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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2005o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission file number 0-27914
  SIRNA THERAPEUTICS,
    INC.
 (Exact Name of Registrant as
    Specified in Its Charter)
  Delaware

34-1697351(State of incorporation)

(I.R.S. Employer Identification
    No.)185 Berry Street,
    Suite 6504
    San Francisco, California  94107(Address of principal
    executive offices and zip code)

(415) 512-7624(Registrants
    telephone number, including area code):   Securities registered pursuant to Section 12(b) of the
    Act:
 None
 Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, Par Value $0.01 Per Share
 Rights to Purchase Series AA Junior Participating
    Preferred Stock
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    Accelerated
    Filer o  Accelerated
    Filer o  Non-accelerated
    Filer þ  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.

Business


2Item 1A.

Risk Factors


16Item 1B.

Unresolved Staff
    Comments


23Item 2.

Properties


23Item 3.

Legal
    Proceedings


24Item 4.

Submission of
    Matters to a Vote of Security Holders


24Executive Officers
    of the Registrant


24PART IIItem 5.

Market for
    Registrants Common Equity and Related Stockholder Matters
    and Issuer Purchases of Equity Securities


26Item 6.

Selected Financial
    Data


28Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


29Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


37Item 8.

Financial
    Statements and Supplementary Data


37Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


37Item 9A.

Controls and
    Procedures


37Item 9B.

Other
    Information


38PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


38Item 11.

Executive
    Compensation


38Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


38Item 13.

Certain
    Relationships and Related Transactions


38Item 14.

Principal
    Accountant Fees and Services


38PART IVItem 15.

Exhibits and
    Financial Statement Schedules


39EXHIBIT 3.2EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   1




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Statements in this
    Form 10-K
    contain forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933, as amended,
    Section 21E of the Securities Exchange Act of 1934, as
    amended and the Private Securities Litigation Reform Act of
    1995. Forward-looking statements give our current expectations
    or forecasts of future events. You can identify these statements
    by the fact that they do not relate strictly to historical or
    current events. Forward-looking statements use words such as
    anticipate, estimate,
    expect, will, may,
    intend, plan, believe and
    similar expressions in connection with discussion of future
    operating or financial performance. The forward-looking
    statements include statements relating to future actions,
    prospective products and product approvals, future performance
    or results of current and anticipated products, sales efforts,
    expenses and financial results. For example there is a very
    significant risk that promising pre-clinical or clinical results
    may not translate into an FDA-approved drug. In addition, patent
    applications may not result in issued patents, and issued
    patents may not be enforceable or could be invalidated.
    Furthermore, our ability to develop products and to operate as a
    going concern is contingent upon having readily available cash
    to fund our operating programs and are subject to the escalating
    expenses and risks associated with the initiation of clinical
    trials and their potential outcomes. Other risks and
    uncertainties include, among others, our early stage of
    development and short operating history, our history and
    expectation of losses and need to raise capital, our need to
    obtain clinical validation and regulatory approval for
    Sirna-027,
    Sirna-034
    and our other product candidates, any of which could have
    negative results, our need to engage collaborators, our need to
    obtain and protect intellectual property, and the risk of
    third-party patent infringement claims. Forward-looking
    statements are not guarantees of future performance and they can
    be affected by inaccurate assumptions or by known or unknown
    risks and uncertainties. Actual results may differ materially
    from those projected in the forward-looking statements as a
    result of various factors, including, without limitation, those
    listed under Item 1A, Risk Factors included
    herein. Except to fulfill our obligations under the federal
    securities laws, we undertake no obligation to update
    forward-looking statements to reflect events or circumstances
    after the date on which it is made.
  An
    Overview of Our Company
  and/or
    (415) 512-7624. http://www.sirna.com Form 10-K, Form 10-Q, Form 8-K,
 2




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We are
    developing a new class of RNA-based drugs.
  RNA
    Interference Background
      in vivo.
  in vivo in vivo.
  RNA
    interference has potentially significant advantages over
    traditional drugs
    
    Broad Applicability.  RNA interference-based
    drugs can potentially treat multiple diseases or conditions for
    which an abnormal gene function or a viral agent can be
    identified as the cause or as an essential contributing factor
    to the disease. 3




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
    Therapeutic Precision.  RNA interference-based
    drugs may reduce or avoid some of the side effects associated
    with designing traditional drugs to inhibit expression of only
    disease associated and targeted genes, and not interfere with
    other genes in the body.
    Target RNA Degradation.  RNA interference-based
    drugs are designed to destroy the target RNA and therefore stop
    the associated production of undesirable protein required for
    disease progression, which may provide a longer duration of
    effect compared to most drugs that only temporarily prevent
    targeted protein function.  Our
    Business Strategy
    
    We intend to independently develop chemically optimized and
    formulated siRNA molecules for therapeutic applications in
    several disease areas and dermatological conditions.
    We will enter into partnerships, collaborations or alliances
    with pharmaceutical and biotechnology companies to develop RNA
    interference-based therapeutics, especially for targets and in
    therapeutic areas where partners will bring us unique
    capabilities.
    We will seek to maintain and expand our patent portfolio and
    proprietary technology. We have filed over 250 patent
    applications that we believe are important to the
    identification, design, chemical modification, synthesis,
    formulation and manufacture of RNAi-based and siRNA therapeutics
    for commercialization. 50 of those patents have issued. In
    addition, we have exclusive license to six patent families
    bearing on both RNAi technology and specific therapeutic disease
    areas. We will continue to aggressively pursue patent protection
    to maintain worldwide rights relating to the development,
    manufacture and sale of RNAi-based and siRNA therapeutics.
    We intend to leverage our expertise in the design, chemical
    modification, formulation and manufacture of RNA-based
    therapeutics. We believe that we have established one of the
    leading RNA-based therapeutic research and development teams
    that can provide lead optimization, process development and
    manufacturing to others in need of this expertise. We believe
    that we will be able to capitalize on our continuing investment
    in nucleic acid technology by entering into technology transfer
    and contract manufacturing arrangements with collaborators to
    generate revenues, while retaining this capability for our own
    drug development.    Gene
    Expression and Human Disease
   4




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Our
    Nucleic Acid Platform Technology
        Stability.
  Circulation Time. proof-of-principle
  Interferon and Cytokine Response.
  Selectivity.
 5




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Delivery. in
    vivo.
  Safety.
  Effectiveness. in vivo.
  Manufacturing.
  Our
    Product Development Process
    scale-up
 6




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Our
    Product Development Programs
    Local Delivery
    Programs


Systemic Delivery
    Programs


Topical Delivery
    ProgramsAge Related Macular
    Degeneration (AMD):Sirna-027 via
    intra-ocular injection


Hepatitis C
    Virus:Sirna-034 via
    intravenous administration


Dermatology:Use of siRNAs for permanent removal of unwanted hairAsthma:Aerosol administration of siRNAs


