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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 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 000-49839





Idenix Pharmaceuticals, Inc.


(Exact Name of Registrant as Specified in its Charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                  |  | 45-0478605                              
|(State or Other Jurisdiction of
    Incorporation or Organization)                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|60 Hampshire Street,
    Cambridge, Massachusetts(Address of Principal Executive Offices) |  | 02139(Zip Code)                         

Registrants telephone number, including area code:


(617) 995-9800


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


NONE


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


Common Stock, $.001 par value


(Title of class)


þ o


þ


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










Idenix Pharmaceuticals, Inc.


Form 10-K


TABLE OF CONTENTS


|                                                                                  |  |                                                                                                                      |    |      |    | 
|--------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                  |  |                                                                                                                      |    | Page |   
|                                                                                  |  |                                                                                                                      |    |      |   
|                                                                                  |  |                                                                                                                      |    |      |    | 
|PART I                                                                           
|Item 1.                                                                           |  | Business                                                                                                             |    |      | 3  | 
|Item 2.                                                                           |  | Properties                                                                                                           |    |      | 42 | 
|Item 3.                                                                           |  | Legal Proceedings                                                                                                    |    |      | 42 | 
|Item 4.                                                                           |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 42 | 
|PART II                                                                          
|Item 5.                                                                           |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 43 | 
|Item 6.                                                                           |  | Selected Financial Data                                                                                              |    |      | 44 | 
|Item 7.                                                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 46 | 
|Item 7A.                                                                          |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |    |      | 57 | 
|Item 8.                                                                           |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 58 | 
|Item 9.                                                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 59 | 
|Item 9A.                                                                          |  | Controls and Procedures                                                                                              |    |      | 59 | 
|Item 9B.                                                                          |  | Other Information                                                                                                    |    |      | 59 | 
|PART III                                                                         
|Item 10.                                                                          |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 59 | 
|Item 11.                                                                          |  | Executive Compensation                                                                                               |    |      | 59 | 
|Item 12.                                                                          |  | Security Ownership Certain Beneficial Owners and Management and
    Related Stockholder Matters                      |    |      | 59 | 
|Item 13.                                                                          |  | Certain Relationships and Related Transactions                                                                       |    |      | 59 | 
|Item 14.                                                                          |  | Principal Accounting Fees and Services                                                                               |    |      | 59 | 
|PART IV                                                                          
|Item 15.                                                                          |  | Exhibits, Financial Statement Schedules                                                                              |    |      | 60 | 
|SIGNATURES                                                                        |  |                                                                                                                      | 91 |     
|Exhibit Index                                                                     |  |                                                                                                                      | 92 |     
|EX-10.16 Second Amendment to Development, Commercialization and License Agreement
|EX-10.20 Amended and Restated Stockholders' Agreement                            
|EX-10.21 Par Value Stock Purchase Agreement                                      
|EX-10.22 Concurrent Stock Purchase Agreement                                     
|EX-10.27 Nonemployees Directos Compensation Plan                                 
|EX-10.28 Form of Incentive Stock Option Agreement                                
|EX-10.29 Form of Nonstatutory Option Ageement                                    
|EX-23.1 Consent of PricewaterhouseCoopers LLP                                    
|EX-31.1 Section 302 Certification of C.E.O.                                      
|EX-31.2 Section 302 Certification of C.F.O.                                      
|EX-32.1 Section 906 Certification of C.E.O.                                      
|EX-32.2 Section 906 Certification of C.F.O.                                      



2



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Cautionary Statement Regarding Forward-Looking Statements











PART I







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

The Company






3



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Product Candidates in Clinical Trials






| |            
| | -----------
| | Hepatitis B



Telbivudine.






4



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Valtorcitabine.




| |            
| | -----------
| | Hepatitis C





Valopicitabine (NM283).


5



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10




Drug Discovery




| |            
| | -----------
| | Hepatitis C





| |    
| | ---
| | HIV





6



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Antiviral Research




Our Scientists.


Focused Compound Library.


Target Selection.


Screening and Lead Optimization.


Pharmacology and Preclinical Development. in vitro in vivo in vivo in vitro


7



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in vivo


Our Product Candidates/ Background on Science
















Research and Development Expenses




8



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Collaborations


Relationship with Novartis


Overview






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the development agreement, under which we will collaborate with
    Novartis to develop, manufacture and commercialize our lead HBV
    product candidates and, potentially, our HCV and other product
    candidates;                                                                                                                                                                                          
|
| |  | the supply agreement, under which Novartis will manufacture for
    us the active pharmaceutical ingredient for the clinical
    development supply of product candidates it has licensed from us
    and will perform the finishing and packaging of licensed
    products for commercial sale;                                                                                                                
|
| |  | the stockholders agreement, which was subsequently amended
    and restated in July 2004 in connection with the closing of our
    initial public offering; and                                                                                                                                                                                                                                                
|
| |  | the stock purchase transaction, under which Novartis purchased
    approximately 54% of our outstanding capital stock from our then
    existing stockholders for $255 million in cash, with an
    additional aggregate amount of up to $357 million
    contingently payable to these stockholders if we achieve
    predetermined milestones with respect to the development of an
    HCV product candidate.





Development, License and Commercialization Agreement




| |                        
| | -----------------------
| | Designation of Products





| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | NM283, the initial product candidate we are developing for the
    treatment of HCV infection;                                                                                                          
|
| |  | if Novartis exercises its option with respect to NM283 and if
    NM283 subsequently does not obtain regulatory approval in the
    U.S., a replacement HCV product candidate; and                      
|
| |  | other product candidates developed by us, or in some cases
    licensed to us, so long as Novartis maintains ownership of 51%
    of our voting stock and for a specified period of time
    thereafter.



9



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| |                                                  
| | -------------------------------------------------
| | Development of Products and Regulatory Activities







| |                          
| | -------------------------
| | Product Commercialization







| |                    
| | -------------------
| | Interferon Products





| |            
| | -----------
| | Exclusivity



10



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| |                
| | ---------------
| | Indemnification





| |            
| | -----------
| | Termination





| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | with respect to the particular product, product candidate or
    country to which the breach relates; or         
|
| |  | in its entirety, if the material breach is not limited to a
    particular product, product candidate or country.



Master Manufacturing and Supply Agreement






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Stockholders Agreement






| |   |                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | granted Novartis, together with certain other holders of our
    common stock, rights to cause us to register, under the
    Securities Act, such shares of common stock;                                                                                                                                                                                       
|
| |  | agreed to use our reasonable best efforts to nominate for
    election as a director at least two designees of Novartis for so
    long as Novartis and its affiliates own at least 35% of our
    voting stock and at least one designee of Novartis for so long
    as Novartis and its affiliates own at least 19.4% of our voting
    stock;                
|
| |  | granted Novartis approval rights over a number of corporate
    actions that we or our subsidiaries may take as long as Novartis
    and its affiliates continue to own at least 19.4% of our voting
    stock;                                                                                                                                                 
|
| |  | required that, with certain limited exceptions, Novartis and its
    affiliates not acquire additional shares of our voting stock
    unless a majority of our independent directors approves or
    requests the acquisition. These restrictions will terminate on
    May 8, 2008, unless sooner terminated under the terms of
    the stockholders agreement.



| |                                
| | -------------------------------
| | Novartis Stock Purchase Rights



Stock Purchase Agreement








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Co-operative Laboratory Agreements




| |                                       
| | --------------------------------------
| | CNRS and the University of Montpellier





| |                       
| | ----------------------
| | University of Cagliari





Manufacturing






13



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Sales and Marketing






Patents and Licenses






| |                                          
| | -----------------------------------------
| | Hepatitis B Patent Portfolio and Licenses





| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | U.S. Patent No. 6,395,716 entitled
    ß-L-2(2/3)-Deoxy-Nucleosides
    for the Treatment of Hepatitis B;           
|
| |  | U.S. Patent No. 6,569,837 entitled
    ß-L-2(2/3)-Deoxy
    Pyrimidine Nucleosides for the Treatment of Hepatitis B;
|
| |  | U.S. Patent No. 6,444,652 entitled
    ß-L-2(2/3)-Deoxy-Nucleosides
    for the Treatment of Hepatitis B; and       
|
| |  | U.S. Patent No. 6,566,344, entitled
    ß-L-2(2/3)-Deoxy-Nucleosides
    for the Treatment of Hepatitis B.          



14



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15



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| |                             
| | ----------------------------
| | Hepatitis C Patent Portfolio





16



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| |                     
| | --------------------
| | HIV Patent Portfolio





Competition






| |   |                                          
| | - | -----------------------------------------
| |  | product effectiveness;                   
|
| |  | safety;                                  
|
| |  | timing and scope of regulatory approvals;
|
| |  | price of products;                       
|
| |  | availability of supply;                  
|
| |  | patent protection; and                   
|
| |  | sales and marketing capabilities.        





17



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Pharmaceutical Pricing and Reimbursement






Regulatory Matters




| |                                               
| | ----------------------------------------------
| | FDA Requirements for Approval of Drug Products



18



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in vitro














19



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| |                                            
| | -------------------------------------------
| | Foreign Regulation of Drug Product Approval





| |       
| | ------
| | Europe



Mutual Recognition Procedure and Decentralized Approval.


20



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Centralized Procedure.






| |     
| | ----
| | Asia





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





| |                    
| | -------------------
| | Hazardous Materials



21



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Factors that May Affect Future Results




| |                                
| | -------------------------------
| | Factors Related to Our Business



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a limited operating history and have incurred a
    cumulative loss since inception. If we do not generate
    significant revenues, we will not be profitable.





| |                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will need additional capital to fund our operations,
    including product candidate development, manufacturing and
    commercialization. If we do not have or cannot raise additional
    capital when needed, we will be unable to develop and
    commercialize our product candidates successfully.







| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | with respect to our lead HBV product candidates, Novartis
    continues to reimburse us for development expenses and we
    achieve milestones relating to the development and regulatory
    approval of these product candidates and receive related
    milestone payments from Novartis; and
|
| |  | with respect to our HCV and other product candidates, Novartis
    exercises its option to license these product candidates and we
    receive related license fees, milestone payments and development
    expense reimbursement payments from Novartis.                                       







| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | the scope and results of our preclinical studies and clinical
    trials;                            
|
| |  | the progress of our current drug development programs for HBV,
    HCV and HIV;                      
|
| |  | the cost of obtaining, maintaining and defending patents on our
    product candidates and processes;

22



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| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | the cost of establishing arrangements for manufacturing;                                                                 
|
| |  | the cost, timing and outcome of regulatory reviews;                                                                      
|
| |  | the cost of establishing sales and marketing functions;                                                                  
|
| |  | the commercial potential of our product candidates;                                                                      
|
| |  | the rate of technological advances in our markets;                                                                       
|
| |  | the cost of acquiring or undertaking development and
    commercialization efforts for any additional product candidates;
|
| |  | the magnitude of our general and administrative
    expenses; and                                                        
|
| |  | any costs we may incur under current and future licensing
    arrangements relating to our product candidates.           









| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will not be able to commercialize our drug products
    successfully if we are unable to hire and train qualified sales
    personnel to develop a direct sales force.





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our market is subject to intense competition. If we are
    unable to compete effectively, our product candidates may be
    rendered noncompetitive or obsolete.



23



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| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | significantly greater financial, technical and human resources
    than we have and may be better equipped to discover, develop,
    manufacture and commercialize products;
|
| |  | more extensive experience in preclinical studies and clinical
    trials, obtaining regulatory approvals and manufacturing and
    marketing pharmaceutical products;       
|
| |  | products that have been approved or are in late stage
    development; and                                                                                                  
|
| |  | collaborative arrangements in our target markets with leading
    companies and research institutions.                                                                      











| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | If we successfully develop products but those products do
    not achieve and maintain market acceptance, our business will
    not be successful.





| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | new products or technologies are introduced that are more
    favorably received than our products or render our products
    obsolete; or
|
| |  | complications, such as unacceptable levels of viral resistance
    or adverse side effects, arise with respect to use of our
    products.

24



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| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our research and development efforts may not result in
    additional product candidates being discovered, which could
    limit our ability to generate revenues.





| |                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As we evolve from a company primarily involved in
    discovery and development to one also involved in
    commercialization, we may encounter difficulties in managing our
    growth and expanding our operations successfully.





| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are not able to attract and retain key management
    and scientific personnel and advisors, we may not successfully
    develop our product candidates or achieve our other business
    objectives.





| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business has a substantial risk of product liability
    claims. If we are unable to obtain appropriate levels of
    insurance, a product liability claim against us could adversely
    affect our business.



25



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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Factors Related to Development, Clinical Testing and
    Regulatory Approval of Our Product Candidates



| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All of our product candidates are still in development and
    remain subject to clinical testing and regulatory approval. If
    we are unable to successfully develop and test our product
    candidates, we will not be successful.





| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | offer therapeutic or other improvements over existing comparable
    drugs;      
|
| |  | be proven safe and effective in clinical trials;                                 
|
| |  | meet applicable regulatory standards;                                            
|
| |  | be capable of being produced in commercial quantities at
    acceptable costs; or
|
| |  | be successfully commercialized.                                                  





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | If our clinical trials are not successful, we will not
    obtain regulatory approval for commercial sale of our product
    candidates.













| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | discussions with the FDA or comparable foreign authorities
    regarding the scope or design of our clinical trials;                                                                          
|
| |  | delays or the inability to obtain required approvals from
    institutional review boards or other governing entities at
    clinical sites selected for participation in our clinical trials;

26



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| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | delays in enrolling patients and volunteers into clinical trials;                                                                              
|
| |  | lower than anticipated retention rate of patients and volunteers
    in clinical trials;                                                       
|
| |  | negative results of clinical trials;                                                                                                           
|
| |  | insufficient supply or deficient quality of product candidate
    materials or other materials necessary to conduct our clinical
    trials; or
|
| |  | unexpected serious drug-related side effects experienced by
    participants in our clinical trials.                                           





| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may be unable to complete phase III clinical trials of
    telbivudine or file an NDA for telbivudine;                                                                                                                        
|
| |  | we may be unable to complete phase IIb clinical trials of
    valtorcitabine and/or NM283;                                                                                                                                       
|
| |  | we may be unable to commence human clinical trials of our other
    HCV product candidates, our HIV product candidates or other
    product candidates, if any;                                                                  
|
| |  | Novartis may choose not to license our product candidates other
    than telbivudine and valtorcitabine and we may not be able to
    enter into other collaborative arrangements for any of our other
    product candidates; or
|
| |  | we may not have the financial resources to continue research and
    development of our product candidates.                                                                                                                      



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain U.S. and/or foreign regulatory
    approval, we will be unable to commercialize our product
    candidates.









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| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Even if we obtain regulatory approvals, our product
    candidates will be subject to ongoing regulatory review. If we
    fail to comply with applicable U.S. and foreign regulations, we
    could lose those approvals and our business would be seriously
    harmed.







| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are subject to unfavorable pricing regulations,
    third-party reimbursement practices or healthcare reform
    initiatives, our business may be harmed.







