. Jackson(8)                                             |                                |                         | 28,749    |  |            |  | *    |  
|Gary A. Lyons(9)                                                |                                |                         | 31,665    |  |            |  | *    |  
|Mark L. Perry, J.D.(10)                                         |                                |                         | 17,500    |  |            |  | *    |  
|Jack S. Remington, M.D.(11)                                     |                                |                         | 22,583    |  |            |  | *    |  
|Kevin C. Tang(3)                                                |                                |                         | 1,666,831 |  |            |  | 18.4 | %
|Steven B. Ketchum, Ph. D(12)                                    |                                |                         | 87,913    |  |            |  | *    |  
|Kathleen A. Stafford(13)                                        |                                |                         | 15,166    |  |            |  | *    |  
|Detlef Albrecht, M.D.                                           |                                |                         |          |  |            |  | *    |  
|David J. Tucker                                                 |                                |                         |          |  |            |  | *    |  
|All executive officers and directors as a group (9 persons)(14) |                                |                         | 2,266,068 |  |            |  | 25.0 | %

53



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| |   |                                                        
| | - | -------------------------------------------------------
| | * | Less than one percent of the outstanding common shares.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This table is based upon information supplied by officers,
    directors and principal stockholders. Unless otherwise indicated
    in the footnotes to this table and subject to community property
    laws where applicable, IntraBiotics believes that each of the
    stockholders named in this table has sole voting and investment
    power with respect to the shares indicated as beneficially
    owned. Unless otherwise indicated, the principal address of each
    of the stockholders named in this table is:
    c/o IntraBiotics Pharmaceuticals, Inc., 2483 East Bayshore
    Road, Suite 100, Palo Alto, CA 94303. Applicable
    percentages are based on 9,067,645 shares outstanding on
    February 28, 2005. Shares of common stock that (a) may
    be issued upon the conversion of Series A preferred stock,
    (b) may be issued upon the exercise of warrants and
    (c) are subject to options to purchase common stock which
    are currently exercisable or which will become exercisable
    within 60 days after February 28, 2005 are deemed
    outstanding for computing the percentage of the person or group
    holding such options, but are not deemed outstanding for
    computing the percentage of any other person or group.
|   
|(2) | Includes 82,559 shares held by Baker Brothers Investments,
    L.P., 97,366 shares held by Baker Brothers Investments II,
    L.P., 68,932 shares held by Baker/ Tisch Investments, L.P.,
    888,313 shares held by Baker Biotech Fund I, L.P.,
    864,199 shares held by Baker Biotech Fund II, L.P. and
    107,917 shares held by Baker Biotech Fund II (Z), L.P.
    Also includes 726,038 shares of common stock that may be
    issued upon the conversion of Series A preferred stock and
    436,617 shares of commons stock that may be issued upon the
    exercise of warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | Pursuant to a Schedule 13G/ A filed on February 10,
    2005 with the Securities and Exchange Commission, Perry Corp.
    and Richard Perry jointly reported that it had sole voting power
    and sole dispositive power over 1,710,530 shares of common
    stock. Richard Perry, the President and sole stockholder of
    Perry Corp., disclaimed beneficial ownership interest over of
    the shares of common stock held by any funds for which Perry
    Corp. acts as the general partner and/or investment adviser,
    except for that portion of such shares that relates to his
    economic interest in such shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | Includes 351,842 shares held by Tang Capital Partners, L.P.
    Tang Capital Management, LLC is the general partner of Tang
    Capital Partners, L.P. and Kevin C. Tang is the Managing
    Director of Tang Capital Management, LLC. Includes
    583 shares held by Kevin C. Tang as custodian for his minor
    child. Also includes 852,308 shares of common stock that
    may be issued upon the conversion of Series A preferred
    stock and 450,154 shares of common stock that may be issued
    upon the exercise of warrants. Also includes 11,944 shares
    of common stock issuable upon exercise of options owned by
    Mr. Tang that are exercisable or will become exercisable
    within 60 days of February 28, 2005. As a result of
    being a director of IntraBiotics Mr. Tang is deemed to
    beneficially own the shares owned by Tang Capital Partners, L.P.                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(5) | Pursuant to a Schedule 13G filed on January 31, 2005
    with the Securities and Exchange Commission, Deutsche Bank AG
    reported that it had sole voting power and sole dispositive
    power over 912,916 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | Includes 20,833 shares held by Mildred Mario,
    20,573 shares held by the Ernest Mario 1997 Annuity Trust,
    41,666 shares held by the Mildred Mario 1997 Annuity Trust,
    and 744 shares and 1,738 shares held by the Mario 2002
    Childrens Trust and the Mario 2002 Grandchildrens
    Trust, respectively, for both of which Dr. Mario is
    trustee. Also includes 86,421 shares issuable upon exercise
    of options that are exercisable or will become exercisable
    within 60 days of February 28, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(7) | Includes 157,076 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(8) | Represents 28,749 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(9) | Represents 31,665 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