Type II
    Diabetes:Standard
    intravenous or subcutaneous administration of siRNAsHuntingtons
    Disease:Stereotactic
    administration of vector expressed or synthetic siRNAs   Local
    Delivery Programs (Directly to target area)
  Age-Related
    Macular Degeneration (AMD)
    ® ® ® ®
  3-month
 7




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Asthma
      Huntingtons
    Disease
         8




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Systemic
    Delivery Programs (Directly into the blood stream)
  Chronic
    Hepatitis
  ®
  in vivo
    Type II
    Diabetes
    PTP-1B PTP-1B difficult-to-reach
 9




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PTP-1B
    Topical
    Delivery Program (Directly to the surface of the skin)
  Dermatology
    Our
    Patents and Proprietary Technology
     10




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##### Table of Contents



Patent Filings

StatusSeminal RNAi or siRNA
    Technology  Sirna  No-ribo
    siNA Technology

10 patent applications

2 granted (UK) Sirna  Multifunctional
    siRNA Technology

5 patent applications

Pending Sirna-Conserved
    Sequence Targeting Technology

5 patent applications

1 granted (UK) MicroRNA Technology

2 patent applications

pending Tuschl
    et al. Patent (Worldwide Exclusive License from
    Univ. Mass. Medical School)

2 patent applications

Pending Rana Patents on
    chemically-modified siRNAs (Worldwide Exclusive License from
    the University of Massachusetts Medical School)

3 patent applications

Pending Fire
    et al. Patent ( Worldwide Non-exclusive License
    from Carnegie Institution of Washington and the University of
    Massachusetts)

3 patent applications

1 IssuedTherapeutic Targets for
    siRNA  Sirna  RNAi
    Gene Targets (including VEGF, IL-4, IL-13, Hairless,
    PTP-1B, HCV
    and other viruses)

>120 patent applications

5 granted (UK) Davidson
    et al., Patents on siRNAs against neurological
    disease targets such as Huntingtons Disease (Worldwide
    Exclusive License from the University of Iowa Research
    Foundation)

10 patent applications

1 granted (Australia) Christiano
    et al., Patents on genes involved in hair growth and
    hair loss (Worldwide Exclusive License from Columbia
    University)

5 patent applications

PendingSirna  Oligonucleotide
    Chemistry & Delivery Technology

>60 patent applications

24 IssuedSirna  Oligonucleotide
    Manufacturing & Process Technology

>25 patent applications

16 IssuedSUMMARY OF INTELLECTUAL
    PROPERTY ESTATE

>250 Patent
    Applications

50
    Issued   Sirna
    Invented and Owned Patents
       11




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PTP-1B
    In-Licensed
    Patents
         12




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Our
    Collaborations
  Allergan
    Eli
    Lilly and Company
  in vivo
  Targeted
    Genetics
    Protiva
     13




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Our
    Process Development and Pilot Manufacturing Activities
  Archemix
    Corporation
  tm
    Our
    Competition
          Government
    Regulation of our Drug Development Activities
   14




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15




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Our
    Manufacturing and Marketing
      Our
    Employees
    ITEM 1A.
    RISK
    FACTORS  Risks
    Relating to our Business, Industry and Common Stock
  We are
    a biotechnology company in the early stage of development and
    have only a limited operating history for you to review in
    evaluating our current business and its prospects.
      
    obtain the human and financial resources necessary to develop,
    test, manufacture and market products;
    engage corporate partners to assist in developing, testing,
    manufacturing and marketing our products;
    satisfy the requirements of clinical trial protocols, including
    patient enrollment;
    establish and demonstrate the clinical efficacy and safety of
    our products;
    obtain necessary regulatory approvals; and
    market our products to achieve acceptance and use by the medical
    community in general.  We
    have a history of losses, expect future losses, have a
    continuing need to raise additional capital, and cannot assure
    you that we will ever become or remain profitable.
   16




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and/or
    Because
    we must obtain regulatory approval to market our products in the
    United States and foreign jurisdictions, we cannot predict
    whether or when we will be permitted to commercialize our
    products.
      
    must be conducted in conformity with the FDAs good
    laboratory practice regulations;
    must meet requirements for institutional review board oversight;
    must meet requirements for informed consent;
    must meet requirements for good clinical practices;
    are subject to continuing FDA oversight;
    may require large numbers of test subjects; and
    may be suspended by the FDA or us at any time if it is believed
    that the subjects participating in these trials are being
    exposed to unacceptable health risks or if the FDA finds
    deficiencies in the IND or the conduct of these trials.       17




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We may
    experience negative results, problems or delays in our clinical
    trials with Sirna-027, Sirna-034 or other product candidates
    that could adversely affect our stock price, financial position
    and our commercial prospects.
    To
    develop, market or sell RNAi-based drugs, we may need to find
    partners for collaboration.
      
    our ability to find and enter into agreements with appropriate
    collaborators for our RNAi-based product candidates;
    the pace of development of our product candidates, including the
    achievement of performance milestones;
    development by our collaborators of competing technologies or
    products;
    exercise by our collaborators of marketing or manufacturing
    rights; and
    the loss of our rights to products or the profits from our
    products if we are unable to fund our share of development costs.   18




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A
    majority of our patent applications have not yet been approved.
    We do not know which of these applications will result in issued
    patents. Additionally, patent proceedings and litigation could
    result in substantial costs and delays in obtaining and
    enforcing our patent rights. The ultimate result of any patent
    litigation could be the loss of some or all protection for the
    patent involved or the loss of ability to pursue business
    opportunities. We may also decide to oppose or challenge third
    party patents.
        The
    manufacture, use or sale of our products may infringe on the
    patent rights of others. We may not have identified all United
    States and foreign patents and patent applications that pose a
    risk of infringement. We may be forced to in-license or litigate
    if an intellectual property dispute arises.
    
    incur substantial monetary damages;
    encounter significant delays in marketing our products;
    be unable to conduct or participate in the manufacture, use or
    sale of products or methods of treatment requiring licenses;
    lose patent protection for our inventions and products; or
    find our patents are unenforceable, invalid, or have a reduced
    scope of protection.     19




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Disclosure
    of our trade secrets could reduce our
    competitiveness.
    We are
    moving our headquarters from Colorado to California, and this
    move could reduce employee retention and efficiency and could
    add to our expenses.
      Our
    success depends on attracting and retaining qualified
    personnel.
    Our
    operations are vulnerable to interruption by fire, earthquake,
    power loss, telecommunications failure, terrorist activity and
    other events beyond our control, which could result in a
    material adverse effect on our business.
   20




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Our
    competitors may develop and market drugs that are more
    effective, safer, easier to use, or less expensive than our
    product candidates.
    Our
    success may depend on third party reimbursement of
    patients costs for our products that could result in price
    pressure or reduced demand for our products.
    We may
    in the future be exposed to product liability claims, which
    could adversely affect our business, results of operations,
    financial condition and cash flow.
    Our
    products require materials that may not be readily available or
    cost effective, which may reduce our competitiveness or reduce
    our profitability.
   21




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Our
    common stock has limited trading volume and a history of
    volatility, which could impair your investment.
    