28



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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not comply with laws regulating the protection of
    the environment and health and human safety, our business could
    be adversely affected.





| |                                                  
| | -------------------------------------------------
| | Factors Related to Our Relationship with Novartis



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Novartis has substantial control over us and could delay
    or prevent a change in corporate control.





| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | the election of directors;                                                                                                           
|
| |  | any amendment of our restated certificate of incorporation or
    amended and restated by-laws;                                      
|
| |  | the approval of mergers and other significant corporate
    transactions, including a sale of substantially all of our
    assets; or
|
| |  | the defeat of any non-negotiated takeover attempt that might
    otherwise benefit our other stockholders.                           



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Novartis has the right to exercise control over corporate
    actions that may not require stockholder approval as long as it
    holds at least 19.4% of our voting stock.





| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the authorization or issuance of additional shares of our
    capital stock or the capital stock of our subsidiaries, except
    for a limited number of specified issuances;   
|
| |  | any change or modification to the structure of our Board of
    Directors or a similar governing body of any of our subsidiaries;                                               
|
| |  | any amendment or modification to any of our organizational
    documents or those of our subsidiaries;                                                                          
|
| |  | the adoption of a three-year strategic plan;                                                                                                                                    
|
| |  | the adoption of an annual operating plan and budget, if there is
    no approved strategic plan;                                                                                
|
| |  | any decision that would result in a variance of total annual
    expenditures, capital or expense, in excess of 20% from the
    approved three-year strategic plan;            
|
| |  | any decision that would result in a variance in excess of the
    greater of $10 million or 20% of our profit or loss target
    in the strategic plan or annual operating plan;

29



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| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the acquisition of stock or assets of another entity that
    exceeds 10% of our consolidated net revenue, net income or net
    assets;                                                                      
|
| |  | the sale, lease, license or other disposition of any
    assets or business which exceeds 10% of our net revenue,
    net income or net assets;                                                               
|
| |  | the incurrence of any indebtedness by us or our subsidiaries for
    borrowed money in excess of $2 million;                                                                                                  
|
| |  | any material change in the nature of our business or that of any
    of our subsidiaries;                                                                                                                     
|
| |  | any change in control of Idenix or any subsidiary; and                                                                                                                                                        
|
| |  | any dissolution or liquidation of Idenix or any subsidiary, or
    the commencement by us or any subsidiary of any action under
    applicable bankruptcy, insolvency, reorganization or liquidation
    laws.











| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | securities issued in connection with our acquisition of all of
    the capital stock or all or substantially all of the assets of
    another entity; and                                                                                                                                                            
|
| |  | shares of common stock issued upon exercise of stock options or
    stock awards pursuant to compensation and equity incentive
    plans. Notwithstanding the foregoing, voting stock includes up
    to 1,399,106 shares that were reserved as of May 8,
    2003 for issuance under our 1998 Equity Incentive Plan.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We currently depend on one collaboration partner,
    Novartis, for substantially all our revenues and for
    commercialization of our HBV product candidates, and we may
    depend on Novartis for commercialization of other product
    candidates. If our development, license and commercialization
    agreement with Novartis terminates, our business and, in
    particular, our drug development programs, will be seriously
    harmed.



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| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Novartis has the option to license our product candidates,
    and if it does not exercise its option with respect to a product
    candidate, our development, manufacture and/or commercialization
    of such product candidate may be substantially delayed or
    limited.





| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we breach any of the numerous representations and
    warranties we made to Novartis under the development agreement
    or the stock purchase agreement, Novartis has the right to seek
    indemnification from us for damages it suffers as result of such
    breach. These amounts could be substantial.







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| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we materially breach our obligations or covenants
    arising under the development agreement or our master
    manufacturing and supply agreement with Novartis, we may lose
    our right to develop or commercialize our product
    candidates.





| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we issue capital stock, in certain situations Novartis
    will be able to purchase shares at par value to maintain its
    percentage ownership in Idenix and, if that occurs, this could
    cause dilution. In addition, Novartis has the right, under
    specified circumstances, to purchase a pro rata portion of other
    shares that we may issue.





| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the date that Novartis and its affiliates own less than 19.4% of
    our voting stock; or                                                                                                                                    
|
| |  | the date that Novartis becomes obligated under the stock
    purchase agreement to make the additional future contingent
    payments of $357 million to all of our stockholders who
    sold shares to Novartis in May 2003.



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| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | securities issuable in connection with any stock split, reverse
    stock split, stock dividend or recapitalization that we
    undertake that affects all holders of our common stock
    proportionately;
|
| |  | shares that Novartis has the right to purchase at par value, as
    described above;                                                                                                                       
|
| |  | shares of common stock issuable upon exercise of stock options
    and other awards pursuant to our 1998 Equity Incentive
    Plan; and                                                                    
|
| |  | securities issuable in connection with our acquisition of all
    the capital stock or all or substantially all of the assets of
    another entity.                                                       





| |                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Novartis terminates or fails to perform its obligations
    under the development agreement, we may not be able to
    successfully commercialize our drug products licensed to
    Novartis and the development and commercialization of our other
    product candidates could be delayed, curtailed or
    terminated.







| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Novartis has the right under certain circumstances to
    market and sell products that compete with the product
    candidates and products that we license to it, and any
    competition by Novartis could have a material adverse effect on
    our business.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | this agreement not to compete extends only until May 2008;                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | as to any country, the agreement not to compete would terminate
    if Novartis terminates the development agreement with respect to
    that country; and                                                                                                                                                                                                                                                                                                                                                           
|
| |  | if Novartis wishes to market, sell, promote or license a
    competitive product, it is required to inform us of the
    competitive product opportunity and, at our election, enter into
    good faith negotiations with us concerning such opportunity. If
    we either do not elect to enter into negotiations with respect
    to such opportunity or are unable to reach agreement within a
    specified period, Novartis would be free to proceed with its
    plans with respect to such competing product.

33



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| |                                                   
| | --------------------------------------------------
| | Factors Related to Our Dependence on Third Parties



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we have limited sales, marketing and distribution
    capabilities, we may seek to enter into additional arrangements
    with third parties. We may not be successful in establishing
    these relationships or, if established, the relationship may not
    be successful.





| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we seek to enter into collaboration agreements for any
    other product candidates but are not successful, we may not be
    able to continue development of those product candidates.







| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | we may be required to expend our own funds to advance the
    product candidate to commercialization;
|
| |  | revenue from product sales could be delayed; or                                                      
|
| |  | we may elect not to develop or commercialize the product
    candidate.                              



| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If any collaborative partner terminates or fails to
    perform its obligations under agreements with us, the
    development and commercialization of our product candidates
    could be delayed or terminated.



34



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| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Our collaborations with outside scientists may be subject
    to restriction and change.





| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on third-party manufacturers to manufacture
    products for us. If in the future we manufacture any of our
    products, we will be required to incur significant costs and
    devote significant efforts to establish these
    capabilities.











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| |                                        
| | ---------------------------------------
| | Factors Related to Patents and Licenses



| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to adequately protect our patents and
    licenses related to our product candidates, or if we infringe
    the rights of others, we may not be able to successfully
    commercialize our product candidates.







36



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37



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Litigation regarding patents, patent applications and
    other proprietary rights may be expensive and time consuming. If
    we are unsuccessful in litigation concerning patents or patent
    applications owned or co-owned by us or licensed to us, we may
    not be able to protect our products from competition or we may
    be precluded from selling our products. If we are involved in
    such litigation, it could cause delays in bringing product
    candidates to market and harm our ability to operate.





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | ownership of patents and patent applications;                                                                     
|
| |  | the patentability of our inventions relating to our product
    candidates; and/or                                
|
| |  | the enforceability, validity or scope of protection offered by
    our patents relating to our product candidates.

38



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| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | incur substantial monetary damages;                                                                                                          
|
| |  | encounter significant delays in bringing our product candidates
    to market; and/or                                                        
|
| |  | be precluded from participating in the manufacture, use or sale
    of our product candidates or methods of treatment requiring
    licenses.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Confidentiality agreements with employees and others may
    not adequately prevent disclosure of trade secrets and other
    proprietary information.





| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If any of our agreements that grant us the exclusive right
    to make, use and sell our product candidates are terminated, we
    may be unable to develop or commercialize our product
    candidates.



39



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| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our cooperative research agreement with the University
    of Cagliari is terminated, we may be unable to develop research
    results arising out of that work prior to the
    termination.



40



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| |              
| | -------------
| | Other Factors



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant portion of our total outstanding shares are
    restricted from immediate resale but may be sold into the market
    in the near future. If there are substantial sales of our common
    stock, the price of our common stock could decline.









| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | If our quarterly results of operations fluctuate, this
    fluctuation may cause our stock price to decline, resulting in
    losses to you.





| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | realization of license fees and achievement of milestones under
    our development agreement with Novartis and, to the extent
    applicable, other licensing and collaborative agreements;
|
| |  | reductions in revenue associated with Novartis right to
    maintain its percentage ownership of our voting stock when we
    issue shares at a price below fair market value;             
|
| |  | the results of ongoing and planned clinical trials of our
    product candidates;                                                                                                           
|
| |  | the results of regulatory reviews relating to the approval of
    our product candidates;                                                                                                   
|
| |  | the initiation or conclusion of litigation to enforce or defend
    any of our assets; and                                                                                                  
|
| |  | general and industry-specific economic conditions that may
    affect our research and development expenditures.                                                                            



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| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If announcements of business developments by us or our
    competitors cause fluctuations in our stock price, purchasers of
    our common stock could incur substantial losses.





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | our collaboration with Novartis;                                                                                     
|
| |  | the results of discovery, preclinical studies and clinical
    trials by us or our competitors;                      
|
| |  | the acquisition of technologies, product candidates or products
    by us or our competitors;                        
|
| |  | the development of new technologies, product candidates or
    products by us or our competitors;                    
|
| |  | regulatory actions with respect to our product candidates or
    products or those of our competitors;               
|
| |  | the initiation or conclusion of litigation to enforce or defend
    any of our assets; and                           
|
| |  | significant acquisitions, strategic partnerships, joint ventures
    or capital commitments by us or our competitors.



| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could be subject to class action litigation due to
    stock price volatility, which, if it occurs, will distract our
    management and could result in substantial costs or large
    judgments against us.








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



|                    |  |             |              |  |     |                                      |                 |  |               | 
|------------------- |  | ----------- | ------------ |  | --- | ------------------------------------ | --------------- |  | ------------- | 
|                    |  | Approximate |              |  |     |                                      | Lease           | 
|Property Location   |  | Square Feet |              |  | Use |                                      | Expiration Date | 
|                    |  |             |              |  |     |                                      |                 | 
|Cambridge, MA       |  |             | 39,014 sq ft |  |     | Office and Laboratory (headquarters) |                 |  | December 2013 | 
|Montpellier, France |  |             | 1,851 sq ft  |  |     | Office                               |                 |  | August 2009   | 
|                    |  |             | 3,229 sq ft  |  |     | Laboratory                           |                 |  | June 2005     | 








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








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



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PART II







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

Market Information






|                                         |  |      |       |  |     |   |       | 
|---------------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                         |  | High |       |  | Low |  
|                                         |  |      |       |  |     |  
|2004                                     |  |      |       |  |     |   |       | 
|Third quarter (commencing July 22, 2004) |  | $    | 16.50 |  |     | $ | 8.39  | 
|Fourth quarter                           |  | $    | 18.80 |  |     | $ | 14.45 | 

Stockholders




Dividends




Initial Public Offering and Use of Proceeds from the Sale of
Registered Securities






Repurchase of Securities




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



|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       |        | 
|------------------------------------------------------------------------ | -------------------------- | ------------------------------------- | ------ | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ----- | ------ | 
|                                                                         |                            | Years Ended December 31,              |       
|                                                                         |                            |                                       |       
|                                                                         |                            | 2004                                  |        |        | 2003    |   |         | 2002   |        |   | 2001    |        |        | 2000 |        
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|                                                                         |                            | (In thousands, except per share data) |       
|Consolidated Statement of Operations Data:                               |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |         |        |        |   |         |      
|Revenues                                                                 |                            | $                                     | 95,389 |        |         | $ | 29,570  |        |        | $ | 3,465   |        |        | $    | 1,299   |        |        | $ | 100     |      
|Operating expenses(1)                                                    |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |         |        |        |   |         |      
|                                                                         | Research and development   |                                       |        | 79,979 |         |   |         | 51,477 |        |   |         | 29,317 |        |      |         | 20,858 |        |   |         | 7,377 |       
|                                                                         | General and administrative |                                       |        | 17,080 |         |   |         | 18,152 |        |   |         | 11,737 |        |      |         | 7,287  |        |   |         | 3,992 |       
|                                                                         | Sales and marketing        |                                       |        | 6,523  |         |   |         | 2,041  |        |   |         | 984    |        |      |         | 998    |        |   |         | 386   |       
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|                                                                         |                            | Total operating expenses              |        |        | 103,582 |   |         |        | 71,670 |   |         |        | 42,038 |      |         |        | 29,143 |   |         |       | 11,755 | 
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|Loss from operations                                                     |                            |                                       | (8,193 | )      |         |   | (42,100 | )      |        |   | (38,573 | )      |        |      | (27,844 | )      |        |   | (11,655 | )    
|Investment income, net                                                   |                            |                                       | 1,379  |        |         |   | 430     |        |        |   | 297     |        |        |      | 931     |        |        |   | 746     |      
|Other, net(2)                                                            |                            |                                       | 570    |        |         |   | (210    | )      |        |   | (80     | )      |        |      | (422    | )      |        |   | 1,002   |      
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|Net loss                                                                 |                            |                                       | (6,244 | )      |         |   | (41,880 | )      |        |   | (38,356 | )      |        |      | (27,335 | )      |        |   | (9,907  | )    
|Accretion of redeemable convertible preferred stock                      |                            |                                       |       |        |         |   | (29,074 | )      |        |   | (59,165 | )      |        |      | (33,835 | )      |        |   | (6,063  | )    
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|Net loss attributable to common stockholders                             |                            | $                                     | (6,244 | )      |         | $ | (70,954 | )      |        | $ | (97,521 | )      |        | $    | (61,170 | )      |        | $ | (15,970 | )    
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|Basic and diluted net loss per common share                              |                            | $                                     | (0.15  | )      |         | $ | (2.70   | )      |        | $ | (15.19  | )      |        | $    | (12.98  | )      |        | $ | (4.67   | )    
|                                                                         |                            |                                       |        |        |         |   |         |        |        |   |         |        |        |      |        
|Shares used in computing basic and diluted net loss per common
    share |                            |                                       | 41,369 |        |         |   | 26,232  |        |        |   | 6,421   |        |        |      | 4,713   |        |        |   | 3,421   |      

|                                                        |  |                    |          |   |      |   |          |      |  |   |          |   |  |      |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                        |  | As of December 31, |         
|                                                        |  |                    |         
|                                                        |  | 2004               |          |   | 2003 |   |          | 2002 |  |   | 2001     |   |  | 2000 |        
|                                                        |  |                    |          |   |      |   |          |      |  |   |          |   |  |      |        
|                                                        |  | (In thousands)     |         
|Consolidated Balance Sheet Data:                        |  |                    |          |   |      |   |          |      |  |   |          |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                               |  | $                  | 42,083   |   |      | $ | 43,485   |      |  | $ | 8,548    |   |  | $    | 38,846  |   |  | $ | 10,161  |  
|Working capital                                         |  |                    | 70,123   |   |      |   | 30,399   |      |  |   | 1,602    |   |  |      | 35,281  |   |  |   | 7,311   |  
|Total assets                                            |  |                    | 187,118  |   |      |   | 67,090   |      |  |   | 12,226   |   |  |      | 44,945  |   |  |   | 11,830  |  
|Capital lease obligations, net of current portion       |  |                    |         |   |      |   |         |      |  |   | 2        |   |  |      | 16      |   |  |   | 37      |  
|Deferred revenue                                        |  |                    |         |   |      |   | 107      |      |  |   | 1,306    |   |  |      | 1,358   |   |  |   |        |  
|Deferred revenue, related party                         |  |                    | 9,695    |   |      |   | 10,756   |      |  |   |         |   |  |      |        |   |  |   |        |  
|Long-term obligations                                   |  |                    | 3,691    |   |      |   | 4,849    |      |  |   | 732      |   |  |      |        |   |  |   |        |  
|Deferred revenue, net of current portion                |  |                    | 4,272    |   |      |   | 4,272    |      |  |   | 3,345    |   |  |      | 4,526   |   |  |   |        |  
|Deferred revenue, related party, net of current portion |  |                    | 38,779   |   |      |   | 54,239   |      |  |   |         |   |  |      |        |   |  |   |        |  
|Redeemable convertible preferred stock                  |  |                    |         |   |      |   |         |      |  |   | 160,982  |   |  |      | 101,817 |   |  |   | 32,717  |  
|Accumulated deficit                                     |  |                    | (230,077 | ) |      |   | (223,833 | )    |  |   | (153,058 | ) |  |      | (66,574 | ) |  |   | (24,110 | )
|Total stockholders equity (deficit)                    |  | $                  | 109,058  |   |      | $ | (27,731  | )    |  | $ | (161,362 | ) |  | $    | (68,975 | ) |  | $ | (24,118 | )






|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Stock-based compensation expenses included in operating expenses
    amounted to approximately:

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|                           |  |                          |       |  |      |   |       |      |  |   |       |  |  |      |       |  |  |   |       | 
|-------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | ---- | ----- |  |  | - | ----- | 
|                           |  | Years Ended December 31, |      
|                           |  |                          |      
|                           |  | 2004                     |       |  | 2003 |   |       | 2002 |  |   | 2001  |  |  | 2000 |      
|                           |  |                          |       |  |      |   |       |      |  |   |       |  |  |      |      
|                           |  | (In thousands)           |      
|Research and development   |  | $                        | 1,191 |  |      | $ | 1,288 |      |  | $ | 1,716 |  |  | $    | 7,284 |  |  | $ | 1,560 | 
|General and administrative |  |                          | 781   |  |      |   | 3,328 |      |  |   | 2,368 |  |  |      | 501   |  |  |   | 317   | 
|Sales and marketing        |  |                          | 128   |  |      |   | 129   |      |  |   | 99    |  |  |      | 20    |  |  |   |      | 
|                           |  |                          |       |  |      |   |       |      |  |   |       |  |  |      |      
|                           |  | $                        | 2,100 |  |      | $ | 4,745 |      |  | $ | 4,183 |  |  | $    | 7,805 |  |  | $ | 1,877 | 
|                           |  |                          |       |  |      |   |       |      |  |   |       |  |  |      |      



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(2) | Other, net includes gain on sale of equity investment in 2000,
    gain (loss) on foreign exchange and income tax provision.

45



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

The following discussion and analysis of financial condition
and results of operations should be read together with
Selected Consolidated Financial Data, and our
consolidated financial statements and related notes appearing
elsewhere in this document. This discussion contains
forward-looking statements based on current expectations related
to future events and our future financial performance that
involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these
forward-looking statements as a result of many important
factors, including those set forth under Factors That May
Affect Future Results and elsewhere in this document.


Overview






|           |  |                               |  |                             
|---------- |  | ----------------------------- |  | ----------------------------
|Indication |  | Product Candidates/ Programs  |  | Current Stage of Development
|           |  |                               |  |                             
|HBV        |  | telbivudine (L-nucleoside)    |  | phase III                   
|           |  | valtorcitabine (L-nucleoside) |  | phase IIb                   
|          
|HCV        |  | NM283 (Nucleoside analog)     |  | phase IIb                   
|           |  | NV-08 (Nucleoside analogs)    |  | preclinical                 
|          
|HIV        |  | NV-05 (NNRTIs)                |  | preclinical                 









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|           |  |                                |  |                |        |  |      |   |              |      |  |   |        |  |  |       |        |  |  |   |         | 
|---------- |  | ------------------------------ |  | -------------- | ------ |  | ---- | - | ------------ | ---- |  | - | ------ |  |  | ----- | ------ |  |  | - | ------- | 
|           |  |                                |  | Period from    |        |  |      |   |              |      |  |   |       
|           |  |                                |  | May 1, 1998    |        |  |      |   |              |      |  |   |       
|           |  |                                |  | (Inception)    |        |  |      |   |              |      |  |   |       
|           |  |                                |  | through        |        |  |      |   | Years Ended  |      |  |   |        | 
|Disease    |  |                                |  | December 31,   |        |  |      |   | December 31, |      |  |   |        | 
|Indication |  | Product Candidate              |  | 2001           |        |  | 2002 |   |              | 2003 |  |   | 2004   |  |  | Total |       
|           |  |                                |  |                |        |  |      |   |              |      |  |   |        |  |  |       |       
|           |  |                                |  | (In thousands) |       
|HBV        |  | telbivudine                    |  | $              | 8,130  |  |      | $ | 12,102       |      |  | $ | 21,287 |  |  | $     | 43,483 |  |  | $ | 85,002  | 
|HBV        |  | valtorcitabine                 |  |                | 3,877  |  |      |   | 2,680        |      |  |   | 1,781  |  |  |       | 8,673  |  |  |   | 17,011  | 
|HCV        |  | NM283 and second HCV candidate |  |                | 335    |  |      |   | 2,181        |      |  |   | 6,531  |  |  |       | 8,320  |  |  |   | 17,367  | 
|           |  |                                |  |                |        |  |      |   |              |      |  |   |        |  |  |       |       
|           |  |                                |  | $              | 12,342 |  |      | $ | 16,963       |      |  | $ | 29,599 |  |  | $     | 60,476 |  |  | $ | 119,380 | 
|           |  |                                |  |                |        |  |      |   |              |      |  |   |        |  |  |       |       



|                               |  |                              |                           |                              |        |  |              | 
|------------------------------ |  | ---------------------------- | ------------------------- | ---------------------------- | ------ |  | ------------ | 
|                               |  |                              |                           | Estimated Additional Amount  |       
|                               |  |                              |                           | of Direct Third-Party        |       
|                               |  |                              |                           | Research and Development     |       
|                               |  |                              |                           | Expenses Expected to be      |       
|                               |  |                              |                           | Incurred Prior to Commercial |       
|Product Candidate              |  | Current Stage of Development |                           |                              | Launch | 
|                               |  |                              |                           |                              |        | 
|telbivudine                    |  |                              | phase III                 |                              |        |  | $50 million  | 
|valtorcitabine                 |  |                              | phase IIb                 |                              |        |  | $91 million  | 
|NM283 and second HCV candidate |  |                              | phase IIb and preclinical |                              |        |  | $421 million | 







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Results of Operations


Comparison of Years Ended December 31, 2004 and 2003




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







| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $95.0 million in related party revenue from Novartis,
    consisting of $9.1 million in license fee revenue, net of a
    $1.9 million reduction due to Novartis stock subscription
    rights, $25.0 million in milestone revenue as a result of
    our achievement of a milestone in the development of NM283 and
    $60.9 million in reimbursement of research and development
    expenses; and
|
| |  | $0.4 million in government grant revenue.                                                                                                                                                                                                                                                                                                                                                            





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $33.4 million in related party revenue from Novartis,
    consisting of $6.9 million in license fee revenue, net of a
    $0.8 million reduction due to Novartis common stock
    subscription rights and $26.5 million in reimbursement of
    research and development expenses;                                                                                                                                                                                                                                                                                                     
|
| |  | $0.4 million in government grant revenue; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | a net reduction of $4.2 million in revenue from Sumitomo.
    This reduction of revenue was incurred when we paid
    $5.0 million to Sumitomo pursuant to a final settlement
    agreement in May 2003 to reacquire from Sumitomo the rights to
    develop and commercialize telbivudine in Japan, China, South
    Korea and Taiwan. This required us to reverse $4.6 million
    in revenue previously recognized under the Sumitomo arrangement,
    including revenue in the amount of $0.4 million recognized
    in 2003 prior to entering into the final settlement agreement.





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





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $30.9 million in fees and expenses of third-party
    contractors primarily for phase III clinical trials of
    telbivudine, which include amounts paid to clinical research
    organizations, purchases of drug products used in comparative
    testing in our clinical trials for telbivudine, purchases of
    active pharmaceutical ingredient materials for valtorcitabine
    and amounts expended on pre-clinical studies for valtorcitabine
    and our HCV drug candidates; and
|
| |  | higher operating costs as we continue to expand our research and
    development activities and capabilities, including
    $2.7 million in salary and other payroll-related expenses.                                                                                                                                                                                                                                                                                                     





| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a one time fee of $6.3 million incurred in 2003 relating to
    a license of certain manufacturing technology associated with
    our HBV drug candidates; and                                                               
|
| |  | an expense in the amount of $2.0 million incurred during
    the year ended December 31, 2003 relating to the settlement
    of litigation we brought to defend our ownership of certain
    patents and patent applications.

49



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





| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $2.5 million in non-cash stock compensation primarily due
    to the accelerated vesting in May 2003 of stock options held by
    our former Chief Financial Officer; and       
|
| |  | $0.6 million in professional fees principally related to
    financial advisory, legal and accounting services rendered in
    2003 in connection with the Novartis transaction.







| |                             
| | ----------------------------
| | Sales and Marketing Expenses





| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $3.7 million in consulting expenses, primarily attributable
    to market research studies being conducted in anticipation of
    the expected commercial launch of telbivudine in 2006, if we
    receive required regulatory approval; and
|
| |  | higher operating costs as we expand our marketing organization.                                                                                                                                                                             





| |                       
| | ----------------------
| | Investment Income, Net





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



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Comparison of Years Ended December 31, 2003 and 2002




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







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $33.4 million in related party revenue from Novartis
    consisting of $6.9 million in license fee revenue, net of a
    $0.8 million reduction due to Novartis common stock
    subscription rights and $26.5 million for reimbursement of
    research and development expenses;                                                                                                                                                                                                                                                                                       
|
| |  | $0.4 million in government grant revenue; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | a net reduction of $4.2 million in revenue from Sumitomo.
    This reduction of revenue was incurred when we paid
    $5.0 million to Sumitomo pursuant to a final settlement
    agreement in May 2003 to reacquire the rights to develop and
    commercialize telbivudine in Japan, China, South Korea and
    Taiwan. This required us to reverse $4.6 million in revenue
    previously recognized under the Sumitomo arrangement, including
    revenue in the amount of $0.4 million recognized in 2003
    prior to entering into the final settlement agreement.





| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | $3.0 million in license fees and collaborative research and
    development revenues from Sumitomo; and
|
| |  | $0.5 million in government grant revenue.                                                              





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





| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a one-time fee in the amount of $6.3 million for licensing
    of certain manufacturing technology associated with our
    hepatitis B product candidates;                                                      
|
| |  | $10.9 million in expenses for third-party contractors
    primarily for phase III clinical trials of telbivudine and
    purchases of active pharmaceutical ingredient materials for our
    HCV drug candidate;
|
| |  | $2.0 million accrual for settlement expenses relating to
    litigation we brought to defend our ownership of certain patents
    and patent applications; and                                                  
|
| |  | higher operating costs as we expand our research and development
    activities and capabilities.                                                                                                               



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





| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $2.4 million in financial advisory, legal and accounting
    fees principally for services rendered in connection with the
    Novartis transaction and increased patent prosecution and
    maintenance activities;

51



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| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $1.0 million in non-cash stock compensation expense
    primarily due to the accelerated vesting of stock options held
    by our former chief financial officer; and
|
| |  | higher operating costs to support our growing business
    operations.                                                                                               



| |                             
| | ----------------------------
| | Sales and Marketing Expenses





| |                       
| | ----------------------
| | Investment Income, Net





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



Liquidity and Capital Resources










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|                                            |  |                        |        |           |          |   |       |       |  |         |            |  |            |       |       |  |  |   |        | 
|------------------------------------------- |  | ---------------------- | ------ | --------- | -------- | - | ----- | ----- |  | ------- | ---------- |  | ---------- | ----- | ----- |  |  | - | ------ | 
|                                            |  | Payments Due by Period |       
|                                            |  |                        |       
|                                            |  |                        |        | One to    |          |   |      
|                                            |  |                        |        | Less than |          |   | Three |       |  | Four to |            |  | After Five |      
|Contractual Cash Obligations                |  | Total                  |        |           | One Year |   |       | Years |  |         | Five Years |  |            | Years |      
|                                            |  |                        |        |           |          |   |       |       |  |         |            |  |            |       |      
|                                            |  | (In thousands)         |       
|Operating leases                            |  | $                      | 18,806 |           |          | $ | 1,357 |       |  | $       | 3,412      |  |            | $     | 3,855 |  |  | $ | 10,182 | 
|Consulting, employment and other agreements |  |                        | 12,881 |           |          |   | 5,471 |       |  |         | 5,410      |  |            |       | 2,000 |  |  |   |       | 
|                                            |  |                        |        |           |          |   |       |       |  |         |            |  |            |       |      
|Total contractual cash obligations          |  | $                      | 31,687 |           |          | $ | 6,828 |       |  | $       | 8,822      |  |            | $     | 5,855 |  |  | $ | 10,182 | 
|                                            |  |                        |        |           |          |   |       |       |  |         |            |  |            |       |      



53



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Off-Balance Sheet Transactions




Critical Accounting Policies and Estimates








| |                                               
| | ----------------------------------------------
| | Collaborative Research and Development Revenue

Revenue Recognition in Financial Statements.




54



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55



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| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the milestone is non-refundable;                                                                                                                                                                             
|
| |  | achievement of the milestone was not reasonably assured at the
    inception of the arrangement;                                                                                                             
|
| |  | substantive effort is involved to achieve the milestone; and                                                                                                                                                 
|
| |  | the amount of the milestone appears reasonable in relation to
    the effort expended, the other milestones in the arrangement and
    the related risk associated with the achievement of the
    milestone.





Accounting
for Revenue Arrangements with Multiple Deliverables,




| |                 
| | ----------------
| | Accrued Expenses



56



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

Share Based
Payment. Accounting for Stock Issued to Employees. Accounting
for Stock Compensation.




Recent Accounting Pronouncements


Share-Based Payment.







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



57



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



58



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








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

Evaluation of Disclosure Controls and Procedures.