54



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|     |                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Represents 17,500 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005. Mr. Perry is not
    affiliated with Perry Partners & Affiliates.                                                                 
|    
|(11) | Includes 22,500 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005.                                                                                                                                     
|    
|(12) | Represents 87,913 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005.                                                                                                                                   
|    
|(13) | Includes 9,166 shares issuable upon exercise of options
    that are exercisable or will become exercisable within
    60 days of February 28, 2005.                                                                                                                                      
|    
|(14) | Includes 1,654,887 shares of common stock held by entities
    affiliated with certain directors and 452,934 shares of
    common stock issuable upon exercise of stock options held by
    directors and executive officers that are exercisable within
    60 days of February 28, 2005.

Equity Compensation Plan Information




|                                                           |                                                |                   |           |           |                  |               |      |                  |  |  |           |           |    
|---------------------------------------------------------- | ---------------------------------------------- | ----------------- | --------- | --------- | ---------------- | ------------- | ---- | ---------------- |  |  | --------- | --------- | ---
|                                                           |                                                |                   |           |           |                  | Number of     |     
|                                                           |                                                |                   |           |           |                  | Securities    |     
|                                                           |                                                |                   |           |           |                  | Remaining     |     
|                                                           |                                                |                   |           |           |                  | Available for |     
|                                                           |                                                | Number of         |           |           | Weighted-        |               |      | Issuance under   | 
|                                                           |                                                | Securities to Be  |           |           | Average Exercise |               |      | Equity           | 
|                                                           |                                                | Issued upon       |           |           | Price of         |               |      | Compensation     | 
|                                                           |                                                | Exercise of       |           |           | Outstanding      |               |      | Plans (Excluding | 
|                                                           |                                                | Outstanding       |           |           | Options,         |               |      | Securities       | 
|                                                           |                                                | Options, Warrants |           |           | Warrants and     |               |      | Reflected in     | 
|                                                           |                                                | and Rights (a)    |           |           | Rights (b)       |               |      | Column (a)) (c)  | 
|                                                           |                                                |                   |           |           |                  |               |      |                  | 
|Equity compensation plans approved by security holders     |                                                |                   |           |           |                  |               |      |                  |  |  |           |          
|                                                           | Amended and Restated 1995 Stock Option Plan(1) |                   |           | 8,333     |                  |               | $    | 2.40             |  |  |           |          |    
|                                                           | 2000 Employee Stock Purchase Plan(2)           |                   |           |          |                  |               |      |                 |  |  |           |          |    
|                                                           | 2004 Stock Incentive Plan                      |                   |           | 1,047,968 |                  |               | $    | 8.94             |  |  |           | 1,008,648 | (3)
|Equity compensation plans not approved by security holders |                                                |                   |           |           |                  |               |      |                  |  |  |           |          
|                                                           | 2002 Non-Officer Equity Incentive Plan         |                   |           | 105,432   |                  |               | $    | 4.70             |  |  |           | 53,764    |    
|                                                           |                                                |                   |           |           |                  |               |      |                  | 
|Total                                                      |                                                |                   | 1,161,733 |           |                  | $             | 8.51 |                  |  |  | 1,062,412 |          
|                                                           |                                                |                   |           |           |                  |               |      |                  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | No new stock awards may be granted under the Amended and
    Restated 1995 Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | Generally, on each December 31, the 2000 Employee Stock
    Purchase Plan share reserve will increase automatically by the
    lesser of (i) 1% of the outstanding Common Stock,
    (ii) 41,666 shares, or (iii) a lesser amount
    determined by the Board. However, this plan was suspended in
    March 2003, and consequently there are currently no securities
    reserved for issuance under this plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | The number of shares of common stock reserved for issuance under
    the 2004 Stock Incentive Plan will automatically increase on the
    first trading day in January each calendar year, beginning in
    calendar year 2005, by an amount equal to five percent of the
    sum of the following share numbers, calculated as of the last
    trading day in December of the immediately preceding calendar
    year: (i) the total number of shares of our common stock
    outstanding on that date and (ii) the number of shares of
    common stock into which the outstanding shares of our preferred
    stock are convertible on that date. In no event will any such
    annual increase exceed 2,000,000 shares. Accordingly, the
    number of shares available for issuance increased by 529,510
    from the number shown in the table above, on January 3,
    2005.