    our ability to raise additional funds;
    clinical trials of products;
    timing or denial by the FDA of clinical trial protocols or
    marketing applications;
    changes in the status of our corporate collaborative agreements;
    research activities, technological innovations or new products
    by us or our competitors;
    developments or disputes concerning patents or proprietary
    rights;
    quarterly variations in our operating results;
    changes in earnings estimates by market research analysts;
    concentrated ownership interest of our investors;
    purchases or sales of our stock by our executive officers,
    directors or substantial holders of our common stock;
    securities class actions or other litigation; and
    changes in government regulations.    We
    plan to use potential future operating losses and our federal
    and state net operating loss carryforwards to offset taxable
    income from operations. However, our ability to use our net
    operating loss carryforwards are limited as a result of previous
    issuances of equity securities and could be further limited as a
    result of potential future issuances of equity
    securities.
    Concentration
    of ownership of our common stock may give certain stockholders
    significant influence over our business.
   22




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Both
    our charter documents and Delaware law have anti-takeover
    provisions that may discourage transactions involving actual or
    potential changes of control at premium prices.
      Recent
    accounting pronouncements will impact our future results of
    operations.
  Note 1
    of Notes to Financial Statements Form 10-K.
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES   23




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ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   Executive
    Officers of the Registrant    Name

Age


PositionHoward W. Robin


53


Chief Executive Officer, President
    and DirectorBharat M.
    Chowrira, Ph.D., J.D.


40


Chief Patent Counsel, Vice
    President, Legal Affairs, and Corporate SecretaryJ. Michael French


46


Senior Vice President for
    Corporate DevelopmentRoberto
    Guerciolini, M.D.


52


Chief Medical Officer and Senior
    Vice PresidentBarry Polisky, Ph.D.


60


Chief Scientific Officer and
    Senior Vice PresidentGregory L. Weaver


50


Chief Financial Officer and Senior
    Vice President (Appointed February 2006)   Howard W. Robin
  Bharat M. Chowrira, Ph.D., J.D.
  J. Michael French
 24




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®
  Roberto Guerciolini, M.D. ® ®
  Barry Polisky, Ph.D.
  Gregory L. Weaver Harte-Hanks
 25




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Scientific
    Advisory Board
    Name

Scientific PositionKeith Yamamoto, Ph.D.
    (Chairperson)

Executive Vice Dean for Research,
    University of California, San Francisco School of MedicineJeffrey A. Bluestone, Ph.D.

A.W. and Mary Margaret Clausen
    Distinguished Professor of Medicine, Pathology,
    Microbiology & Immunology, University of California,
    San Francisco (UCSF)Director, UCSF Diabetes Center,
    the Immune Tolerance Network and the Juvenile Diabetes Research
    Foundation Collaborative Center for Cellular TherapyBeverly Davidson, Ph.D.

Roy J. Carver Professor in
    Internal Medicine and Professor in Neurology,
    Physiology & Biophysics, University of IowaDonald Ganem, M.D.

Professor, Microbiology/Immunology
    and Medicine, University of California, San FranciscoHoward Hughes Medical Institute
    InvestigatorJoe W. Gray, Ph.D.

Associate Laboratory Director for
    Life and Environmental Sciences and Director of Life Sciences
    Division, Lawrence Berkeley National Laboratory
    Adjunct Professor of Laboratory Medicine, University of
    California, San FranciscoStanley M. Lemon, M.D.

Director, Institute for Human
    Infections and Immunity Professor, Departments of
    Microbiology & Immunology and Internal Medicine,
    University of Texas Medical BranchRichard Locksley, M.D.

Herbert and Marion Sandler
    Distinguished Professorship in Asthma Research, Professor of
    Medicine and Microbiology/Immunology, University of California,
    San FranciscoHoward Hughes Medical Institute
    InvestigatorJerrold M. Olefsky, M.D.

Professor of Medicine and
    Co-Chair, Division of Endocrinology & Metabolism,
    University of California, San DiegoDavid W. Russell, Ph.D.

Eugene McDermott Distinguished
    Chair in Molecular Genetics, University of Texas SouthwesternXiaodong Wang, Ph.D.

George L. MacGregor Distinguished
    Chair in Biomedical Science, University of Texas Southwestern
    Medical SchoolHoward Hughes Medical Institute
    InvestigatorJames A. Wells, Ph.D.

Harry Wm. and Diana V. Hind
    Professorship in Pharmaceutical Sciences and Professor of
    Pharmaceutical Chemistry and Cellular and Molecular
    Pharmacology, University of California, San Francisco  PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   26




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High


LowYear Ended December 31, 2004,First Quarter

$
6.49


$
3.90Second Quarter


4.59



2.05Third Quarter


3.42



2.21Fourth Quarter


3.87



2.45Year Ended December 31, 2005,First Quarter

$
3.48


$
2.30Second Quarter


3.15



1.69Third Quarter


5.60



1.60Fourth Quarter


4.58



2.91Year Ending December 31, 2006,First Quarter (through
    March 15, 2006)

$
3.02


$
7.62   Dividend
    Policy
    Purchases
    of Equity Securities
    Recent
    Sales of Unregistered Securities
   27




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Item 7, Managements Discussion and Analysis
    of Financial Condition and Results of Operations Form 10-K
  Year Ended
    December 31,2005


2004


2003


2002


2001(In thousands, except per share
    amounts)Statement of Operations
    Data:Revenues

$
4,898


$
1,547


$
4,175


$
5,148


$
8,308Total operating expenses


29,877



30,552



33,809



34,164



61,201Net loss


(23,917
)


(28,857
)


(29,841
)


(34,706
)


(59,838
)Net loss applicable to common
    stockholders


(23,917
)


(28,857
)


(30,403
)


(36,277
)


(60,613
)Basic and diluted net loss per
    common share


(0.48
)


(0.81
)


(1.31
)


(10.81
)


(21.54
)Balance Sheet Data:Cash, cash equivalents and
    securities
    available-for-sale

$
45,692


$
36,083


$
36,624


$
8,821


$
34,995Total assets


49,517



41,557



42,684



21,898



52,023Working capital


39,577



30,195



33,295



5,027



31,908Long-term liabilities, excluding
    current portion and deferred revenue


275



375



3,868



6,489



12,591Series A preferred stock and
    accreted dividends














14,329



13,507Accumulated deficit


(277,124
)


(253,207
)


(224,350
)


(194,509
)


(159,803
)Stockholders equity (deficit)


39,626



34,327



34,774



(3,953
)