Changes in Internal Controls.







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






PART III





Items 10-14.






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PART IV







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

(a)(1) Financial Statements:


|                                                                                                                                              |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                              |  | Page |   
|                                                                                                                                              |  |      |   
|Report of Independent Registered Public
    Accounting Firm                                                                                   |  |      | 61 | 
|Consolidated Balance Sheets at
    December 31, 2004 and 2003                                                                                 |  |      | 62 | 
|Consolidated Statements of Operations for
    the Years Ended December 31, 2004, 2003 and 2002                                                |  |      | 63 | 
|Consolidated Statements of
    Stockholders Equity (Deficit) and Comprehensive Loss for
    the Years Ended December 31, 2004, 2003 and 2002 |  |      | 64 | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2004, 2003 and 2002                                                |  |      | 66 | 
|Notes to the Consolidated Financial
    Statements                                                                                            |  |      | 67 | 

(a)(2) Financial Statement Schedules.


(a)(3) Exhibits.


60



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







PRICEWATERHOUSECOOPERS
LLP





61



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IDENIX PHARMACEUTICALS, INC.


CONSOLIDATED BALANCE SHEETS


(in thousands, except share data)


|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |          |         |        | 
|------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ---------------------------------------------------- | -------- | ------- | ------- | ------ | -------- | ------- | ------ | 
|                                                        |                                                                                                                                                                                                                                          | December 31,                         |                                                     
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                     
|                                                        |                                                                                                                                                                                                                                          | 2004                                 |                                                      |          | 2003    |        
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|ASSETS                                                  |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |         
|Current assets:                                         |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |         
|                                                        | Cash and cash equivalents                                                                                                                                                                                                                |                                      | $                                                    | 42,083   |         |         | $      | 43,485   |        
|                                                        | Marketable securities                                                                                                                                                                                                                    |                                      |                                                      | 38,429   |         |         |        |         |        
|                                                        | Accounts receivable, related party                                                                                                                                                                                                       |                                      |                                                      | 16,243   |         |         |        | 11,152   |        
|                                                        | Deferred offering costs                                                                                                                                                                                                                  |                                      |                                                      |          |         |         |        | 843      |        
|                                                        | Prepaid expenses and other current assets                                                                                                                                                                                                |                                      |                                                      | 3,231    |         |         |        | 4,874    |        
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                        |                                                                                                                                                                                                                                          | Total current assets                 |                                                      |          | 99,986  |         |        |          | 60,354  |       
|Property and equipment, net                             |                                                                                                                                                                                                                                          |                                      | 6,805                                                |          |         |         | 4,066  |         
|Restricted cash, non-current                            |                                                                                                                                                                                                                                          |                                      | 750                                                  |          |         |         | 750    |         
|Marketable securities, non-current                      |                                                                                                                                                                                                                                          |                                      | 76,754                                               |          |         |         |       |         
|Income taxes receivable                                 |                                                                                                                                                                                                                                          |                                      | 370                                                  |          |         |         |       |         
|Investment                                              |                                                                                                                                                                                                                                          |                                      | 500                                                  |          |         |         | 500    |         
|Other assets                                            |                                                                                                                                                                                                                                          |                                      | 1,953                                                |          |         |         | 1,420  |         
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                        |                                                                                                                                                                                                                                          |                                      | Total assets                                         |          | $       | 187,118 |        |          | $       | 67,090 | 
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                       
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)          |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |         
|Current liabilities:                                    |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |         
|                                                        | Accounts payable                                                                                                                                                                                                                         |                                      | $                                                    | 4,619    |         |         | $      | 6,223    |        
|                                                        | Accrued expenses                                                                                                                                                                                                                         |                                      |                                                      | 15,300   |         |         |        | 12,314   |        
|                                                        | Deferred rent                                                                                                                                                                                                                            |                                      |                                                      | 50       |         |         |        | 50       |        
|                                                        | Deferred revenue                                                                                                                                                                                                                         |                                      |                                                      |          |         |         |        | 107      |        
|                                                        | Deferred revenue, related party                                                                                                                                                                                                          |                                      |                                                      | 9,695    |         |         |        | 10,756   |        
|                                                        | Income taxes payable                                                                                                                                                                                                                     |                                      |                                                      | 199      |         |         |        | 505      |        
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                        |                                                                                                                                                                                                                                          | Total current liabilities            |                                                      |          | 29,863  |         |        |          | 29,955  |       
|Long-term obligations                                   |                                                                                                                                                                                                                                          |                                      | 3,691                                                |          |         |         | 4,849  |         
|Deferred rent, net of current portion                   |                                                                                                                                                                                                                                          |                                      | 1,455                                                |          |         |         | 1,506  |         
|Deferred revenue, net of current portion                |                                                                                                                                                                                                                                          |                                      | 4,272                                                |          |         |         | 4,272  |         
|Deferred revenue, related party, net of current portion |                                                                                                                                                                                                                                          |                                      | 38,779                                               |          |         |         | 54,239 |         
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                        |                                                                                                                                                                                                                                          | Total liabilities                    |                                                      |          | 78,060  |         |        |          | 94,821  |       
|Commitments and contingencies (Note 16)                 |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |         
|Stockholders equity (deficit):                         |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |         |        |         
|                                                        | Common stock, $0.001 par value; 60,000,000 and
    50,000,000 shares authorized at December 31, 2004 and
    2003, respectively; 47,857,887 and 36,450,383 shares issued
    and outstanding at December 31, 2004 and 2003, respectively |                                      |                                                      | 48       |         |         |        | 36       |        
|                                                        | Additional paid-in capital                                                                                                                                                                                                               |                                      |                                                      | 340,938  |         |         |        | 199,609  |        
|                                                        | Deferred compensation                                                                                                                                                                                                                    |                                      |                                                      | (1,987   | )       |         |        | (3,889   | )      
|                                                        | Accumulated other comprehensive income                                                                                                                                                                                                   |                                      |                                                      | 136      |         |         |        | 346      |        
|                                                        | Accumulated deficit                                                                                                                                                                                                                      |                                      |                                                      | (230,077 | )       |         |        | (223,833 | )      
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                        |                                                                                                                                                                                                                                          | Total stockholders equity (deficit) |                                                      |          | 109,058 |         |        |          | (27,731 | )     
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        
|                                                        |                                                                                                                                                                                                                                          |                                      | Total liabilities and stockholders equity (deficit) |          | $       | 187,118 |        |          | $       | 67,090 | 
|                                                        |                                                                                                                                                                                                                                          |                                      |                                                      |          |         |        



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IDENIX PHARMACEUTICALS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share data)


|                                                                         |                                                                             |                          |         |        |      |   |         |        |   |   |         |        | 
|------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------ | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | 
|                                                                         |                                                                             | Years Ended December 31, |        
|                                                                         |                                                                             |                          |        
|                                                                         |                                                                             | 2004                     |         |        | 2003 |   |         | 2002   |  
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Revenues:                                                                |                                                                             |                          |         |        |      |   |         |        |   |   |         |       
|                                                                         | License fees and collaborative research and
    development  related party |                          | $       | 95,004 |      |   | $       | 33,327 |   |   | $       |       | 
|                                                                         | License fees and collaborative research and
    development  other         |                          |         |       |      |   |         | (4,165 | ) |   |         | 2,940  | 
|                                                                         | Government research grants                                                  |                          |         | 385    |      |   |         | 408    |   |   |         | 525    | 
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Total revenues                                                           |                                                                             |                          | 95,389  |        |      |   | 29,570  |        |   |   | 3,465   |       
|Operating expenses(1):                                                   |                                                                             |                          |         |        |      |   |         |        |   |   |         |       
|                                                                         | Research and development                                                    |                          |         | 79,979 |      |   |         | 51,477 |   |   |         | 29,317 | 
|                                                                         | General and administrative                                                  |                          |         | 17,080 |      |   |         | 18,152 |   |   |         | 11,737 | 
|                                                                         | Sales and marketing                                                         |                          |         | 6,523  |      |   |         | 2,041  |   |   |         | 984    | 
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Total operating expenses                                                 |                                                                             |                          | 103,582 |        |      |   | 71,670  |        |   |   | 42,038  |       
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Loss from operations                                                     |                                                                             |                          | (8,193  | )      |      |   | (42,100 | )      |   |   | (38,573 | )     
|Investment income, net                                                   |                                                                             |                          | 1,379   |        |      |   | 430     |        |   |   | 297     |       
|Other income (expense)                                                   |                                                                             |                          | 4       |        |      |   | (26     | )      |   |   | (41     | )     
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Loss before income taxes                                                 |                                                                             |                          | (6,810  | )      |      |   | (41,696 | )      |   |   | (38,317 | )     
|Income tax benefit (provision)                                           |                                                                             |                          | 566     |        |      |   | (184    | )      |   |   | (39     | )     
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Net loss                                                                 |                                                                             |                          | (6,244  | )      |      |   | (41,880 | )      |   |   | (38,356 | )     
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Accretion of redeemable convertible preferred stock                      |                                                                             |                          |        |        |      |   | (29,074 | )      |   |   | (59,165 | )     
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Net loss attributable to common stockholders                             |                                                                             | $                        | (6,244  | )      |      | $ | (70,954 | )      |   | $ | (97,521 | )     
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Basic and diluted net loss per common share                              |                                                                             | $                        | (0.15   | )      |      | $ | (2.70   | )      |   | $ | (15.19  | )     
|                                                                         |                                                                             |                          |         |        |      |   |         |        |  
|Shares used in computing basic and diluted net loss per common
    share |                                                                             |                          | 41,369  |        |      |   | 26,232  |        |   |   | 6,421   |       






|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the years ended December 31, 2004, 2003 and 2002,
    stock-based compensation expenses included in operating expenses
    amounted to approximately:

|                           |  |      |       |  |      |   |       |      |  |   |       | 
|-------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                           |  | 2004 |       |  | 2003 |   |       | 2002 | 
|                           |  |      |       |  |      |   |       |      | 
|Research and development   |  | $    | 1,191 |  |      | $ | 1,288 |      |  | $ | 1,716 | 
|General and administrative |  |      | 781   |  |      |   | 3,328 |      |  |   | 2,368 | 
|Sales and marketing        |  |      | 128   |  |      |   | 129   |      |  |   | 99    | 
|                           |  |      |       |  |      |   |       |      | 
|                           |  | $    | 2,100 |  |      | $ | 4,745 |      |  | $ | 4,183 | 
|                           |  |      |       |  |      |   |       |      | 



63



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IDENIX PHARMACEUTICALS, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


AND COMPREHENSIVE LOSS


For the Years Ended December 31, 2002, 2003, 2004


(in thousands, except share data)


|                             |                                                                               |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          |         |   |  |   |         |  
|---------------------------- | ----------------------------------------------------------------------------- | ------------ | ---------- | ---------- | ---------- | - | -- | -------- |  | ------------- | ------------ | ------- | - | ----------- | ------ | ------ | ------------- | - | --- | ---------------- |  | - | -------- | ------- | - | - | -------- | ------- | - |  | - | ------- | -
|                             |                                                                               |              |            |            |            |   |    |          |  | Accumulated   |              |         |   |             |        |        |              
|                             |                                                                               |              |            |            |            |   |    | Other    |  |               |              |         |   |             |       
|                             |                                                                               | Common Stock |            |            | Additional |   |    |          |  | Comprehensive |              |         |   |             | Total  |        |               |  
|                             |                                                                               |              |            |            | Paid-In    |   |    | Deferred |  |               | Income       |         |   | Accumulated |        |        | Stockholders |   |     | Comprehensive    | 
|                             |                                                                               | Shares       |            |            | Amount     |   |    | Capital  |  |               | Compensation |         |   | (Loss)      |        |        | Deficit       |   |     | Equity (Deficit) |  |   | Loss     |        
|                             |                                                                               |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |        
|Balance at December 31, 2001 |                                                                               |              | 5,169,684  |            |            | $ | 5  |          |  | $             |             |         |   | $           | (2,402 | )      |               | $ | (4  | )                |  | $ | (66,574  | )       |   | $ | (68,975  | )       |   |  |   |        
|                             | Vesting of restricted stock                                                   |              |            | 1,549,300  |            |   |    | 2        |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          | (2      | ) |   |          |         |   |  |   |         |  
|                             | Issuance of common stock upon exercise of employee stock options              |              |            | 443,260    |            |   |    |          |  |               |              | 637     |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 637     |   |  |   |         |  
|                             | Issuance of common stock upon vesting of restricted stock options             |              |            | 104,500    |            |   |    |          |  |               |              | 160     |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 160     |   |  |   |         |  
|                             | Compensation related to restricted stock                                      |              |            |            |            |   |    |          |  |               |              | 1,321   |   |             |        |        |               |   |     |                  |  |   |          | (902    | ) |   |          | 419     |   |  |   |         |  
|                             | Compensation related to modification of employee stock options                |              |            |            |            |   |    |          |  |               |              | 673     |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 673     |   |  |   |         |  
|                             | Accretion of redeemable preferred stock to redemption value                   |              |            |            |            |   |    |          |  |               |              | (11,547 | ) |             |        |        |               |   |     |                  |  |   |          | (42,765 | ) |   |          | (54,312 | ) |  |   |         |  
|                             | Accretion of Series B and C preferred stock cumulative
    dividends          |              |            |            |            |   |    |          |  |               |              | (394    | ) |             |        |        |               |   |     |                  |  |   |          | (4,459  | ) |   |          | (4,853  | ) |  |   |         |  
|                             | Deferred compensation related to employee stock option grants                 |              |            |            |            |   |    |          |  |               |              | 9,150   |   |             |        | (9,150 | )             |   |     |                  |  |   |          |         |   |   |          |         |   |  |   |         |  
|                             | Amortization of deferred compensation                                         |              |            |            |            |   |    |          |  |               |              |         |   |             |        | 3,091  |               |   |     |                  |  |   |          |         |   |   |          | 3,091   |   |  |   |         |  
|                             | Net loss                                                                      |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          | (38,356 | ) |   |          | (38,356 | ) |  | $ | (38,356 | )
|                             | Cumulative translation adjustment                                             |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     | 154              |  |   |          |         |   |   |          | 154     |   |  |   | 154     |  
|                             |                                                                               |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |        
|                             | Comprehensive loss                                                            |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          |         |   |  | $ | (38,202 | )
|                             |                                                                               |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |        
|Balance at December 31, 2002 |                                                                               |              | 7,266,744  |            |            |   | 7  |          |  |               |             |         |   |             | (8,461 | )      |               |   | 150 |                  |  |   | (153,058 | )       |   |   | (161,362 | )       |   |  |   |        
|                             | Vesting of restricted stock                                                   |              |            | 33,600     |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          |         |   |  |   |         |  
|                             | Accretion of redeemable preferred stock to redemption value                   |              |            |            |            |   |    |          |  |               |              | (179    | ) |             |        |        |               |   |     |                  |  |   |          | (17,018 | ) |   |          | (17,197 | ) |  |   |         |  
|                             | Accretion of Series B and C preferred stock cumulative
    dividends          |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          | (1,805  | ) |   |          | (1,805  | ) |  |   |         |  
|                             | Common stock dividend to Series C preferred stockholders                      |              |            | 1,537,725  |            |   |    | 1        |  |               |              | 17,683  |   |             |        |        |               |   |     |                  |  |   |          | (10,072 | ) |   |          | 7,612   |   |  |   |         |  
|                             | Conversion of Series A, B and C preferred stock to common
    stock           |              |            | 26,858,239 |            |   |    | 27       |  |               |              | 172,344 |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 172,371 |   |  |   |         |  
|                             | Issuance of common stock upon exercise of employee stock options              |              |            | 654,742    |            |   |    | 1        |  |               |              | 1,129   |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 1,130   |   |  |   |         |  
|                             | Issuance of common stock upon vesting of restricted stock options             |              |            | 99,333     |            |   |    |          |  |               |              | 282     |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 282     |   |  |   |         |  
|                             | Income tax benefit associated with the exercise of employee
    stock options |              |            |            |            |   |    |          |  |               |              | 136     |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 136     |   |  |   |         |  
|                             | Compensation related to modification of employee stock options                |              |            |            |            |   |    |          |  |               |              | 82      |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 82      |   |  |   |         |  
|                             | Deferred compensation related to stock option grants                          |              |            |            |            |   |    |          |  |               |              | 91      |   |             |        | (91    | )             |   |     |                  |  |   |          |         |   |   |          |         |   |  |   |         |  
|                             | Amortization of deferred compensation                                         |              |            |            |            |   |    |          |  |               |              |         |   |             |        | 4,663  |               |   |     |                  |  |   |          |         |   |   |          | 4,663   |   |  |   |         |  
|                             | Antidilution shares contingently issuable to related party                    |              |            |            |            |   |    |          |  |               |              | 8,041   |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          | 8,041   |   |  |   |         |  
|                             | Net loss                                                                      |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          | (41,880 | ) |   |          | (41,880 | ) |  | $ | (41,880 | )
|                             | Cumulative translation adjustment                                             |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     | 196              |  |   |          |         |   |   |          | 196     |   |  |   | 196     |  
|                             |                                                                               |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |        
|                             | Comprehensive loss                                                            |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |         |   |   |          |         |   |  | $ | (41,684 | )
|                             |                                                                               |              |            |            |            |   |    |          |  |               |              |         |   |             |        |        |               |   |     |                  |  |   |          |        
|Balance at December 31, 2003 |                                                                               |              | 36,450,383 |            |            |   | 36 |          |  |               | 199,609      |         |   |             | (3,889 | )      |               |   | 346 |                  |  |   | (223,833 | )       |   |   | (27,731  | )       |   |  |   |        

