<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-Q/A


(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2003

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                        Commission File Number: 0-20117

                         ENCYSIVE PHARMACEUTICALS INC.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                        13-3532643
-------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

             6700 West Loop South, 4th Floor, Bellaire, Texas 77401
-------------------------------------------------------------------------------
               (Address of principal executive office) (Zip code)

                                 (713) 796-8822
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
-------------------------------------------------------------------------------
             (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]   No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [X]   No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, exclusive of treasury shares, as of the latest practicable date.

           Class                                     Outstanding at May 6, 2003
           -----                                     --------------------------
common stock, $0.005 par value                                44,280,125


<PAGE>
                        TEXAS BIOTECHNOLOGY CORPORATION

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                         PAGE NO.

<S>                                                                                      <C>
PART I.  FINANCIAL INFORMATION

         ITEM 1: FINANCIAL STATEMENTS

         Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002             1

         Consolidated Statements of Operations and Comprehensive Loss for the
            three months ended March 31, 2003 and 2002                                      2

         Consolidated Statements of Cash Flows for the three months ended
            March 31, 2003 and 2002                                                         3

         Notes to Consolidated Financial Statements                                         4

         ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS                                                      18

         ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
            ABOUT MARKET RISK                                                              27

         ITEM 4: CONTROLS AND PROCEDURES                                                   28

PART II. OTHER INFORMATION

         ITEM 1: Legal Proceedings                                                         28

         ITEM 2: Changes in Securities and Use of Proceeds                                 28

         ITEM 3: Defaults Upon Senior Securities                                           28

         ITEM 4: Submission of Matters to a Vote of Security Holders                       28

         ITEM 5: Other Information                                                         28

         ITEM 6: Exhibits and Reports on Form 8-K                                          28

SIGNATURES                                                                                 30

CERTIFICATIONS
</TABLE>


<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       ($ IN THOUSANDS, EXCEPT PER DATA)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                  MARCH 31,           DECEMBER 31,
                                                                                    2003                  2002
                                                                                  ---------           ------------

<S>                                                                               <C>                 <C>
ASSETS
Current assets:
       Cash and cash equivalents                                                  $  27,030             $  21,228
       Short-term investments                                                        19,713                26,533
       Accounts receivable                                                            1,139                 1,098
       Other current receivables                                                        131                   473
       Receivable from related party under collaborative arrangement                  1,248                   393
       Prepaids                                                                       2,235                 1,482
                                                                                  ---------             ---------
           Total current assets                                                      51,496                51,207

Long-term investments                                                                13,105                20,244
Equipment and leasehold improvements, net                                             5,454                 5,579
Other assets                                                                            736                   762
                                                                                  ---------             ---------
           Total assets                                                           $  70,791             $  77,792
                                                                                  =========             =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable                                                           $     812             $     950
       Accrued expenses                                                               2,335                 3,774
       Deferred revenue from related party                                              591                   591
       Deferred revenue from unrelated parties                                          927                   927
       Payable to related party                                                       2,375                 2,664
                                                                                  ---------             ---------
           Total current liabilities                                                  7,040                 8,906

Deferred revenue from related party                                                   1,046                 1,181
Deferred revenue from unrelated parties                                               2,787                 3,019
Minority interest in Revotar                                                          2,418                 2,608

Commitments and contingencies

Stockholders' equity:
       Preferred stock, par value $.005 per share.  At March 31, 2003,
           and December 31, 2002, 5,000,000 shares authorized;
           none outstanding                                                              --                    --
       Common stock, par value $.005 per share.  At March 31, 2003
           75,000,000 shares authorized; 44,458,644 shares issued
           At December 31, 2002, 75,000,000 shares authorized;
           44,015,364 shares issued                                                     222                   220
       Additional paid-in capital                                                   212,282               211,847
       Deferred compensation expense                                                   (319)                 (223)
       Treasury stock, 213,000 shares at March 31, 2003, and
           December 31, 2002                                                         (1,602)               (1,602)
       Accumulated other comprehensive income                                            62                     1
       Accumulated deficit                                                         (153,145)             (148,165)
                                                                                  ---------             ---------
           Total stockholders' equity                                                57,500                62,078
                                                                                  ---------             ---------
           Total liabilities and stockholders' equity                             $  70,791             $  77,792
                                                                                  =========             =========
</TABLE>

          See accompanying notes to consolidated financial statements


                                       1
<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                    ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED MARCH 31,
                                                                        -------------------------------------
                                                                            2003                     2002
                                                                        ------------             ------------

<S>                                                                     <C>                      <C>
Revenues:
      Research agreements                                               $        742             $        913
      Collaborative research and development from
          ICOS-TBC, L.P.                                                         664                      240
      Royalty income, net                                                      1,148                      965
      License fees, milestones and grants                                        662                      475
                                                                        ------------             ------------
          Total revenues                                                       3,216                    2,593
                                                                        ------------             ------------

Expenses:
      Research and development                                                 4,219                    5,190
      Equity in loss of ICOS-TBC, L.P.                                         2,386                    2,510
      General and administrative                                               2,154                    2,667
                                                                        ------------             ------------
          Total expenses                                                       8,759                   10,367
                                                                        ------------             ------------

          Operating loss                                                      (5,543)                  (7,774)