20,398  28




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ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Statements in this Item contain forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended, Section 21E of the Securities Exchange
    Act of 1934, as amended and the Private Securities Litigation
    Reform Act of 1995. Forward-looking statements give our current
    expectations or forecasts of future events. You can identify
    these statements by the fact that they do not relate strictly to
    historical or current events. Forward-looking statements use
    words such as anticipate, estimate,
    expect, will, may,
    intend, plan, believe and
    similar expressions in connection with discussion of future
    operating or financial performance. The forward-looking
    statements include statements relating to future actions,
    prospective products and product approvals, future performance
    or results of current and anticipated products, sales efforts,
    expenses and financial results. For example there is a very
    significant risk that promising pre-clinical or clinical results
    may not translate into an FDA-approved drug. In addition, patent
    applications may not result in issued patents, and issued
    patents may not be enforceable or could be invalidated.
    Furthermore, our ability to develop products and to operate as a
    going concern is contingent upon having readily available cash
    to fund our operating programs and are subject to the escalating
    expenses and risks associated with the initiation of clinical
    trials and their potential outcomes. Other risks and
    uncertainties include, among others, our early stage of
    development and short operating history, our history and
    expectation of losses and need to raise capital, our need to
    obtain clinical validation and regulatory approval for
    Sirna-027, Sirna-034 and our other product candidates, any of
    which could have negative results, our need to engage
    collaborators, our need to obtain and protect intellectual
    property, and the risk of third-party patent infringement
    claims. Forward-looking statements are not guarantees of future
    performance and they can be affected by inaccurate assumptions
    or by known or unknown risks and uncertainties. Actual results
    may differ materially from those projected in the
    forward-looking statements as a result of various factors,
    including, without limitation, those listed under Item 1A,
    Risk Factors included herein. Except to fulfill our
    obligations under the federal securities laws, we undertake no
    obligation to update forward-looking statements to reflect
    events or circumstances after the date on which it is made.
    Form 10-K, Form 10-K
  Business
    Overview
  and/or
 29




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RNA
    Interference
      Product
    Candidate Programs
    Local
    Delivery (Directly to target area)
  
    Age-Related Macular Degeneration (AMD).  Our
    first program to advance into the clinic targets age-related
    macular degeneration (AMD). In November 2004, we initiated a
    Phase 1 clinical trial of Sirna-027, a chemically modified
    siRNA targeting Vascular Endothelial Growth Factor Receptor-1
    (VEGFR-1), which is a key component of the clinically validated
    vascular endothelial growth factor (VEGF) pathway. In May 2005
    and October 2005, we reported interim data from the Phase 1
    clinical trial with Sirna-027. In September 2005, we entered
    into a strategic alliance with Allergan for the development of
    Sirna-027 and other siRNAs for the treatment of ocular disease.
    We anticipate that Allergan will begin Phase 2 studies with
    Sirna-027 in 2006.
    Asthma.  We are in the preclinical stage of
    development of product candidates for the treatment of asthma.
    We are working internally and with our collaborator,
    Dr. Erwin Gelfand of the National Jewish Medical &
    Research Center, to evaluate siRNAs that target IL-4, IL-4
    receptor, IL-13
    and/or IL-13
    receptor and a host of other respiratory targets. Further, we
    have demonstrated in animal models of respiratory disease a
    significant reduction of airway inflammation and
    hyper-responsiveness using chemically stabilized nanoparticle
    formulated siRNAs.
    Huntingtons Disease.  Our third program
    in local delivery is focused on Huntingtons disease, a
    life-threatening brain disorder. We are in the preclinical stage
    of development in this program and expect to name a development
    candidate by the end of 2006. We recently entered into a
    collaboration with Targeted Genetics Corporation for the
    development of adeno-associated viral (AAV) vector-based
    delivery of siRNAs that target the Huntingtons disease
    gene. We are also collaborating with Dr. Beverly Davidson
    at the University of Iowa, who has published promising data in
    this area and Dr. Krystof Bankiewicz, at the University of
    California in San Francisco, who has developed promising
    systems for the direct administration of AAV vectors to the
    brain. 30




---



##### Table of Contents



Systemic
    Delivery (Directly into the blood stream)
  
    Chronic Hepatitis.  We are in the preclinical
    stages of development of siRNAs that target the viral RNA to
    treat the Hepatitis C infection. On December 21, 2005,
    Sirna announced the selection of our HCV product candidate,
    Sirna-034. After successful preclinical testing in rodents and
    non-human primates, we have demonstrated that a systemically
    delivered chemically optimized siRNA compound can dramatically
    suppress Hepatitis C viral titers via an RNA interference
    mechanism. Our compound, Sirna-034 is a systemically
    administered nanoparticle-formulated, chemically optimized
    siRNA-based therapeutic targeting the Hepatitis C virus. We
    expect to file an IND for this product candidate later in 2006.
    Type II Diabetes.  We are in the preclinical
    stages of developing siRNA targeting the phosphatase 1B
    (PTP-1B)
    gene, a target in diabetes that is associated with insulin
    resistance. The technology pioneered in our HCV and HBV programs
    to efficiently deliver chemically stabilized siRNAs to the liver
    now enables us to address other liver associated disease
    indications such as diabetes. By approaching Type II
    Diabetes early in the mechanistic cascade, we believe siRNAs can
    become the most important innovation in the treatment of this
    devastating and rapidly growing disease.  Topical
    Delivery (Directly to the surface of the skin)
  
    Dermatology.  In December 2004, we launched a
    dermatology division following the acquisition of Skinetics
    Biosciences. Skinetics founder, and a leader in the field of
    hair biology, Dr. Angela Christiano of Columbia University,
    is now an exclusive consultant to the Company. Our first
    dermatology program is focused on the permanent removal of
    unwanted hair. We have developed specific topical formulations
    that deliver siRNAs efficiently to hair follicles. We have
    successfully administered chemically modified siRNAs into
    individual hair follicles on the surface of skin and
    demonstrated efficacy in an animal model of hair removal via
    topical administration of siRNAs. We are in the preclinical
    stages of developing siRNA targeting the hairless
    protein and expect to select a clinical candidate in 2006 and
    file an IND in 2007.  Intellectual
    Property
         31




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##### Table of Contents



Licensing,
    Process Development and Pilot Manufacturing
    Critical
    Accounting Policies and Estimates
    Revenue
    Recognition
    Patent
    Expenses
    Recently
    Issued Financial Accounting Standards
   32




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##### Table of Contents



Note 1 of Notes to
    Financial Statements Form 10-K.
  Results
    of Operations for Twelve Months Ended December 31, 2005,
    2004 and 2003
  Revenues
    Twelve Months Ended
    December 31,2005


2004


2003Contract revenues Allergan

$
417


$



$
Eli Lilly


1,897



153



Geron










2,783Chiron










550Fujirebio






475



169Atugen


8



9



417Other


44



50



2562,366



687



4,175Contract
    revenues  manufacturingArchemix


2,532



860



Total revenues

$
4,898


$
1,547


$
4,175       scale-up
 33




---



##### Table of Contents



Expenses
  Research
    and development
    Twelve Months Ended
    December 31,2005


2004


2003Salaries and benefits

$
7,705


$
7,380


$
7,144Chemicals and supplies


2,595



2,420



1,703License fees


1,582



2,914



6,197Outside services


3,475



2,471



1,116Depreciation


1,183



1,283



1,415Other


3,598



4,669



4,690Total research and development
    expenses

$
20,138


$
21,137


$
22,265Average research and development
    staffing


58



61



66   scale-up
  scale-up
    Twelve Months Ended
    December 31,2005


2004


2003RNAi programs Age-related Macular Degeneration
    (AMD)