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IDENIX PHARMACEUTICALS, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


AND COMPREHENSIVE LOSS  (Continued)


For the Years Ended December 31, 2002, 2003, 2004


(in thousands, except share data)


|                             |                                                                                                                              |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         |        |   |  |   |        |  
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | --------- | ---------- | - | -- | -------- |  | ------------- | ------------ | ------ |  | ----------- | ------ | ----- | ------------- | - | --- | ---------------- | - | - | -------- | ------ | - | - | ------- | ------ | - |  | - | ------ | -
|                             |                                                                                                                              |              |            |           |            |   |    |          |  | Accumulated   |              |        |  |             |        |       |              
|                             |                                                                                                                              |              |            |           |            |   |    | Other    |  |               |              |        |  |             |       
|                             |                                                                                                                              | Common Stock |            |           | Additional |   |    |          |  | Comprehensive |              |        |  |             | Total  |       |               |  
|                             |                                                                                                                              |              |            |           | Paid-In    |   |    | Deferred |  |               | Income       |        |  | Accumulated |        |       | Stockholders |   |     | Comprehensive    |  
|                             |                                                                                                                              | Shares       |            |           | Amount     |   |    | Capital  |  |               | Compensation |        |  | (Loss)      |        |       | Deficit       |   |     | Equity (Deficit) |   |   | Loss     |       
|                             |                                                                                                                              |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |       
|                             | Issuance of common stock to related party                                                                                    |              |            | 108       |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         |        |   |  |   |        |  
|                             | Issuance of common stock upon initial public offering, net of
    offering expenses and underwriting discounts of $7,425,000 |              |            | 4,600,000 |            |   |    | 5        |  |               |              | 56,970 |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         | 56,975 |   |  |   |        |  
|                             | Issuance of common stock upon private placement with related
    party                                                       |              |            | 5,400,000 |            |   |    | 5        |  |               |              | 75,595 |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         | 75,600 |   |  |   |        |  
|                             | Issuance of common stock upon exercise of employee stock options                                                             |              |            | 210,646   |            |   |    | 1        |  |               |              | 885    |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         | 886    |   |  |   |        |  
|                             | Issuance of common stock upon vesting of restricted stock options                                                            |              |            | 96,750    |            |   |    |          |  |               |              | 286    |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         | 286    |   |  |   |        |  
|                             | Deferred compensation related to employee stock option grants                                                                |              |            |           |            |   |    |          |  |               |              | 198    |  |             |        | (198  | )             |   |     |                  |   |   |          |        |   |   |         |        |   |  |   |        |  
|                             | Amortization of deferred compensation                                                                                        |              |            |           |            |   |    |          |  |               |              |        |  |             |        | 2,100 |               |   |     |                  |   |   |          |        |   |   |         | 2,100  |   |  |   |        |  
|                             | Issuance of common stock for settlement of antidilution shares
    contingently issuable to related party                    |              |            | 1,100,000 |            |   |    | 1        |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         | 1      |   |  |   |        |  
|                             | Antidilution shares contingently issuable to related party                                                                   |              |            |           |            |   |    |          |  |               |              | 7,395  |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         | 7,395  |   |  |   |        |  
|                             | Net loss                                                                                                                     |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          | (6,244 | ) |   |         | (6,244 | ) |  | $ | (6,244 | )
|                             | Net change in unrealized holding losses on marketable securities                                                             |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     | (343             | ) |   |          |        |   |   |         | (343   | ) |  |   | (343   | )
|                             | Cumulative translation adjustment                                                                                            |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     | 133              |   |   |          |        |   |   |         | 133    |   |  |   | 133    |  
|                             |                                                                                                                              |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |       
|                             | Comprehensive loss                                                                                                           |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |        |   |   |         |        |   |  | $ | (6,454 | )
|                             |                                                                                                                              |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |       
|Balance at December 31, 2004 |                                                                                                                              |              | 47,857,887 |           |            | $ | 48 |          |  | $             | 340,938      |        |  | $           | (1,987 | )     |               | $ | 136 |                  |   | $ | (230,077 | )      |   | $ | 109,058 |        |   |  |   |       
|                             |                                                                                                                              |              |            |           |            |   |    |          |  |               |              |        |  |             |        |       |               |   |     |                  |   |   |          |       



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IDENIX PHARMACEUTICALS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)


|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |       |         |         |         |       |        |         |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ----- | ------- | -------- | ------- | ----- | ------- | ------- | ------- | ----- | ------ | ------- | -
|                                                                           |                                                                                                                    | Years Ended December 31,                            |                                          
|                                                                           |                                                                                                                    |                                                     |                                          
|                                                                           |                                                                                                                    | 2004                                                |                                           |                                                     | 2003  |         |          | 2002    |      
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|                                                                           |                                                                                                                    | (In thousands)                                      |                                          
|Cash flows from operating activities:                                      |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |       |         |         |        
|                                                                           | Net loss                                                                                                           |                                                     | $                                         | (6,244                                              | )     |         | $        | (41,880 | )     |         | $       | (38,356 | )    
|                                                                           | Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities:                      |                                                     |                                           |                                                     |       |         |          |         |       |         |         |         |      
|                                                                           |                                                                                                                    | Depreciation and amortization                       |                                           |                                                     | 1,304 |         |          |         | 632   |         |         |         | 477   |       
|                                                                           |                                                                                                                    | Stock-based compensation expense                    |                                           |                                                     | 2,100 |         |          |         | 4,745 |         |         |         | 4,183 |       
|                                                                           |                                                                                                                    | Gain on sale of marketable securities               |                                           |                                                     | (70   | )       |          |         |      |         |         |         |      |       
|                                                                           |                                                                                                                    | Revenue adjustment for contingently issuable shares |                                           |                                                     | 1,859 |         |          |         | 804   |         |         |         |      |       
|                                                                           |                                                                                                                    | Changes in operating assets and liabilities:        |                                           |                                                     |       |         |          |         |       |         |         |         |       |       
|                                                                           |                                                                                                                    |                                                     | Accounts receivable                       |                                                     |       |        |          |         |       | 19      |         |         |       | 3,091  |        
|                                                                           |                                                                                                                    |                                                     | Accounts receivable, related party        |                                                     |       | (5,091  | )        |         |       | (11,151 | )       |         |       |        |        
|                                                                           |                                                                                                                    |                                                     | Prepaid expenses and other current assets |                                                     |       | 1,639   |          |         |       | (1,738  | )       |         |       | (653   | )      
|                                                                           |                                                                                                                    |                                                     | Income taxes receivable                   |                                                     |       | (370    | )        |         |       |        |         |         |       |       |        
|                                                                           |                                                                                                                    |                                                     | Other assets                              |                                                     |       | (532    | )        |         |       | (1,293  | )       |         |       | (8     | )      
|                                                                           |                                                                                                                    |                                                     | Accounts payable                          |                                                     |       | (1,629  | )        |         |       | 1,602   |         |         |       | 1,070  |        
|                                                                           |                                                                                                                    |                                                     | Accrued expenses                          |                                                     |       | 2,975   |          |         |       | 10,004  |         |         |       | 448    |        
|                                                                           |                                                                                                                    |                                                     | Deferred rent                             |                                                     |       | (51     | )        |         |       |         |         |         |       |        |        
|                                                                           |                                                                                                                    |                                                     | Deferred revenue                          |                                                     |       | (107    | )        |         |       | (284    | )       |         |       | (1,246 | )      
|                                                                           |                                                                                                                    |                                                     | Deferred revenue, related party           |                                                     |       | (10,986 | )        |         |       | 72,232  |         |         |       |        |        
|                                                                           |                                                                                                                    |                                                     | Income taxes payable                      |                                                     |       | (277    | )        |         |       | 344     |         |         |       | (99    | )      
|                                                                           |                                                                                                                    |                                                     | Long-term obligations                     |                                                     |       | (902    | )        |         |       | 4,364   |         |         |       | 186    |        
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|                                                                           |                                                                                                                    |                                                     |                                           | Net cash (used in) provided by operating activities |       |         | (16,382  | )       |       |         | 38,400  |         |       |        | (30,907 | )
|Cash flows from investing activities:                                      |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |       |         |         |        
|                                                                           | Purchase of property and equipment                                                                                 |                                                     |                                           | (3,931                                              | )     |         |          | (3,145  | )     |         |         | (342    | )    
|                                                                           | Purchases of marketable securities                                                                                 |                                                     |                                           | (189,831                                            | )     |         |          |        |       |         |         |        |      
|                                                                           | Sales of marketable securities                                                                                     |                                                     |                                           | 74,375                                              |       |         |          |        |       |         |         |        |      
|                                                                           | Restricted deposits                                                                                                |                                                     |                                           | 20                                                  |       |         |          | (727    | )     |         |         |        |      
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|                                                                           |                                                                                                                    |                                                     |                                           | Net cash used in investing activities               |       |         | (119,367 | )       |       |         | (3,872  | )       |       |        | (342    | )
|Cash flows from financing activities:                                      |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |       |         |         |        
|                                                                           | Net proceeds from sale of common stock in initial public
    offering and private placement, net of offering costs |                                                     |                                           | 133,409                                             |       |         |          |        |       |         |         |        |      
|                                                                           | Proceeds from exercise of common stock options                                                                     |                                                     |                                           | 897                                                 |       |         |          | 1,137   |       |         |         | 895     |      
|                                                                           | Deferred offering costs                                                                                            |                                                     |                                           |                                                    |       |         |          | (843    | )     |         |         |        |      
|                                                                           | Repayment of capital lease obligations                                                                             |                                                     |                                           | (2                                                  | )     |         |          | (15     | )     |         |         | (21     | )    
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|                                                                           |                                                                                                                    |                                                     |                                           | Net cash provided by financing activities           |       |         | 134,304  |         |       |         | 279     |         |       |        | 874     |  
|Effect of changes in exchange rates on cash and cash equivalents           |                                                                                                                    |                                                     | 43                                        |                                                     |       |         | 130      |         |       |         | 77      |        
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|Net increase (decrease) in cash and cash equivalents                       |                                                                                                                    |                                                     | (1,402                                    | )                                                   |       |         | 34,937   |         |       |         | (30,298 | )      
|Cash and cash equivalents at beginning of year                             |                                                                                                                    |                                                     | 43,485                                    |                                                     |       |         | 8,548    |         |       |         | 38,846  |        
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|Cash and cash equivalents at end of year                                   |                                                                                                                    | $                                                   | 42,083                                    |                                                     |       | $       | 43,485   |         |       | $       | 8,548   |        
|                                                                           |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |      
|Supplemental disclosure of cash flow information:                          |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |       |         |         |        
|                                                                           | Interest                                                                                                           |                                                     | $                                         |                                                    |       |         | $        | 76      |       |         | $       | 3       |      
|                                                                           | Taxes                                                                                                              |                                                     |                                           | 178                                                 |       |         |          | 50      |       |         |         | 132     |      
|Supplemental disclosure of noncash investing and financing
    activities: |                                                                                                                    |                                                     |                                           |                                                     |       |         |          |         |       |         |         |        
|                                                                           | Accretion of redeemable convertible preferred stock                                                                |                                                     | $                                         |                                                    |       |         | $        | 29,074  |       |         | $       | 59,165  |      
|                                                                           | Noncash exercise of stock options                                                                                  |                                                     |                                           |                                                    |       |         |          |         |       |         |         | 720     |      
|                                                                           | Antidilution shares contingently issuable or issued to related
    party                                           |                                                     |                                           | 7,395                                               |       |         |          | 8,041   |       |         |         |        |      
|                                                                           | Common stock dividend paid on Series C preferred stock                                                             |                                                     |                                           |                                                    |       |         |          | 17,684  |       |         |         |        |      
|                                                                           | Conversion of preferred stock into common stock                                                                    |                                                     |                                           |                                                    |       |         |          | 172,371 |       |         |         |        |      



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




|   |                          
|-- | -------------------------
|1. | Organization and Business











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





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                                 
| | --------------------------------
| | Use of Estimates and Assumptions





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





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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Concentration of Credit Risk







| |                      
| | ---------------------
| | Marketable Securities





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |           
| | ----------
| | Investment





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



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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

Accounting for the Impairment of Disposal of Long-Lived
Assets




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



Collaborative Research and Development
Revenue








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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting for Revenue Arrangements
with Multiple Deliverables


Government Research Grant Revenue




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





| |        
| | -------
| | Patents





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

Accounting for
Stock-Based Compensation Accounting for Stock Issued to Employees, Accounting for Equity Instruments that
Are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services


Accounting for Stock-Based Compensation 
Transition and Disclosure  An amendment of
FAS 123


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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Share-Based Payment.