55



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##### Table of Contents





2002 Non-Officer Equity Incentive Plan


General. Non-Officer Equity
Plan


Adjustment Provisions.


Effect of Certain Corporate Transactions.






56



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##### Table of Contents










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








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

Auditors Fees






|                            |                       |                   |         |         |      |   |         |         | 
|--------------------------- | --------------------- | ----------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                            |                       | Fiscal Year Ended |        
|                            |                       |                   |        
|                            |                       | 2004              |         |         | 2003 |  
|                            |                       |                   |         |         |      |  
|Ernst & Young LLP:          |                       |                   |         |         |      |   |         |        
|                            | Audit fees(a)         |                   | $       | 157,500 |      |   | $       | 298,200 | 
|                            | Audit-related fees(b) |                   |         | 2,100   |      |   |         | 1,140   | 
|                            | Tax fees(c)           |                   |         | 30,413  |      |   |         | 23,820  | 
|                            | All other fees(d)     |                   |         |        |      |   |         |        | 
|Stonefield Josephson, Inc.: |                       |                   |         |         |      |   |         |        
|                            | Audit fees(a)         |                   |         | 85,000  |      |   |         |        | 
|                            | Audit-related fees(b) |                   |         | 10,000  |      |   |         |        | 
|                            | Tax fees(c)           |                   |         | 19,000  |      |   |         |        | 
|                            | All other fees(d)     |                   |         |        |      |   |         |        | 
|                            |                       |                   |         |         |      |  
|                            |                       | $                 | 304,013 |         |      | $ | 323,160 |        
|                            |                       |                   |         |         |      |  






|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Audit Fees. Includes fees for the audit of our annual financial
    statements included on Form 10-K, review of interim
    financial statements included on Forms 10-Q, review of
    documents filed with the SEC and the issuance of consents and
    comfort letters.



|    |  |                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Audit-Related Fees. Includes fees for accounting consultations,
    due diligence assistance related to mergers and acquisitions and
    an annual subscription to online accounting updates.
|   
|(c) |  | Tax Fees. Includes fees for tax compliance, tax advice and tax
    planning.                                                                                                                 
|   
|(d) |  | All Other Fees. Includes all other fees for products and
    services other than the services included in (a)-(c) above.                                                                     

Policy on Audit Committee Pre-Approval of Audit and Non-Audit
Services of Independent Auditors




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##### Table of Contents








PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

1.     Financial
Statements




2.     Financial Statement
Schedules




3.     Exhibit Index




Exhibits




Financial Statement Schedules




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##### Table of Contents



SIGNATURES






| |                                       
| | --------------------------------------
| | Intrabiotics
    Pharmaceuticals, Inc.



| |    |                             
| | -- | ----------------------------
| | By | /s/ Henry J.
    Fuchs, M.D.

| |                                      
| | -------------------------------------
| |                                      
| | Henry J. Fuchs, M.D.                 
| | President and Chief Executive Officer

POWER OF ATTORNEY






|                                                     |  |                                       |  |                |  | 
|---------------------------------------------------- |  | ------------------------------------- |  | -------------- |  | 
|Signature                                            |  | Title                                 |  | Date          
|                                                     |  |                                       |  |               
|                                                    
|/s/ Henry J. FuchsHenry
    J. Fuchs, M.D.           |  | President and Chief Executive Officer |  | March 10, 2005
|                                                    
|/s/ Kathleen A.
    StaffordKathleen
    A. Stafford |  | Principal Financial Officer           |  | March 10, 2005
|                                                    
|/s/ Ernest MarioErnest
    Mario, Ph.D.              |  | Chairman of the Board                 |  | March 10, 2005
|                                                    
|/s/ Kevin C. TangKevin
    C. Tang                   |  | Director                              |  | March 10, 2005
|                                                    
|/s/ Mark L. PerryMark
    L. Perry                   |  | Director                              |  | March 10, 2005
|                                                    
|/s/ Gary A. LyonsGary
    A. Lyons                   |  | Director                              |  | March 10, 2005
|                                                    
|/s/ Jerry JacksonJerry
    Jackson                   |  | Director                              |  | March 10, 2005
|                                                    
|/s/ Jack S. RemingtonJack
    S. Remington           |  | Director                              |  | March 10, 2005