$
2,112


$
3,609


$
Asthma


1,393







Chronic Hepatitis


1,988



1,942



Hair removal


1,444



1,659



RNAi technology development


4,537



5,127



9,601Ribozyme-based programs










1,001Total project expenses

$
11,474


$
12,337


$
10,602  34




---



##### Table of Contents



General
    and administrative
    Twelve Months Ended
    December 31,2005


2004


2003Salaries and benefits

$
2,793


$
2,522


$
3,221Patent


2,166



2,189



1,205Other


2,683



2,029



1,774Total general and administrative
    expenses

$
7,642


$
6,740


$
6,200Average general and administrative
    staffing


14



12



11       Acquired
    in-process research and development
      Write-off
    of patent costs
   35




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##### Table of Contents



Interest
    and other income
  available-for-sale
  Interest
    expense
    Equity in
    loss of unconsolidated affiliate
    Liquidity
    and Capital Resources
  available-for-sale available-for-sale
  and/or
    
    our research, drug discovery and development programs;
    preclinical and clinical studies of our product candidates, if
    developed;
    prosecuting and enforcing patent claims;
    general administrative and legal fees; and
    manufacturing and marketing of our products, if any.     36




---



##### Table of Contents



Net
    Operating Loss Carryforwards
    Off-Balance
    Sheet Arrangements
  Regulation S-K.
  Contractual
    Obligations
    Payment Due2011 andTotal


2006


2007 and 2008


2009 and 2010


thereafterOperating leases

$
2,333


$
1,335


$
998


$



$
   ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Controls
    Evaluation and Related CEO and CFO Certifications
   37




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT      ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   38




---



##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    PAGEReport of
    Independent Registered Public Accounting Firm


F-1Balance Sheets


F-2Statements of
    Operations


F-3Statements of
    Stockholders Equity (Deficit)


F-4Statements of Cash
    Flows


F-5Notes to Financial
    Statements


F-6          39




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
            F-1




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
 BALANCE SHEETS

(in thousands, except par value and share data) December 312005


2004ASSETSCurrent assets:Cash and cash equivalents

$
19,519


$
16,817Securities
    available-for-sale


26,173



19,266Notes
    receivable  related parties


145



145Prepaid expenses and other current
    assets


439



822Total current assets


46,276



37,050Property and equipment, net


1,906



2,507Notes
    receivable  related parties


65



210Other assets, net of accumulated
    amortization of $1,370 and $636 at December 31, 2005 and
    2004, respectively


1,270



1,790$
49,517


$
41,557LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,174


$
978Accrued wages


1,054



1,136Accrued liabilities


2,338



1,405Deferred revenue, current portion


2,133



281Convertible debt






3,055Total current liabilities


6,699



6,855Other liabilities


275



375Deferred revenue, less current
    portion


2,917



Commitments and contingenciesStockholders equity:Preferred stock, $.01 par
    value; 5,000,000 shares authorized; none issued and
    outstanding at December 31, 2005 and 2004, respectively






Common stock, $.01 par value;
    120,000,000 shares authorized; 59,754,709 and
    41,371,529 shares issued and outstanding at
    December 31, 2005 and 2004, respectively


598



414Additional paid-in capital


316,890



288,599Accumulated deficit


(277,124
)


(253,207
)Unearned deferred compensation


(911
)


(1,452
)Unrealized gain (loss) on
    securities
    available-for-sale


173



(27
)Total stockholders equity


39,626



34,327$
49,517


$
41,557    F-2




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
 STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts) Years Ended
    December 312005


2004


2003Revenues:Contract revenue

$
2,366


$
687


$
4,175Contract manufacturing revenue


2,532



860



Total revenues


4,898



1,547



4,175Operating expenses:Cost of contract manufacturing


2,097



792



Research and development


20,138



21,137



22,265General and administrative


7,642



6,740



6,200Acquired in-process research and
    development






1,883



Write-off of patent costs










5,344Total operating expenses


29,877



30,552



33,809Loss from operations


(24,979
)


(29,005
)


(29,634
)Other income (expense):Interest and other income


1,088



482



417Interest expense


(26
)


(334
)


(415
)Equity in loss of unconsolidated
    affiliates










(209
)Net loss


(23,917
)


(28,857
)


(29,841
)Accretion of dividends on
    preferred stock










562Net loss applicable to common
    stockholders

$
(23,917
)

$
(28,857
)

$
(30,403
)Basic and diluted net loss per
    common share

$
(0.48
)

$
(0.81
)

$
(1.31
)Weighted average common shares
    outstanding, basic and diluted


49,438



35,795



23,279    F-3




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
 STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(in thousands) UnrealizedAccreted

















GainSeries B Convertible





Preferred








Additional





Unearned


(Loss) onPreferred Stock


Preferred Stock


Stock


Common Stock


Paid-in


Accumulated


Deferred


SecuritiesShares


Amount


Issuable


Dividends


Shares


Amount


Capital


Deficit


Compensation


Available-for-Sale


TotalBalances at December 31, 2002


10


$



$
1,127


$
748



3,381


$
34


$
188,640


$
(194,509
)

$



$
7


$
(3,953
)Net loss






























(29,841
)










(29,841
)Change in unrealized gain on
    securities






































13



13Comprehensive loss










































(29,828
)Issuance of common stock and
    warrants for cash  private offering, net of
    costs of $3,000


















24,242



242



44,789















45,031Issuance of common stock for
    cash  rights offering, net of costs of $370


















2,525



25



4,605















4,630Issuance of common stock in
    exchange for rights to license


















579



6



2,994















3,000Preferred stock dividends accreted














347











(562
)














(215
)Conversion of preferred stock to
    common stock


(10
)






(1,127
)


(1,095
)


542



6



16,761















14,545Issuance of common stock under
    stock option, employee stock purchase and 401(k) plans


















395



4



1,112















1,116Compensation for issuance of stock
    options


























2,798







(2,350
)






448Cashless warrant exercise


















28























Balances at December 31, 2003


















31,692



317



261,137



(224,350
)


(2,350
)


20



34,774Net loss






























(28,857
)










(28,857
)Change in unrealized loss on
    securities






































(47
)


(47
)Comprehensive loss










































(28,904
)Issuance of common stock under
    stock option, employee stock purchase and 401(k) plans


















367



4



881















885Compensation for issuance of stock
    options


























117







898







1,015Cashless warrant exercise


















43























Issuance of common stock for
    cash  private offering, net of costs of $1,494


















5,760



58



17,167















17,225Issuance of common stock in
    exchange to purchase license


















304



3



997















1,000Issuance of common stock in
    connection with acquisition of Skinetics Biosciences, Inc.


