|                                              |                                                                                |                                       |   |        |       |   |   |         |       |   |   |         |        |  
|--------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------- | - | ------ | ----- | - | - | ------- | ----- | - | - | ------- | ------ | -
|                                              |                                                                                | Years Ended December 31,              |  
|                                              |                                                                                |                                       |  
|                                              |                                                                                | 2004                                  |   |        | 2003  |   |   | 2002    |      
|                                              |                                                                                |                                       |   |        |       |   |   |         |      
|                                              |                                                                                | (In thousands, except per share data) |  
|Net loss attributable to common stockholders: |                                                                                |                                       |   |        |       |   |   |         |       |   |   |        
|                                              | Net loss attributable to common stockholders  as
    reported                 |                                       | $ | (6,244 | )     |   | $ | (70,954 | )     |   | $ | (97,521 | )     
|                                              | Add stock-based compensation expense included in reported net
    loss         |                                       |   | 2,091  |       |   |   | 4,745   |       |   |   | 4,183   |       
|                                              | Deduct stock-based compensation expense determined under fair
    value method |                                       |   | (3,058 | )     |   |   | (5,867  | )     |   |   | (4,183  | )     
|                                              |                                                                                |                                       |   |        |       |   |   |         |      
|                                              | Net loss attributable to common stockholders  pro
    forma                   |                                       | $ | (7,211 | )     |   | $ | (72,076 | )     |   | $ | (97,521 | )     
|Net loss per share (basic and diluted)        |                                                                                |                                       |   |        |       |   |   |         |       |   |   |        
|                                              |                                                                                | As reported                           |   | $      | (0.15 | ) |   | $       | (2.70 | ) |   |         | (15.19 | )
|                                              |                                                                                | Pro forma                             |   | $      | (0.17 | ) |   |         | (2.75 | ) |   |         | (15.19 | )

|                                     |  |                      |      |   |      |  |      |      |  |  |      |  
|------------------------------------ |  | -------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|The assumptions used are as follows: |  |                      |      |   |      | 
|                                     |  | Years Ended December |     
|                                     |  | 31,                  |     
|                                     |  |                      |     
|                                     |  | 2004                 |      |   | 2003 |  |      | 2002 | 
|                                     |  |                      |      |   |      |  |      |      | 
|Expected dividend yield              |  |                      |     |   |      |  |     |      |  |  |     |  
|Risk-free interest rate              |  |                      | 3.26 | % |      |  | 3.35 | %    |  |  | 4.23 | %
|Expected option term (in years)      |  |                      | 5    |   |      |  | 5    |      |  |  | 5    |  
|Expected volatility                  |  |                      | 28   | % |      |  | 0    | %    |  |  | 0    | %



| |                 
| | ----------------
| | Foreign Currency



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                                   
| | ----------------------------------
| | Net Income (Loss) per Common Share

Earnings Per Share




| |                  
| | -----------------
| | Segment Reporting

Disclosures About Segments of
an Enterprise and Related Information




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





|   |                      
|-- | ---------------------
|3. | Novartis Relationship

Overview




72



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














Master Manufacturing and Supply Agreement




73



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##### Table of Contents



IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Stockholders Agreement






Novartis Stock Purchase Rights








74



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##### Table of Contents



IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                                                         
|-- | --------------------------------------------------------
|4. | Initial Public Offering and Concurrent Private Placement





| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | 4,600,000 shares offered by the Company; and                      
|
| |  | 1,200,000 shares offered by the Companys selling
    stockholders





| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 5,400,000 shares of the Companys common stock at a
    purchase price per share equal to the public selling price of
    the Companys common stock in the initial public
    offering; and                      
|
| |  | 1,100,000 shares of the Companys common stock at a
    purchase price per share equal to $0.001, the par value of the
    Companys common stock in settlement of certain stock
    subscription rights (Note 3).





|   |                          
|-- | -------------------------
|5. | Net Loss Per Common Share



|                                             |                                                                            |                                       |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |                                                                            | Years Ended December 31,              |  
|                                             |                                                                            |                                       |  
|                                             |                                                                            | 2004                                  |   |        | 2003 |  |   | 2002    |  
|                                             |                                                                            |                                       |   |        |      |  |   |         |  
|                                             |                                                                            | (In thousands, except per share data) |  
|Basic and diluted net loss per common share: |                                                                            |                                       |   |        |      |  |   |         |   |  |   |        
|                                             | Net loss attributable to common stockholders                               |                                       | $ | (6,244 | )    |  | $ | (70,954 | ) |  | $ | (97,521 | )
|                                             | Basic and diluted weighted average number of common shares
    outstanding |                                       |   | 41,369 |      |  |   | 26,232  |   |  |   | 6,421   |  
|                                             | Basic and diluted net loss per common share                                |                                       | $ | (0.15  | )    |  | $ | (2.70   | ) |  | $ | (15.19  | )

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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                              |  |                          |       |  |      |  |       |      |  |  |        | 
|--------------------------------------------- |  | ------------------------ | ----- |  | ---- |  | ----- | ---- |  |  | ------ | 
|                                              |  | Years Ended December 31, |      
|                                              |  |                          |      
|                                              |  | 2004                     |       |  | 2003 |  |       | 2002 | 
|                                              |  |                          |       |  |      |  |       |      | 
|                                              |  | (In thousands)           |      
|Options                                       |  |                          | 3,162 |  |      |  | 2,495 |      |  |  | 2,565  | 
|Warrants                                      |  |                          |      |  |      |  |      |      |  |  | 5,333  | 
|Redeemable convertible preferred stock        |  |                          |      |  |      |  |      |      |  |  | 26,858 | 
|Restricted stock                              |  |                          | 98    |  |      |  | 198   |      |  |  | 314    | 
|Contingently issuable shares to related party |  |                          | 30    |  |      |  | 667   |      |  |  |       | 



|   |                      
|-- | ---------------------
|6. | Marketable Securities

Accounting for Certain
Investments in Debt and Equity
Securities.


|                  |                                             |                          |         |        |            |   |       |            |   |   |        |      |      |   |         |        |        | 
|----------------- | ------------------------------------------- | ------------------------ | ------- | ------ | ---------- | - | ----- | ---------- | - | - | ------ | ---- | ---- | - | ------- | ------ | ------ | 
|                  |                                             | December 31, 2004        |        
|                  |                                             |                          |        
|                  |                                             |                          |         | Gross  |            |   | Gross |            |   |  
|                  |                                             | Amortized                |         |        | Unrealized |   |       | Unrealized |   |   | Market |     
|                  |                                             | Cost                     |         |        | Gains      |   |       | Losses     |   |   | Value  |     
|                  |                                             |                          |         |        |            |   |       |            |   |   |        |     
|                  |                                             | (In thousands)           |        
|Type of security: |                                             |                          |         |        |            |   |       |            |   |   |        |      |      |   |         |       
|                  | Money market funds                          |                          | $       | 13,040 |            |   | $     |           |   |   | $      |     |      |   | $       | 13,040 |       
|                  | Corporate debt securities                   |                          |         | 40,102 |            |   |       | 26         |   |   |        | (232 | )    |   |         | 39,896 |       
|                  | U.S. Treasury securities and obligations of |                          |         |        |            |   |       |            |   |   |        |      |      |   |         |        |       
|                  |                                             | U.S. government agencies |         |        | 34,252     |   |       |            |  |   |        |      | (137 | ) |         |        | 34,115 | 
|                  | Taxable auction rate securities             |                          |         | 48,570 |            |   |       |           |   |   |        |     |      |   |         | 48,570 |       
|                  | Accrued interest                            |                          |         | 638    |            |   |       |           |   |   |        |     |      |   |         | 638    |       
|                  |                                             |                          |         |        |            |   |       |            |   |   |        |     
|                  |                                             | $                        | 136,602 |        |            | $ | 26    |            |   | $ | (369   | )    |      | $ | 136,259 |       
|                  |                                             |                          |         |        |            |   |       |            |   |   |        |     

|                      |                                            |                |         |        | 
|--------------------- | ------------------------------------------ | -------------- | ------- | ------ | 
|                      |                                            | December 31,   |        
|                      |                                            | 2004           |        
|                      |                                            |                |        
|                      |                                            | (In thousands) |        
|Contractual maturity: |                                            |                |         |       
|                      | Maturing in one year or less               |                | $       | 59,505 | 
|                      | Maturing after one year through two years  |                |         | 40,679 | 
|                      | Maturing after two years through ten years |                |         | 15,500 | 
|                      | Maturing after ten years                   |                |         | 20,575 | 
|                      |                                            |                |        
|                      |                                            | $              | 136,259 |       
|                      |                                            |                |        



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                   |  |                |         | 
|---------------------------------- |  | -------------- | ------- | 
|                                   |  | December 31,   |        
|                                   |  | 2004           |        
|                                   |  |                |        
|                                   |  | (In thousands) |        
|Classification in Balance Sheets:  |  |                |         | 
|Cash equivalents                   |  | $              | 21,076  | 
|Marketable securities              |  |                | 38,429  | 
|Marketable securities, non-current |  |                | 76,754  | 
|                                   |  |                |        
|                                   |  | $              | 136,259 | 
|                                   |  |                |        





|   |                    
|-- | -------------------
|7. | Accounts Receivable



|                                            |  |                |        |  |      |   |        | 
|------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                            |  | December 31,   |       
|                                            |  |                |       
|                                            |  | 2004           |        |  | 2003 |  
|                                            |  |                |        |  |      |  
|                                            |  | (In thousands) |       
|Accounts receivable, related party          |  | $              |       |  |      | $ | 1      | 
|Unbilled accounts receivable, related party |  |                | 16,243 |  |      |   | 11,151 | 
|                                            |  |                |        |  |      |  
|                                            |  | $              | 16,243 |  |      | $ | 11,152 | 
|                                            |  |                |        |  |      |  





|   |                       
|-- | ----------------------
|8. | Property and Equipment



|                                                 |  |             |   |              |                |   |        |      |  |   |        |  
|------------------------------------------------ |  | ----------- | - | ------------ | -------------- | - | ------ | ---- |  | - | ------ | -
|                                                 |  |             |   | December 31, |               
|                                                 |  |             |   |              |               
|                                                 |  | Estimated   |   |              | 2004           |   |        | 2003 | 
|                                                 |  | Useful Life |   |              |                |   |        |      | 
|                                                 |  | (Years)     |   |              |               
|                                                 |  |             |   |              | (In thousands) |  
|Office equipment                                 |  |             | 5 |              |                | $ | 217    |      |  | $ | 64     |  
|Scientific equipment                             |  |             | 7 |              |                |   | 3,175  |      |  |   | 2,185  |  
|Computer equipment and software                  |  |             | 2 |              |                |   | 1,367  |      |  |   | 705    |  
|Office furniture                                 |  |             | 7 |              |                |   | 805    |      |  |   | 236    |  
|Trade show booths                                |  |             | 2 |              |                |   | 49     |      |  |   | 49     |  
|Equipment under capital lease                    |  |             | * |              |                |   | 30     |      |  |   | 67     |  
|Leasehold improvements                           |  |             | * |              |                |   | 3,736  |      |  |   | 799    |  
|Construction-in-progress                         |  |             |   |              |                |   | 591    |      |  |   | 1,815  |  
|                                                 |  |             |   |              |                |   |        |      | 
|                                                 |  |             |   |              |                |   | 9,970  |      |  |   | 5,920  |  
|Less  accumulated depreciation and amortization |  |             |   |              |                |   | (3,165 | )    |  |   | (1,854 | )
|                                                 |  |             |   |              |                |   |        |      | 
|                                                 |  |             |   |              |                | $ | 6,805  |      |  | $ | 4,066  |  
|                                                 |  |             |   |              |                |   |        |      | 






|  |                                     
|- | ------------------------------------
|* | Shorter of asset life or lease term.

77



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |           
|-- | ----------
|9. | Investment





|    |                 
|--- | ----------------
|10. | Accrued Expenses



|                                        |  |                |        |  |      |   |        | 
|--------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                        |  | December 31,   |       
|                                        |  |                |       
|                                        |  | 2004           |        |  | 2003 |  
|                                        |  |                |        |  |      |  
|                                        |  | (In thousands) |       
|Research and development contract costs |  | $              | 8,064  |  |      | $ | 4,632  | 
|Settlement costs                        |  |                |       |  |      |   | 2,000  | 
|License fees                            |  |                | 1,000  |  |      |   | 2,000  | 
|Payroll and benefits                    |  |                | 2,649  |  |      |   | 1,779  | 
|Professional fees                       |  |                | 2,412  |  |      |   | 980    | 
|Unvested restricted stock               |  |                | 256    |  |      |   | 286    | 
|Other                                   |  |                | 919    |  |      |   | 637    | 
|                                        |  |                |        |  |      |  
|                                        |  | $              | 15,300 |  |      | $ | 12,314 | 
|                                        |  |                |        |  |      |  





|    |                                       
|--- | --------------------------------------
|11. | Redeemable Convertible Preferred Stock





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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |                          |   |      |  |   |        |  |  |   |        | 
|------------------------ |  | ------------------------ | - | ---- |  | - | ------ |  |  | - | ------ | 
|                         |  | Years Ended December 31, |  
|                         |  |                          |  
|                         |  | 2004                     |   | 2003 |  |   | 2002   | 
|                         |  |                          |   |      |  |   |        | 
|                         |  | (In thousands)           |  
|Series A Preferred Stock |  | $                        |  |      |  | $ | 7,479  |  |  | $ | 23,697 | 
|Series B Preferred Stock |  |                          |  |      |  |   | 3,750  |  |  |   | 11,683 | 
|Series C Preferred Stock |  |                          |  |      |  |   | 17,845 |  |  |   | 23,785 | 
|                         |  |                          |   |      |  |   |        |  | 
|                         |  | $                        |  |      |  | $ | 29,074 |  |  | $ | 59,165 | 
|                         |  |                          |   |      |  |   |        |  | 





Redemption




Voting




Dividends






79



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##### Table of Contents



IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Liquidation Preference




Conversion






|    |         
|--- | --------
|12. | Warrants







80



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##### Table of Contents



IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |             
|--- | ------------
|13. | Common Stock







|    |                       
|--- | ----------------------
|14. | Stockholder Agreements





|    |                       
|--- | ----------------------
|15. | Equity Incentive Plans