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##### Table of Contents



EXHIBIT INDEX


| |    |       |  |                                                                                                                                                                                                                                                                                
| | -- | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1    |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation; and Amended and Restated Certificate of
    Incorporation.(12)                                                                                                                              
| | 3  | .2    |  | Amended and Restated Bylaws(16)                                                                                                                                                                                                                                                
| | 3  | .3    |  | Certificate of Amendment to Amended and Restated Certificate of
    Incorporation.(15)                                                                                                                                                                                         
| | 3  | .4    |  | Certificate of Designation filed with the Delaware Secretary of
    State on May 1, 2003.(15)                                                                                                                                                                                  
| | 4  | .1    |  | Amended and Restated Investor Rights Agreement dated
    October 15, 1999.(1)                                                                                                                                                                                                  
| | 4  | .2    |  | Form of Stock Purchase Agreement by and between the Company and
    each selling stockholder, dated January 29, 2002.(3)                                                                                                                                                       
| | 4  | .3    |  | Form of Preferred Stock and Warrant Purchase Agreement, dated
    February 5, 2003, as amended on February 11, 2003.(8)                                                                                                                                                        
| | 4  | .4    |  | Form of Second Amendment to Preferred Stock and Warrant Purchase
    Agreement of February 5, 2003, dated April 10,
    2003.(10)                                                                                                                                              
| | 4  | .5    |  | Form of Warrant issued by the Company pursuant to Preferred
    Stock and Warrant Purchase Agreement of February 5, 2003,
    as amended of February 11, 2003 and April 10, 2003.(10)                                                                                          
| | 4  | .6    |  | Form of Common Stock and Warrant Purchase Agreement, dated
    October 6, 2003.(11)                                                                                                                                                                                            
| | 4  | .7    |  | Form of Warrant issued by the Company pursuant to the Common
    Stock and Warrant Purchase Agreement of October 6, 2003.(11)                                                                                                                                                  
| | 10 | .1    |  | Form of Indemnity Agreement.(1)                                                                                                                                                                                                                                                
| | 10 | .2    |  | Amended and Restated 1995 Stock Option Plan, as amended on
    November 16, 2002.(7)(9)                                                                                                                                                                                        
| | 10 | .2.2  |  | Amended and Restated Form of Stock Option Agreement and Notice
    of Grant of Stock Options and Option Agreement.(1)(7)                                                                                                                                                       
| | 10 | .3    |  | 2000 Equity Incentive Plan, as amended on February 11,
    2003.(7)(9)                                                                                                                                                                                                         
| | 10 | .9    |  | 2000 Employee Stock Purchase Plan and related documents.(1)(7)                                                                                                                                                                                                                 
| | 10 | .15   |  | Senior Executive Severance Benefit Plan, as amended and restated
    on August 1, 2002.(5)(7)                                                                                                                                                                                  
| | 10 | .16   |  | Executive Severance Benefit Plan, as amended and restated on
    August 1, 2002.(5)(7)                                                                                                                                                                                         
| | 10 | .17   |  | Summary of Officer Incentive Bonus Plan.(2)(7)                                                                                                                                                                                                                                 
| | 10 | .18 |  | Release Agreement by and between the Company and Diversa
    Corporation dated July 27, 2001, including Warrant to
    Purchase Common Stock of the Company and Registration Rights
    Agreement.(4)                                                                          
| | 10 | .22   |  | 2002 Non-Officer Equity Incentive Plan and related documents, as
    amended on February 3, 2003.(9)                                                                                                                                                                           
| | 10 | .24   |  | Lease Termination Agreement by and between the Company and
    EOP-Shoreline Technology Park, L.L.C., dated November 22,
    2002, including Common Stock Purchase Agreement.(6)                                                                                               
| | 10 | .27   |  | Amendment and Assignment of Lease, Release and Assumption
    Agreement by and among the Company, PolyFuel, Inc. and 1245
    Terra Bella Partners, LLC, dated December 20, 2002,
    including Warrant to Purchase Common Stock of the Company dated
    December 31, 2002.(9)
| | 10 | .29   |  | Lease Agreement by and between the Company and Embarcadero
    Corporate Center, dated February 10, 2003.(9)                                                                                                                                                                   
| | 10 | .30   |  | Common Stock and Warrant Purchase Agreement, dated
    October 6, 2003 (the Purchase Agreement) by and
    among the Company and each Investor as defined therein.(11)                                                                                                       
| | 10 | .31   |  | Form of warrant issued by the Company in favor of each Investor,
    as defined in the Purchase Agreement.(11)                                                                                                                                                                 
| | 10 | .32   |  | 2004 Stock Incentive Plan.(13)                                                                                                                                                                                                                                                 
| | 10 | .33   |  | First Amendment to Office Lease, dated March 11, 2004,
    between the Company and Embarcadero Corporate Center.(13)                                                                                                                                                           