503



5



1,563















1,568Issuance of common stock for
    cash  warrant exercise


















2,703



27



6,737















6,764Balances at December 31, 2004


















41,372



414



288,599



(253,207
)


(1,452
)


(27
)


34,327Net loss






























(23,917
)










(23,917
)Change in unrealized gain on
    securities






































200



200Comprehensive loss










































(23,717
)Issuance of common stock under
    stock option, employee stock purchase and 401(k) plans


















600



6



1,387















1,393Compensation for issuance of stock
    options


























82







541







623Issuance of common stock in
    exchange to purchase license


















158



2



491















493Issuance of common stock for
    cash  private offering, net of costs of $1,878


















17,506



175



25,956















26,131Issuance of common stock in
    exchange for legal services


















119



1



375















376Balances at December 31, 2005





$



$



$




59,755


$
598


$
316,890


$
(277,124
)

$
(911
)

$
173


$
39,626  See accompanying notes.
 F-4




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
 STATEMENTS OF CASH FLOWS

(in thousands) Years Ended
    December 312005


2004


2003Cash flows from operating
    activities:Net loss

$
(23,917
)

$
(28,857
)

$
(29,841
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


1,916



1,686



1,651Equity in loss of unconsolidated
    affiliates










133Financed third party manufacturing
    cost










(1,727
)Gain on settlement of third party
    manufacturing costs










(246
)Write-off of patent costs










5,344Patent expense










(183
)Compensation related to common
    stock and options


1,223



1,272



383Compensation for forgiveness of
    notes receivable  related parties


145



157



394Acquisition of in-process research
    and development






1,000



Purchase of license through
    issuance of common stock


488







3,000Stock issued in connection of
    acquisition of Skinetics Biosciences, Inc.






1,568



Loss on disposal of equipment, net


23



9



48Accrued interest included in
    convertible debt  related parties


20



240



240Recognition of deferred
    revenue  related parties










(400
)Changes in operating assets and
    liabilities:Prepaid expenses and other current
    assets


383



(267
)


470Other assets


38



(19
)


(90
)Accounts payable


196



95



(60
)Accrued wages


(82
)


(440
)


810Accrued liabilities


933



604



(4
)Other liabilities


(100
)






Deferred revenue


4,769



81



(694
)Net cash used in operating
    activities


(13,965
)


(22,871
)


(20,772
)Cash flows from investing
    activities:Purchases of securities
    available-for-sale


(24,323
)


(14,456
)


(51,122
)Sales of securities
    available-for-sale


17,616



19,775



33,259Additions to property, plant, and
    equipment


(604
)


(397
)


(340
)Additions to patents


(252
)


(582
)


(277
)Additional investment in joint
    venture










(132
)Net cash (used in) provided by
    investing activities


(7,563
)


4,340



(18,612
)Cash flows from financing
    activities:Net proceeds from the issuance of
    equity securities


27,305



24,616



50,357Payments under loan facilities


(3,080
)


(1,321
)


(1,117
)Borrowings under loan facilities










23Conversion of debt


5



60



49Net cash provided by financing
    activities


24,230



23,355



49,312Net increase in cash and cash
    equivalents


2,702



4,824



9,928Cash and cash equivalents,
    beginning of the year


16,817



11,993



2,065Cash and cash equivalents, end of
    the year

$
19,519


$
16,817


$
11,993Supplemental cash flow information:Preferred stock dividends accreted

$



$



$
562Cash paid for interest


81



274



766    F-5




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.





NOTES TO FINANCIAL STATEMENTS  1.
    Organization
    and Summary of Significant Accounting Policies  Business
    activity
        Use of
    estimates
    Revenue
    recognition
    Up-front payments:
  Cost reimbursements:
 F-6




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Milestones:
    Patent
    costs
      Financial
    instruments
  available-for-sale,
  available-for-sale. available-for-sale
  Cash
    and cash equivalents
    Property
    and equipment
   F-7




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Long-lived
    assets
    Research
    and development expenses
    Income
    taxes
    Loss
    per share
      December 31,2005


2004


2003Outstanding stock options


5,780



6,196



5,753Warrants


11,880



5,578



5,399Convertible debt






1,018



587   Segment
    reporting
    Accounting
    for investment in unconsolidated affiliate
    Stock-based
    compensation
   F-8




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
      Year Ended
    December 31,2005


2004


2003(In thousands except per share
    data)Net loss, as reported

$
(23,917
)

$
(28,857
)

$
(29,841
)Add: Stock-based employee
    compensation expense included in net loss, as reported


541



697



322Deduct: Stock-based employee
    compensation expense determined under fair value method for all
    awards


(2,975
)


(4,201
)


(3,989
)Pro forma net loss

$
(26,351
)

$
(32,361
)

$
(33,508
)Loss per share:Basic and diluted net loss per
    common share, as reported

$
(0.48
)

$
(0.81
)

$
(1.31
)Basic and diluted pro forma net
    loss per common share

$
(0.53
)

$
(0.90
)

$
(1.44
)     Year Ended
    December 31,2005


2004


2003Dividend yield


0.00
%


0.00
%


0.00
%Annual risk free rate of return


3.92
%


3.59
%


2.78
%Expected volatility


1.00



1.00



1.14Expected life


5.0



5.0



5.0   Recent
    accounting pronouncements
  Stock Based
    Compensation
  Reclassifications
   F-9




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   2.
    Collaboration
    and License Agreements  Allergan
    Eli
    Lilly
  in-vivo
  Targeted
    Genetics
    Protiva
      Archemix
    Corporation
   F-10




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
      Columbia
    University
    Skinetics
    Biosciences Inc.
      University
    of Massachusetts Medical School
   F-11




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Elan
    Corporation
  ®
    Schering
    AG, Berlin
    3.
    Securities
    Available-for-Sale  available-for-sale available-for-sale available-for-sale available-for-sale available-for-sale
 F-12




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   available-for-sale
  Gross Unrealized


Gross Unrealized


EstimatedAmortized Cost


Gains


Losses


Fair ValueDecember 31,
    2005U.S. corporate debt securities

$
26,000


$
178


$
(5
)

$
26,173December 31,
    2004U.S. corporate debt securities


19,293







(27
)


19,266   4.
    Property
    and Equipment    December 31,2005


2004Machinery and equipment

$
10,553


$
10,302Leasehold improvements


5,400



5,301Office furniture and equipment


1,593



1,48017,546



17,083Accumulated depreciation and
    amortization


(15,640
)


(14,576
)$
1,906


$
2,507   5.
    Operating
    Leases      Years Ending
    December 31:

Amount2006

$
1,3352007


9972008


12009 and thereafter


Total minimum payments

$
2,333     6.
    Convertible
    Debt   F-13




---



##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    7.
    Stockholders
    Equity  2005
    Private Placement
        2005
    Shelf Registration Statement
  Form S-3,
    Warrant
    Restructuring and Exercise
   F-14




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##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    2004
    Private Placement
    2003
    Private Placement and Change of Control
    Stock
    Option Plans
   F-15




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##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     Options