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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |           |                   |           |  |             |  |           |                |   |   |      |       | 
|------------------------------ | --------- | ----------------- | --------- |  | ----------- |  | --------- | -------------- | - | - | ---- | ----- | 
|                               |           | Number of         |           |  | Number of   |  |           | Weighted       |  
|                               |           | Options Available |           |  | Options     |  |           | Average        |  
|                               |           | for Future Grant  |           |  | Outstanding |  |           | Exercise Price |  
|                               |           |                   |           |  |             |  |           |                |  
|Outstanding, December 31, 2001 |           |                   | 226,341   |  |             |  | 2,091,938 |                |   | $ | 1.58 |      
|                               | Granted   |                   |           |  |             |  |           | 1,321,000      |   |   |      | 4.24  | 
|                               | Exercised |                   |           |  |             |  |           | (828,510       | ) |   |      | 1.95  | 
|                               | Cancelled |                   |           |  |             |  |           | (19,490        | ) |   |      | 2.18  | 
|                               |           |                   |           |  |             |  |           |                |  
|Outstanding, December 31, 2002 |           |                   | 1,424,831 |  |             |  | 2,564,938 |                |   |   | 2.81 |      
|                               | Granted   |                   |           |  |             |  |           | 610,890        |   |   |      | 11.33 | 
|                               | Exercised |                   |           |  |             |  |           | (668,075       | ) |   |      | 1.75  | 
|                               | Cancelled |                   |           |  |             |  |           | (12,299        | ) |   |      | 5.25  | 
|                               |           |                   |           |  |             |  |           |                |  
|Outstanding, December 31, 2003 |           |                   | 826,240   |  |             |  | 2,495,454 |                |   |   | 5.17 |      
|                               | Granted   |                   |           |  |             |  |           | 930,900        |   |   |      | 12.95 | 
|                               | Exercised |                   |           |  |             |  |           | (210,646       | ) |   |      | 4.20  | 
|                               | Cancelled |                   |           |  |             |  |           | (53,918        | ) |   |      | 4.68  | 
|                               |           |                   |           |  |             |  |           |                |  
|Outstanding, December 31, 2004 |           |                   | 749,258   |  |             |  | 3,161,790 |                |   | $ | 7.50 |      
|                               |           |                   |           |  |             |  |           |                |  
|Exercisable, December 31, 2002 |           |                   |           |  |             |  | 729,988   |                |   | $ | 1.17 |      
|                               |           |                   |           |  |             |  |           |                |  
|Exercisable, December 31, 2003 |           |                   |           |  |             |  | 947,068   |                |   | $ | 2.96 |      
|                               |           |                   |           |  |             |  |           |                |  
|Exercisable, December 31, 2004 |           |                   |           |  |             |  | 1,509,531 |                |   | $ | 4.82 |      
|                               |           |                   |           |  |             |  |           |                |  





|                    |             |           |                     |  |             |                 |  |          |       |          |        |             |       |          |       |  |           |  |  |   |       | 
|------------------- | ----------- | --------- | ------------------- |  | ----------- | --------------- |  | -------- | ----- | -------- | ------ | ----------- | ----- | -------- | ----- |  | --------- |  |  | - | ----- | 
|Options Outstanding |             |           | Options Exercisable | 
|                    |             |           |                     | 
|                    |             | Weighted  |                     |  |             |                 | 
|                    |             | Average   |                     |  | Weighted    |                 |  |          |       | Weighted |       
|                    |             | Remaining |                     |  | Average     |                 |  |          |       | Average  |       
|                    |             | Number    |                     |  | Contractual |                 |  | Exercise |       |          | Number |             |       | Exercise |      
|Exercise Price      |             |           | Outstanding         |  |             | Life (in Years) |  |          | Price |          |        | Exercisable |       |          | Price | 
|                    |             |           |                     |  |             |                 |  |          |       |          |        |             |       |          |       | 
|$                   | 0.10-2.00   |           |                     |  | 732,938     |                 |  |          | 5.7   |          |        | $           | 1.36  |          |       |  | 658,438   |  |  | $ | 1.43  | 
|                    | 3.00        |           |                     |  | 651,409     |                 |  |          | 7.1   |          |        |             | 3.00  |          |       |  | 361,916   |  |  |   | 3.00  | 
|                    | 4.00-8.50   |           |                     |  | 288,921     |                 |  |          | 7.9   |          |        |             | 7.81  |          |       |  | 139,411   |  |  |   | 7.71  | 
|                    | 11.50       |           |                     |  | 563,347     |                 |  |          | 8.8   |          |        |             | 11.50 |          |       |  | 198,083   |  |  |   | 11.50 | 
|                    | 12.05-17.63 |           |                     |  | 925,175     |                 |  |          | 9.3   |          |        |             | 12.96 |          |       |  | 151,683   |  |  |   | 12.49 | 
|                    |             |           |                     |  |             |                 |  |          |       |          |        |             |       |          |       | 
|$                   | 0.10-17.63  |           |                     |  | 3,161,790   |                 |  |          | 8.7   |          |        | $           | 7.50  |          |       |  | 1,509,531 |  |  | $ | 4.82  | 
|                    |             |           |                     |  |             |                 |  |          |       |          |        |             |       |          |       | 



82



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|    |                              
|--- | -----------------------------
|16. | Commitments and Contingencies

Lease Arrangements






|                         |       |                  |        |        | 
|------------------------ | ----- | ---------------- | ------ | ------ | 
|Year Ending December 31, |       | Operating Leases |       
|                         |       |                  |       
|                         |       | (In thousands)   |       
|2005                     |       | $                | 1,357  |       
|2006                     |       |                  | 1,544  |       
|2007                     |       |                  | 1,868  |       
|2008                     |       |                  | 1,830  |       
|2009 and thereafter      |       |                  | 12,207 |       
|                         |       |                  |       
|                         | Total |                  | $      | 18,806 | 
|                         |       |                  |       



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Legal Contingencies




| |                            
| | ---------------------------
| | Hepatitis C Drug Candidates







| |                            
| | ---------------------------
| | Hepatitis B Drug Candidates



84



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##### Table of Contents



IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Indemnification




85



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##### Table of Contents



IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|17. | Income Taxes



|                                  |          |                |                                    |   |         |      |         |      |         |     |         |   |         |    | 
|--------------------------------- | -------- | -------------- | ---------------------------------- | - | ------- | ---- | ------- | ---- | ------- | --- | ------- | - | ------- | -- | 
|                                  |          | 2004           |                                    |   | 2003    |      |         | 2002 |        
|                                  |          |                |                                    |   |         |      |         |      |        
|                                  |          | (In thousands) |                                   
|Income (loss) before income taxes |          |                |                                    |   |         |      |         |      |         |     |         |  
|                                  |          | U.S.           |                                    | $ | (14,054 | )    |         | $    | (26,306 | )   |         | $ | (13,350 | ) 
|                                  |          | Foreign        |                                    |   | 7,244   |      |         |      | (15,390 | )   |         |   | (24,967 | ) 
|                                  |          |                |                                    |   |         |      |         |      |        
|                                  |          | $              | (6,810                             | ) |         | $    | (41,696 | )    |         | $   | (38,317 | )
|                                  |          |                |                                    |   |         |      |         |      |        
|Income tax (benefit) expense      |          |                |                                    |   |         |      |         |      |         |     |         |  
|                                  | Current  |                |                                    |   |         |      |         |      |         |     |         |   |        
|                                  |          | Federal  U.S. |                                    | $ | (5      | )    |         | $    | 242     |     |         | $ | (27     | ) 
|                                  |          | State  U.S.   |                                    |   | (1      | )    |         |      | 9       |     |         |   | (22     | ) 
|                                  |          | Foreign        |                                    |   | (560    | )    |         |      | (67     | )   |         |   | 43      |   
|                                  |          |                |                                    |   |         |      |         |      |        
|                                  |          |                | (566                               | ) |         |      | 184     |      |         |     | (6      | )
|                                  | Deferred |                |                                    |   |         |      |         |      |         |     |         |   |        
|                                  |          | Federal  U.S. |                                    | $ |        |      |         | $    |        |     |         | $ | 27      |   
|                                  |          | State  U.S.   |                                    |   |        |      |         |      |        |     |         |   | 11      |   
|                                  |          | Foreign        |                                    |   |        |      |         |      |        |     |         |   | 7       |   
|                                  |          |                |                                    |   |         |      |         |      |        
|                                  |          |                |                                   |   |         |      |        |      |         |     | 45      |  
|                                  |          |                |                                    |   |         |      |         |      |        
|                                  |          |                | Total income tax (benefit) expense |   | $       | (566 | )       |      | $       | 184 |         |   | $       | 39 | 
|                                  |          |                |                                    |   |         |      |         |      |        





|                                 |  |                |         |   |      |   |         |  
|-------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                 |  | 2004           |         |   | 2003 |  
|                                 |  |                |         |   |      |  
|                                 |  | (In thousands) |        
|Depreciation                     |  | $              | (153    | ) |      | $ | (42     | )
|Deferred licensing income        |  |                | 7,360   |   |      |   | 9,561   |  
|Accrued expenses and other       |  |                | 2,528   |   |      |   | 1,600   |  
|Research and development credits |  |                | 1,609   |   |      |   | 348     |  
|Alternative minimum tax credit   |  |                | 98      |   |      |   | 107     |  
|Net operating carryforwards      |  |                | 11,043  |   |      |   | 3,908   |  
|Valuation allowance              |  |                | (22,485 | ) |      |   | (15,482 | )
|                                 |  |                |         |   |      |  
|Deferred tax asset               |  | $              |        |   |      | $ |        |  
|                                 |  |                |         |   |      |  

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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                          |  |      |     |    |      |  |     |      |  |  |     |   
|----------------------------------------- |  | ---- | --- | -- | ---- |  | --- | ---- |  |  | --- | --
|                                          |  | 2004 |     |    | 2003 |  |     | 2002 | 
|                                          |  |      |     |    |      |  |     |      | 
|Federal statutory rate benefit            |  |      | (34 | )% |      |  | (34 | )%   |  |  | (34 | )%
|French Research tax credits               |  |      | (8  | )  |      |  | 0   |      |  |  | 0   |   
|State tax benefit, net of federal benefit |  |      | 0   |    |      |  | 0   |      |  |  | (2  | ) 
|Permanent items                           |  |      | 27  |    |      |  | 9   |      |  |  | 1   |   
|Foreign rate differentials                |  |      | (34 | )  |      |  | 9   |      |  |  | 23  |   
|Valuation allowance                       |  |      | 41  |    |      |  | 17  |      |  |  | 12  |   
|                                          |  |      |     |    |      |  |     |      | 
|Effective income tax rate                 |  |      | (8  | )% |      |  | 1   | %    |  |  | 0   | % 
|                                          |  |      |     |    |      |  |     |      | 













|    |                    
|--- | -------------------
|18. | 401(k) Savings Plan



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                           
|--- | --------------------------
|19. | Related Party Transactions







|    |                  
|--- | -----------------
|20. | Segment Reporting





|              |  |                |       |  |      |   |       | 
|------------- |  | -------------- | ----- |  | ---- | - | ----- | 
|              |  | 2004           |       |  | 2003 |  
|              |  |                |       |  |      |  
|              |  | (In thousands) |      
|United States |  | $              | 5,323 |  |      | $ | 3,404 | 
|Europe        |  |                | 1,982 |  |      |   | 1,162 | 
|              |  |                |       |  |      |  
|              |  | $              | 7,305 |  |      | $ | 4,566 | 
|              |  |                |       |  |      |  



|    |                     
|--- | --------------------
|21. | Licensing Agreements

UAB Research Foundation






88



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                       
|--- | --------------------------------------
|22. | Collaborative Agreements and Contracts

Le Centre National de la Recherche Scientifique and
LUniversite Montpellier II






Universita di Cagliari








89



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IDENIX PHARMACEUTICALS, INC.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Sumitomo Pharmaceuticals Co., Ltd.






Microbiologica Quimica E Farmaceutica Ltda




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SIGNATURES






| |                             
| | ----------------------------
| | IDENIX PHARMACEUTICALS, INC.



| |  |                           
| |  | --------------------------
| |  | /s/ Jean-Pierre Sommadossi

| |                                     
| | ------------------------------------
| |                                     
| | Jean-Pierre Sommadossi              
| | Chairman and Chief Executive Officer





|                                                         |  |                                                                                            |  |                |  | 
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------- |  | 
|Name                                                     |  | Title                                                                                      |  | Date          
|                                                         |  |                                                                                            |  |               
|                                                        
|/s/ Jean-Pierre
    SommadossiJean-Pierre
    Sommadossi |  | Chairman, Chief Executive Officer and Director (Principal
    Executive Officer)           |  | March 17, 2005
|                                                        
|/s/ David A. ArkowitzDavid
    A. Arkowitz               |  | Chief Financial Officer and Treasurer (Principal Financial
    and
    Accounting Officer) |  | March 17, 2005
|                                                        
|/s/ Charlene BarshefskyCharlene
    Barshefsky           |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Charles CrambCharles
    Cramb                       |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Thomas EbelingThomas
    Ebeling                     |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Ansbert GadickeAnsbert
    Gadicke                   |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Wayne HockmeyerWayne
    Hockmeyer                   |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Thomas HodgsonThomas
    Hodgson                     |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Robert PelzerRobert
    Pelzer                       |  | Director                                                                                   |  | March 17, 2005
|                                                        
|/s/ Denise
    Pollard-KnightDenise
    Pollard-Knight   |  | Director                                                                                   |  | March 17, 2005

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Exhibit Index


|        |    |     |             |                                                                                                                                                                                                                                      |          |                              |  |      |  |                                     |                        |  |            |                |            |  |        |  |        | 
|------- | -- | --- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------- | ---------------------------- |  | ---- |  | ----------------------------------- | ---------------------- |  | ---------- | -------------- | ---------- |  | ------ |  | ------ | 
|        |    |     |             |                                                                                                                                                                                                                                      |          | Incorporated by Reference to | 
|        |    |     |             |                                                                                                                                                                                                                                      |          |                              | 
|Exhibit |    |     |             |                                                                                                                                                                                                                                      | Filed    |                              |  |      |  | Original                            |                       
|No.     |    |     | Description |                                                                                                                                                                                                                                      | Herewith |                              |  | Form |  |                                     | SEC Filing Date        |  |            | Exhibit Number |           
|        |    |     |             |                                                                                                                                                                                                                                      |          |                              |  |      |  |                                     |                        |  |            |                |           
|        | 3  | .1  |             | Restated Certificate of Incorporation                                                                                                                                                                                                |          |                              |  |      |  | S-1File No.  333-111157             |                        |  | 12/15/03   |                |            |  | 3.1    | 
|        | 3  | .2  |             | Certificate of Amendment of Restated Certificate of Incorporation                                                                                                                                                                    |          |                              |  |      |  |                                     | 10-QFile No. 000-49839 |  |            |                | 8/26/2004  |  |        |  | 3.1    | 
|        | 3  | .3  |             | Amended and Restated By-Laws                                                                                                                                                                                                         |          |                              |  |      |  |                                     | 10-QFile No. 000-49839 |  |            |                | 8/26/2004  |  |        |  | 3.2    | 
|        | 4  | .1  |             | Specimen Certificate evidencing the Common Stock, $.001 par
    value                                                                                                                                                                |          |                              |  |      |  | S-1/Amendment 2File No.  333-111157 |                        |  | 1/27/2004  |                |            |  | 4.1    | 
|        |    |     |             | Material contracts  real estate                                                                                                                                                                                                     |          |                              |  |      |  |                                     |                        |  |            |                |            |  |        |  |        | 
|        | 10 | .1  |             | Amended and Restated Lease of Premises at 60 Hampshire Street,
    Cambridge, Massachusetts, dated as of October 28, 2003, by
    and between Idenix (Massachusetts) Inc. and BHX, LLC, as trustee
    of 205 Broadway Realty Trust. |          |                              |  |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.4   | 
|        |    |     |             | Material contracts                                                                                                                                                                                                                   |          |                              |  |      |  |                                     |                        |  |            |                |            |  |        |  |        | 
|        | 10 | .2+ |             | Restated and Amended Cooperative Agreement dated as of
    May 8, 2003, by and among Idenix SARL and Le Centre
    National de la Recherche Scientifique, LUniversite
    Montpellier II and Novartis Pharma AG                     |          |                              |  |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.14+ | 
|        | 10 | .3+ |             | License Agreement, dated as of June 20, 1998, by and among
    the Registrant, TherapX Pharmaceuticals, L.L.C. and Raymond
    Schinazi.                                                                                             |          |                              |  |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.15+ | 
|        | 10 | .4+ |             | Cooperative Antiviral Research Activity Agreement (the
    Cooperative Agreement), dated January 4, 1999,
    by and between Idenix SARL and the University of Cagliari                                                            |          |                              |  |      |  |                                     | S-1File No. 333-11157  |  |            |                | 12/15/2003 |  |        |  | 10.16+ | 
|        | 10 | .5+ |             | License Agreement, dated as of December 14, 2000, between
    the Registrant and the University of Cagliari                                                                                                                          |          |                              |  |      |  |                                     | S-1File No. 333-11157  |  |            |                | 12/15/2003 |  |        |  | 10.17+ | 
|        | 10 | .6+ |             | Letter Agreement, dated April 10, 2002, by and between
    Idenix SARL and the University of Cagliari, amending the
    Cooperative Agreement and License Agreement                                                                  |          |                              |  |      |  | S-1/Amendment 3File No. 333-11157   |                        |  | 7/6/2004   |                |            |  | 10.18+ | 