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| |    |     |  |                                                                                                                                                                                                                              
| | -- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .34 |  | Consulting agreement between the Company and Kathleen A.
    Stafford the Companys Principal Financial Officer.*                                                                                                            
| | 16 | .1  |  | Letter regarding Change in Certifying Accountants.(14)                                                                                                                                                                       
| | 23 | .1  |  | Consent of Stonefield Josephson, Inc., Independent Registered
    Public Accounting Firm.*                                                                                                                                   
| | 23 | .2  |  | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.*                                                                                                                                            
| | 24 | .1  |  | Power of Attorney. Reference is made to the signature page.                                                                                                                                                                  
| | 31 | .1  |  | Certification of Chief Executive Officer pursuant to
    Rules 13a-14(a) or 15d-14(a) promulgated under the
    Securities Exchange Act of 1934, as amended.*                                                                
| | 31 | .2  |  | Certification of Principal Financial Officer pursuant to
    Rules 13a-14(a) or 15d-14(a) promulgated under the
    Securities Exchange Act of 1934, as amended.*                                                            
| | 32 | .1  |  | Certifications of Chief Executive Officer and Principal
    Financial Officer as required by Rule 13a-14(b) or Rule
    15d-14(b) and Section 1350 of Chapter 63 of
    Title 18 of the United States Code (18 U.S.C. 1350).*






| |   |             
| | - | ------------
| | * | Filed hereto



|   |                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment request has been granted with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission.



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibit to our Registration
    Statement on Form S-1 (File No. 333-95461) initially
    filed with the Securities and Exchange Commission on
    January 27, 2000 as subsequently amended.
|   
|(2) | Incorporated by reference to exhibit to our Form 10-Q (File
    No. 000-29993) filed with the Securities and Exchange Commission
    on August 14, 2001.                                                                
|   
|(3) | Incorporated by reference to exhibit to our Registration
    Statement on Form S-3 (File No. 333-82934) filed with
    the Securities and Exchange Commission on February 15, 2002.                                     
|   
|(4) | Incorporated by reference to exhibit to our Registration
    Statement on Form S-3 (File No. 333-89840) filed with
    the Securities and Exchange Commission on June 5, 2002.                                          
|   
|(5) | Incorporated by reference to exhibit to our Form 10-Q (File
    No. 000-29993) filed with the Securities and Exchange Commission
    on November 14, 2002.                                                              
|   
|(6) | Incorporated by reference to exhibit to our Form 8-K (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on November 27, 2002.                                                               
|   
|(7) | Management contract or compensatory plan, contract or
    arrangement.                                                                                                                                                  
|   
|(8) | Incorporated by reference to Appendix B to the Definitive
    Proxy Statement for the Special Meeting of Stockholders (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on March 3, 2003.  
|   
|(9) | Incorporated by reference to exhibit to our Form 10-K (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on March 31, 2003.                                                                 



|     |                                                                                                                                                                                                             
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to our Form 10-Q (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on May 14, 2003.                                                                  
|    
|(11) | Incorporated by reference to exhibit to our Form 8-K (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on October 9, 2003.                                                     
|    
|(12) | Incorporated by reference to our Form 10-Q (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on November 12, 2003.                                                             
|    
|(13) | Incorporated by reference to our Registration Statement on
    Form S-1 (File No. 333-114451) initially filed with
    the Securities and Exchange Commission on April 14, 2004 as
    subsequently amended.
|    
|(14) | Incorporated by reference to our Form 8-K/ A (File
    No. 000-29993) filed with the Securities and Exchange
    Commission on November 18, 2004.                                                           

61