Exercise PriceOutstanding at December 31,
    2002


627,859


$
1.62



-


$
187.50Options granted


5,442,585


$
2.10



-


$
8.68Options exercised/cancelled


(317,157
)

$
1.62



-


$
158.28Outstanding at December 31,
    2003


5,753,287


$
1.62



-


$
187.50Options granted


1,130,750


$
2.44



-


$
5.15Options exercised/cancelled


(688,421
)

$
1.62



-


$
168.78Outstanding at December 31,
    2004


6,195,616


$
1.86



-


$
187.50Options granted


1,045,873


$
1.62



-


$
4.41Options exercised/cancelled


(1,461,706
)

$
1.86



-


$
167.28Outstanding at December 31,
    2005


5,779,783


$
1.62



-


$
187.50       OptionsCurrently exercisable


3,345,5942006


1,254,1142007


759,6282008


337,3152009


83,132Total


5,779,783     Options OutstandingWeighted





Options ExercisableAverage


Weighted





WeightedRange of

Number


Remaining


Average


Number


AverageExercise Prices

Outstanding


Contractual Life


Exercise Price


Exercisable


Exercise Price$
1.62


-


$
2.10


3,644,289



7.31


$
2.06



2,110,053


$
2.10$
2.34


-


$
3.40


733,703



8.37


$
3.06



256,495


$
2.95$
3.66


-


$
5.15


1,067,222



7.80


$
4.44



699,786


$
4.42$
5.51


-


$
9.72


169,183



6.72


$
6.16



115,013


$
6.16$
13.92


-


$
187.50


165,386



4.51


$
46.26



164,247


$
46.40$
1.62


-


$
187.50


5,779,783



7.44


$
4.01



3,345,594


$
4.96   Stock
    Based Compensation
   F-16




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##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Employee
    Stock Purchase Plan
    Shareholder
    Rights Plan
   F-17




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##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Common
    Shares Reserved for Future Issuance
    SharesStock option plans


9,566,059Employee stock purchase plan


496,408Employee 401(k) stock match


738,818Warrants at $1.92 per share
    (expire in 2009)


6,302,246Warrants at $2.00 per share
    (expire in 2009)


2,973,824Warrants at $2.52 per share
    (expire in 2008)


2,311,673Warrants at $3.48 per share
    (expire in 2006)


59,186Warrants at $30.00 per share
    (expire in 2006)


50,199Warrants at $72.00 per share
    (expire in 2006)


58,333Warrants at $94.50 per share
    (no expiration)


212Warrants at $120.00 per share
    (expire in 2007)


50,000Warrants at $135.00 per share
    (expire in 2006)


74,81522,681,773   8.
    Income
    Taxes    Year Ended
    December 31,2005


2004


2003Tax benefit at U.S. statutory
    rate

$
8,371


$
9,811


$
10,146Valuation allowance


(12,166
)


(10,753
)


(10,944
)Change in deferred tax rate


3,232







State taxes, net of federal benefit


833



675



596Research and development
    expenditures


(439
)






Permanent differences


169



(643
)


(11
)Other






910



213Benefit for income taxes, as
    reported

$



$



$
    F-18




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##### Table of Contents



SIRNA
    THERAPEUTICS, INC.
   NOTES TO FINANCIAL
    STATEMENTS  (Continued)
     December 31,2005


2004Deferred tax assets:Net operating loss carryforwards

$
86,597


$
78,817Research and development credit
    carryforwards


7,332



5,536Depreciation


1,462



1,213Equity in loss of unconsolidated
    affiliate


9,162



8,853Deferred income


1,949



105Purchased patents


4,999



4,001Other


958



714112,459



99,239Valuation allowance


(112,217
)


(98,813
)Net deferred tax assets


242



426Deferred tax liabilities:Deferred patent costs


(179
)


(353
)Other


(63
)


(73
)Net deferred tax

$



$
     9.
    Employee
    Savings Plan    10.
    Related
    Party Transactions     F-19




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##### Table of Contents



11.
    Selected
    Quarterly Financial Information (Unaudited)  Quarter EndedMarch 31,


June 30,


September 30,


December 31,Quarterly Results of
    Operations

2005


2005


2005


2005(Unaudited)

(In thousands, except per share
    amounts)Revenues

$
508


$
1,528


$
1,851


$
1,011Total operating expenses


8,668



7,594



6,305



7,310Net loss


(8,010
)


(5,950
)


(4,182
)


(5,775
)Basic and diluted net loss per
    share


(0.19
)


(0.14
)


(0.08
)


(0.10
)   Quarter EndedMarch 31,


June 30,


September 30,


December 31,Quarterly Results of
    Operations

2004


2004


2004


2004(Unaudited)

(In thousands, except per share
    amounts)Revenues

$
318


$
454


$
84


$
691Total operating expenses


6,251



6,776



7,914



9,611Net loss


(5,937
)


(6,281
)


(7,780
)


(8,859
)Basic and diluted loss per share


(0.19
)


(0.18
)


(0.21
)


(0.23
)     12.
    Subsequent
    Event       F-20




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##### Table of Contents



SIGNATURES
    SIRNA THERAPEUTICS, INC.
  By:
    /s/  GREGORY L. WEAVER        Form 10-K
  Signature

Title

Date/s/  Howard W.
    RobinHoward
    W. Robin

President and Chief Executive
    Officer and Director (Principal Executive Officer)

March 31, 2006/s/  Gregory L.
    WeaverGregory
    L. Weaver

Senior Vice President and Chief
    Financial Officer  (Principal Financial and Accounting Officer)

March 31, 2006/s/  R. Scott
    GreerR.
    Scott Greer

Chairman of the Board of Directors

March 31, 2006/s/  Jeremy L.
    Curnock CookJeremy
    L. Curnock Cook

Director

March 31, 2006/s/  Douglas
    FambroughDouglas
    Fambrough

Director

March 31, 2006/s/  Dennis LangerDennis
    Langer

Director

March 31, 2006/s/  Lutz LingnauLutz
    Lingnau

Director

March 31, 2006/s/  James NiedelJames
    Niedel

Director

March 31, 2006/s/  Bryan RobertsBryan
    Roberts

Director

March 31, 2006  F-21




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##### Table of Contents



EXHIBIT INDEX
  Number

Description3
.1

Amended and Restated Certificate
    of Incorporation of the Company (1)3
.2

Amended and Restated By-Laws of
    the Company, including amendment executed on February 22,
    2006 [conformed copy]***4
.1

Specimen Stock Certificate (3)4
.2

Rights Agreement, dated
    November 22, 2000 between Ribozyme Pharmaceuticals, Inc.
    and American Stock Transfer & Trust Company, which
    includes the form of Certificate of Designation of
    Series AA Junior Participating Preferred Stock attached as
    Exhibit A thereto (4)4
.3

Amendment dated February 11,
    2003 to Rights Agreement dated November 22, 2000 between
    Ribozyme Pharmaceuticals, Inc. and American Stock
    Transfer & Trust Company (5)4
.4