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|        |    |      |             |                                                                                                                                                                                                         |          |                              |  |      |  |                                   |                       |  |          |                |            |  |          |  |        | 
|------- | -- | ---- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------------------- |  | ---- |  | --------------------------------- | --------------------- |  | -------- | -------------- | ---------- |  | -------- |  | ------ | 
|        |    |      |             |                                                                                                                                                                                                         |          | Incorporated by Reference to | 
|        |    |      |             |                                                                                                                                                                                                         |          |                              | 
|Exhibit |    |      |             |                                                                                                                                                                                                         | Filed    |                              |  |      |  | Original                          |                      
|No.     |    |      | Description |                                                                                                                                                                                                         | Herewith |                              |  | Form |  |                                   | SEC Filing Date       |  |          | Exhibit Number |           
|        |    |      |             |                                                                                                                                                                                                         |          |                              |  |      |  |                                   |                       |  |          |                |           
|        | 10 | .7+  |             | Agreement, dated June 30, 2004, by and among the
    Registrant, Idenix SARL and the University of Cagliari                                                                                             |          |                              |  |      |  | S-1/Amendment 3File No. 333-11157 |                       |  | 7/6/2004 |                |            |  | 10.18.1+ | 
|        | 10 | .8   |             | Collaborative Activities Agreement, dated March 22, 2004,
    by and between the Registrant and the University of Cagliari, as
    amended June 30, 2004 (English translation).                         |          |                              |  |      |  | S-1/Amendment 3File No. 333-11157 |                       |  | 7/6/2004 |                |            |  | 10.18.2  | 
|        | 10 | .9   |             | Letter Agreement, dated May 8, 2003, by and among the
    Registrant, Idenix SARL, Novartis Pharma AG and the University
    of Cagliari, amending the Cooperative Agreement and License
    Agreement. |          |                              |  |      |  |                                   | S-1File No. 333-11157 |  |          |                | 12/15/2003 |  |          |  | 10.19  | 
|        | 10 | .10  |             | Master Services Agreement, dated May 27, 1999, between
    Idenix (Massachusetts), Inc. and Quintiles Scotland Ltd                                                                                      |          |                              |  |      |  |                                   | S-1File No. 333-11157 |  |          |                | 12/15/2003 |  |          |  | 10.20  | 
|        | 10 | .11+ |             | Master Services Agreement, dated February 25, 2003, by and
    between the Registrant and Quintiles, Inc.                                                                                               |          |                              |  |      |  |                                   | S-1File No. 333-11157 |  |          |                | 12/15/2003 |  |          |  | 10.21+ | 
|        | 10 | .12  |             | Multiproject Development and Supply Agreement, dated as of
    December 20, 2001, by and among the Registrant, Idenix SARL
    and Clariant Life Science Molecules (Missouri) Inc.                      |          |                              |  |      |  |                                   | S-1File No. 333-11157 |  |          |                | 12/15/2003 |  |          |  | 10.22  | 
|        | 10 | .13+ |             | Agreement, dated as of May 1, 2003, between Idenix (Cayman
    Limited and Microbiologica Quimica E Farmaceutica Ltda.                                                                                  |          |                              |  |      |  |                                   | S-1File No. 333-11157 |  |          |                | 12/15/2003 |  |          |  | 10.23+ | 
|        | 10 | .14+ |             | Master Manufacturing and Supply Agreement, dated as of
    May 8, 2003, by and between Idenix (Cayman) Limited and
    Novartis Pharma AG.                                                              |          |                              |  |      |  |                                   | S-1File No. 333-11157 |  |          |                | 12/15/2003 |  |          |  | 10.25+ | 
|        | 10 | .15+ |             | Development, License and Commercialization Agreement, dated as
    of May 8, 2003, by and among the Registrant, Idenix
    (Cayman) Limited and Novartis Pharma AG, as amended on
    April 30, 2004    |          |                              |  |      |  | S-1/Amendment 3File No. 333-11157 |                       |  | 7/6/2004 |                |            |  | 10.24+   | 

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|        |    |      |             |                                                                                                                                                                                                                                                                       |          |                              |   |      |  |                                     |                 |  |            |                |  |  |        |  |  | 
|------- | -- | ---- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------------------- | - | ---- |  | ----------------------------------- | --------------- |  | ---------- | -------------- |  |  | ------ |  |  | 
|        |    |      |             |                                                                                                                                                                                                                                                                       |          | Incorporated by Reference to |  
|        |    |      |             |                                                                                                                                                                                                                                                                       |          |                              |  
|Exhibit |    |      |             |                                                                                                                                                                                                                                                                       | Filed    |                              |   |      |  | Original                            |                
|No.     |    |      | Description |                                                                                                                                                                                                                                                                       | Herewith |                              |   | Form |  |                                     | SEC Filing Date |  |            | Exhibit Number | 
|        |    |      |             |                                                                                                                                                                                                                                                                       |          |                              |   |      |  |                                     |                 |  |            |                | 
|        | 10 | .16+ |             | Second Amendment, dated as of December 21, 2004, to the
    Development, License and Commercialization Agreement, by and
    among the Registrant, Idenix (Cayman) Limited and Novartis
    Pharma AG, as amended on April 30, 2004                                   |          |                              | X |      |  |                                     |                 |  |            |                |  |  |        |  |  | 
|        | 10 | .17  |             | Letter Agreement, dated as of March 21, 2003, by and
    between the Registrant and Novartis Pharma AG.                                                                                                                                                               |          |                              |   |      |  | S-1/Amendment 3File No.  333-111157 |                 |  | 7/6/2004   |                |  |  | 10.28  | 
|        | 10 | .18+ |             | License Agreement dated as of June 20, 1998 by and between
    the Registrant and the UAB Research Foundation, as amended by
    that First Amendment Agreement, dated as of June 20, 1998,
    and by that Second Amendment Agreement, dated as of
    July 16, 1999 |          |                              |   |      |  | S-1/Amendment 2File No.  333-111157 |                 |  | 1/27/2004  |                |  |  | 10.31+ | 
|        | 10 | .19+ |             | Stock Purchase Agreement, dated as of March 21, 2003, by
    and among the Registrant and the stockholders identified on the
    signature pages                                                                                                                      |          |                              |   |      |  | S-1/Amendment 3File No.  333-111157 |                 |  | 7/6/2004   |                |  |  | 10.27+ | 
|        | 10 | .20  |             | Amended and Restated Stock Purchase Agreement, dated
    July 27, 2004, by and among the Registrant and the
    stockholders identified on the signature pages thereto                                                                                                |          |                              | X |      |  |                                     |                 |  |            |                |  |  |        |  |  | 
|        | 10 | .21  |             | Par Value Stock Purchase Agreement, dated July 27, 2004, by
    and between the Registrant and Novartis Pharma AG                                                                                                                                                     |          |                              | X |      |  |                                     |                 |  |            |                |  |  |        |  |  | 
|        | 10 | .22  |             | Concurrent Private Placement Stock Purchase Agreement, dated
    July 27, 2004, by and between the Registrant and Novartis
    Pharma AG                                                                                                                              |          |                              | X |      |  |                                     |                 |  |            |                |  |  |        |  |  | 
|        | 10 | .23  |             | Final Settlement Agreement, dated March 26, 2003, by and
    between the Registrant and Sumitomo Pharmaceuticals Co.,
    Ltd.                                                                                                                                        |          |                              |   |      |  | S-1File No.  333-111157             |                 |  | 12/15/2003 |                |  |  | 10.13  | 

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|        |    |     |             |                                                                                                                                                                                                               |          |                              |   |      |  |                                     |                        |  |            |                |            |  |       |  |       | 
|------- | -- | --- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------------------- | - | ---- |  | ----------------------------------- | ---------------------- |  | ---------- | -------------- | ---------- |  | ----- |  | ----- | 
|        |    |     |             |                                                                                                                                                                                                               |          | Incorporated by Reference to |  
|        |    |     |             |                                                                                                                                                                                                               |          |                              |  
|Exhibit |    |     |             |                                                                                                                                                                                                               | Filed    |                              |   |      |  | Original                            |                       
|No.     |    |     | Description |                                                                                                                                                                                                               | Herewith |                              |   | Form |  |                                     | SEC Filing Date        |  |            | Exhibit Number |           
|        |    |     |             |                                                                                                                                                                                                               |          |                              |   |      |  |                                     |                        |  |            |                |           
|        | 10 | .24 |             | Settlement Agreement, dated as of May 28, 2004, by and
    between the Registrant, Jean-Pierre Sommadossi, the University
    of Alabama at Birmingham and the University of Alabama Research
    Foundation. |          |                              |   |      |  | S-1/Amendment 2File No.  333-111157 |                        |  | 5/28/2004  |                |            |  | 10.34 | 
|        |    |     |             | Material contracts  management contracts and
    compensatory plans                                                                                                                                          |          |                              |   |      |  |                                     |                        |  |            |                |            |  |       |  |       | 
|        | 10 | .25 |             | Amended and Restated 1998 Equity Incentive Plan                                                                                                                                                               |          |                              |   |      |  | S-1/Amendment 2File No.  333-111157 |                        |  | 5/28/2004  |                |            |  | 10.1  | 
|        | 10 | .26 |             | 2004 Stock Incentive Plan                                                                                                                                                                                     |          |                              |   |      |  | S-1/Amendment 2File No.  333-111157 |                        |  | 5/28/2004  |                |            |  | 10.32 | 
|        | 10 | .27 |             | Non-Employee Directors Compensation Plan                                                                                                                                                                      |          |                              | X |      |  |                                     |                        |  |            |                |            |  |       |  |       | 
|        | 10 | .28 |             | Form of Incentive Stock Option Agreement for awards granted
    pursuant to the 2004 Stock Incentive Plan                                                                                                     |          |                              | X |      |  |                                     |                        |  |            |                |            |  |       |  |       | 
|        | 10 | .29 |             | Form of Nonqualifed Stock Option Agreement for awards granted
    pursuant to the 2004 Stock Incentive Plan                                                                                                   |          |                              | X |      |  |                                     |                        |  |            |                |            |  |       |  |       | 
|        | 10 | .30 |             | Employment Agreement, dated as of May 6, 2003, by and
    between the Registrant and Jean-Pierre Sommadossi                                                                                                   |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.5  | 
|        | 10 | .31 |             | Employment Agreement, dated May 8, 2003, by and between the
    Registrant and Andrea Corcoran                                                                                                                |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.6  | 
|        | 10 | .32 |             | Employment Agreement, dated May 8, 2003, by and between the
    Registrant and James Egan                                                                                                                     |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.7  | 
|        | 10 | .33 |             | Employment Agreement, dated May 8, 2003, by and between the
    Registrant and Nathaniel Brown                                                                                                                |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.8  | 
|        | 10 | .34 |             | Employment Agreement, dated July 28, 2003, by and between
    the Registrant and Guy Macdonald                                                                                                                |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.10 | 
|        | 10 | .35 |             | Employment Agreement, dated December 1, 2003, by and
    between The Registrant and David Arkowitz                                                                                                            |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 10.11 | 
|        | 10 | .36 |             | Employment Agreement dated November 2, 2004 by and between
    the Registrant and David Shlaes                                                                                                                |          |                              |   |      |  |                                     | 10-QFile No. 000-49839 |  |            |                | 11/03/2004 |  |       |  | 10.20 | 
|        |    |     |             | Additional Exhibits                                                                                                                                                                                           |          |                              |   |      |  |                                     |                        |  |            |                |            |  |       |  |       | 
|        | 21 | .1  |             | Subsidiaries of the Company                                                                                                                                                                                   |          |                              |   |      |  | S-1File No.  333-111157             |                        |  | 12/15/2003 |                |            |  | 21.1  | 

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|        |    |    |             |                                                                                                                                                    |          |                              |   |      |  |          |                 |  |  |                |  |  |  |  |  | 
|------- | -- | -- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------------------- | - | ---- |  | -------- | --------------- |  |  | -------------- |  |  |  |  |  | 
|        |    |    |             |                                                                                                                                                    |          | Incorporated by Reference to |  
|        |    |    |             |                                                                                                                                                    |          |                              |  
|Exhibit |    |    |             |                                                                                                                                                    | Filed    |                              |   |      |  | Original |                
|No.     |    |    | Description |                                                                                                                                                    | Herewith |                              |   | Form |  |          | SEC Filing Date |  |  | Exhibit Number | 
|        |    |    |             |                                                                                                                                                    |          |                              |   |      |  |          |                 |  |  |                | 
|        | 23 | .1 |             | Consent of PricewaterhouseCoopers LLP, independent registered
    public accounting firm                                                           |          |                              | X |      |  |          |                 |  |  |                |  |  |  |  |  | 
|        | 31 | .1 |             | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
    1934, as amended           |          |                              | X |      |  |          |                 |  |  |                |  |  |  |  |  | 
|        | 31 | .2 |             | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
    1934, as amended           |          |                              | X |      |  |          |                 |  |  |                |  |  |  |  |  | 
|        | 32 | .1 |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. §1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 |          |                              | X |      |  |          |                 |  |  |                |  |  |  |  |  | 
|        | 32 | .2 |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. §1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 |          |                              | X |      |  |          |                 |  |  |                |  |  |  |  |  | 






|  |                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|# | Management contract or compensatory plan or arrangement filed as
    an exhibit to this report pursuant to Items 15(a) and 15(c)
    of Form 10-K     
| 
|+ | Confidential treatment requested as to certain portions, which
    portions have been separately filed with the Securities and
    Exchange Commission

96