Registration Rights Agreement
    dated January 7, 2000, between Ribozyme Pharmaceuticals and
    Elan International Services, Ltd. (6)4
.5

Registration Rights Agreement
    dated January 7, 2000 among Ribozyme Pharmaceuticals, Elan
    International Services, Ltd. and Medizyme Pharmaceuticals Ltd.
    (6)4
.6

Common Stock and Warrant Purchase
    Agreement dated as of February 11, 2003 by and among
    Ribozyme Pharmaceuticals, Inc. and the Investors named
    therein (5)4
.7

Form of First Replacement Warrants
    (12)4
.8

Form of Second Replacement Warrant
    (12)4
.9

Form of Securities Purchase
    Agreement dated as of July 5, 2005 by and between the
    Company and certain Investors (14)4
.10

Form of Warrant to Purchase Common
    Stock of the Company (14)10
.2

Employment Agreement dated as of
    February 11, 2003 between Ribozyme Pharmaceuticals and
    Howard Robin (2)**10
.6

Employment Agreement dated as of
    February 11, 2003 between Ribozyme Pharmaceuticals and
    Nassim Usman (2)**10
.7

Indemnification Agreement dated as
    of April 18, 2003 between Ribozyme Pharmaceuticals and
    Howard Robin (2)10
.8

Indemnification Agreement dated as
    of April 18, 2003 between Ribozyme Pharmaceuticals and
    Jeremy Curnock Cook (2)10
.9

Indemnification Agreement dated as
    of April 18, 2003 between Ribozyme Pharmaceuticals and
    Douglas Fambrough and Alan G. Walton (2)10
.10

Indemnification Agreement dated as
    of April 18, 2003 between Ribozyme Pharmaceuticals and
    James Niedel (2)10
.11

Indemnification Agreement dated as
    of April 18, 2003 between Ribozyme Pharmaceuticals and
    Bryan Roberts (2)10
.17

Indemnification Agreement dated as
    of July 28, 2003 between the Company and R. Scott
    Greer (7)10
.18

Schering Aktiengesellschaft AG
    Waiver Letter (5)10
.19

Elan International Services, Ltd.
    Waiver and Conversion Letter (5)10
.22

Amendment to Lease for Real
    Property dated March 13, 1997, between Aero Tech
    Investments and Ribozyme Pharmaceuticals (8)10
.23

Research, License, Supply and
    Royalty Agreement between Schering Aktiengesellschaft and
    Ribozyme Pharmaceuticals dated April 9, 1997 (9)*10
.24

Purchase Agreement dated
    April 9, 1997, among Ribozyme Pharmaceuticals, Schering
    Berlin Venture Corporation and Schering
    Aktiengesellschaft (9)*10
.26

Employment Agreement dated
    March 10, 2004 between the Company and Roberto Guerciolini
    (10)**10
.27

Purchase Agreement dated as of
    April 30, 2004 between the Company and certain Purchasers
    set forth therein (11)10
.28

Employment Agreement dated as of
    August 19, 2004 between the Company and Martin Schmieg
    (13)** F-22




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##### Table of Contents



Number

Description10
.29

Sale Agreement dated
    October 12, 2004 between the Company, Skinetics Biosciences
    Inc. and the Stockholders of Skinetics, as amended through
    December 6, 2004 [conformed copy] (13)10
.30

Warrant Exchange Agreement dated
    December 30, 2004 between the Company and the
    Warrantholders thereto (12)10
.31

Lease for Real Property dated
    March 1, 2005 between the Company and Stockbridge/MCC-China
    Basin LLC (13)10
.32

Addendum to the Employment Letter
    dated February 11, 2003 between Sirna Therapeutics, Inc.
    and Nassim Usman, dated March 30, 2005 (13)**10
.33

Form of Voting Agreement and
    Irrevocable Proxy dated as of July 1, 2005 by and between
    the Company and certain stockholders of the Company (14)10
.34

Employment Agreement dated as of
    July 1, 2005 by and between the Company and J. Michael
    French (15)**10
.35

Offer Letter to Dennis H. Langer
    to serve as a Director of the Company, dated August 18,
    2005 (15)10
.36

Indemnification Agreement dated as
    of August 19, 2005 by and between the Company and Dennis H.
    Langer (15)10
.37

Strategic Alliance Agreement dated
    September 28, 2005 by and between the Company and Allergan,
    Inc. and affiliated entities (15)*10
.38

2005 Amended Director Compensation
    Plan of the Company, executed on September 30, 2005 (15)**10
.39

2005 Performance Incentive Plan
    (16)**23
.1

Consent of Ernst & Young
    LLP, Independent Registered Public Accounting Firm***31
.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002***31
.2

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002***32
.1

Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002***     *
    The Company has applied for and received confidential treatment
    with respect to portions of these exhibits.  **
    Indicates compensatory plan or arrangement.  ***
    Filed herewith.  (1)
    Incorporated by reference to certain exhibits to the
    Companys Registration Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    July 22, 2003 (File
    No. 333-107216).(2)
    Incorporated by reference to certain exhibits to the
    Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    April 24, 2003.(3)
    Incorporated by reference to certain exhibits to Ribozyme
    Pharmaceuticals
    Form SB-2
    Registration Statement filed with the Securities and Exchange
    Commission on April 11, 1996 (File
    No. 333-1908-D).(4)
    Incorporated by reference to certain exhibits to Ribozyme
    Pharmaceuticals
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 5, 2000.(5)
    Incorporated by reference to certain exhibits to Ribozyme
    Pharmaceuticals
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 14, 2003.(6)
    Incorporated by reference to certain exhibits to Ribozyme
    Pharmaceuticals
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 8, 2000.(7)
    Incorporated by reference to certain exhibits to the
    Companys Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 14, 2003.(8)
    Incorporated by reference to certain exhibits to Ribozyme
    Pharmaceuticals
    Form 10-KSB
    and amendment for the year ended December 31, 1996 filed
    with the Securities and Exchange Commission on March 31,
    1997.(9)
    Incorporated by reference to certain exhibits to Ribozyme
    Pharmaceuticals
    Form 8-K
    dated June 12, 1997.  (10)
    Incorporated by reference to certain exhibits to the
    Companys Quarterly Report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    April 30, 2004. F-23




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##### Table of Contents



(11)
    Incorporated by reference herein to certain exhibits to the
    Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on May 3,
    2004.(12)
    Incorporated by reference herein to certain exhibits to the
    Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    January 6, 2005.(13)
    Incorporated by reference to certain exhibits to the
    Companys Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2004 filed with the
    Securities and Exchange Commission on March 31, 2005.(14)
    Incorporated by reference herein to certain exhibits to the
    Companys Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    July 11, 2005.(15)
    Incorporated by reference herein to certain exhibits to the
    Companys Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2005 filed with
    the Securities and Exchange Commission on November 14, 2005.(16)
    Incorporated by reference to certain annex to the Companys
    Proxy Statement in connection with its Annual Meeting of
    Stockholders filed with the Securities Exchange Commission on
    May 23, 2005. F-24