Investment income, net                                                           373                      767
                                                                        ------------             ------------
          Loss before minority interest                                       (5,170)                  (7,007)

Minority interest in loss of Revotar                                             190                      257
                                                                        ------------             ------------

      Net loss                                                                (4,980)                  (6,750)

Other comprehensive gain (loss):
      Unrealized gain (loss) on foreign currency translation                      61                      (61)
                                                                        ------------             ------------

          Comprehensive loss                                            $     (4,919)            $     (6,811)
                                                                        ============             ============

Net loss per common share-
      basic and diluted                                                 $      (0.11)            $      (0.15)
                                                                        ============             ============

Weighted average common shares used to compute
      basic and diluted net loss per share                                43,945,274               43,613,146
                                                                        ============             ============
</TABLE>

          See accompanying notes to consolidated financial statements


                                       2
<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                    ($ in thousands, except per share data)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED MARCH 31,
                                                                                -----------------------------
                                                                                  2003                 2002
                                                                                --------             --------

<S>                                                                             <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                     $ (4,980)            $ (6,750)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
          Depreciation and amortization                                              263                  270
          Equity in loss of ICOS-TBC, L.P.                                         2,386                2,510
          Minority interest in loss of Revotar                                      (190)                (257)
          Expenses paid with stock                                                   325                  230
          Compensation expense related to stock options                               16                  182
          Amortization of premium/discount on investments                             32                   66
    Change in operating assets and liabilities:
         Decrease in interest receivable included in short-term
            and long-term investments                                                186                  278
         Increase in accounts receivable                                             (40)                (288)
         Increase in prepaids                                                       (753)                (872)
         Decrease in other current receivables                                       384                  284
         (Increase) decrease in receivable from related party under
            collaborative arrangement                                               (861)                 479
         Decrease in current liabilities                                          (1,601)              (1,011)
         Decrease in liability to related party                                   (2,675)              (2,172)
         Decrease in deferred revenue from unrelated parties                        (232)                (187)
         Decrease in deferred revenue from related party                            (136)                (288)
                                                                                --------             --------
           Net cash used in operating activities                                  (7,876)              (7,526)
                                                                                --------             --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                                 (56)              (1,245)
   Purchases of investments                                                       (8,307)             (32,888)
   Maturity of investments                                                        22,048               57,769
                                                                                --------             --------
           Net cash provided by investing activities                              13,685               23,636
                                                                                --------             --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock and option and
    warrant exercises, net                                                            --                  157
                                                                                --------             --------
           Net cash provided by financing activities                                  --                  157

Effect of exchange rate changes on cash                                               (7)                 (45)
                                                                                --------             --------
    Net increase in cash and cash equivalents                                      5,802               16,222

Cash and cash equivalents at beginning of period                                  21,228               10,086
                                                                                --------             --------

Cash and cash equivalents at end of period                                      $ 27,030             $ 26,308
                                                                                ========             ========

Supplemental schedule of noncash financing activities:
   deferred compensation expense                                                $    162             $    300
                                                                                ========             ========
   issuance of Common Stock for expenses                                        $    325             $    230
                                                                                ========             ========
</TABLE>

          See accompanying notes to consolidated financial statements


                                       3
<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           MARCH 31, 2003 (UNAUDITED)


(1)      BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of Texas
Biotechnology Corporation, a Delaware corporation, and its subsidiaries
(collectively referred to as the "Company" or "TBC") have been prepared in
accordance with accounting principles generally accepted in the United States
of America ("USA") for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all
information and notes required by accounting principles generally accepted in
the USA for complete financial statements. It is recommended that these interim
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002. Except as
disclosed herein, there has been no material change in the information
disclosed in the notes to the consolidated financial statements included in the
Company's Annual Report on Form 10-K. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2003 are not necessarily indicative of the
results that may be expected for any other interim period, or for the year
ending December 31, 2003.

(2)      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         (a)      Organization

                  The Company is a biopharmaceutical company focused on the
         discovery, development and commercialization of novel synthetic small
         molecule compounds for the treatment of a variety of cardiovascular,
         vascular and related inflammatory diseases. Since its formation in
         1989, the Company has been engaged principally in research and drug
         discovery programs and clinical development of certain drug compounds.
         On July 25, 1994, the Company acquired all of the outstanding common
         stock of ImmunoPharmaceutics, Inc. ("IPI") in exchange for common
         stock, par value $.005 per share (the "Common Stock"), of the Company.
         On June 6, 2000, TBC, through its wholly owned subsidiary, TBC-ET,
         Inc., a Delaware Corporation, and ICOS Corporation, a Delaware
         Corporation, ("ICOS") entered into an agreement and formed ICOS-Texas
         Biotechnology L.P., a Delaware limited partnership ("ICOS-TBC"), to
         develop and globally commercialize endothelin-A receptor antagonists.
         TBC and ICOS were both 50% owners in ICOS-TBC until April 22, 2003, at
         which time the Company purchased ICOS's share of ICOS-TBC and changed
         the name of ICOS-TBC to Encysive, L.P. ("Encysive"). The acquisition
         of ICOS's ownership interest in ICOS-TBC is referred to herein as the
         "Acquisition". See Note 14. During the third quarter of 2000, TBC
         formed Revotar Biopharmaceuticals AG ("Revotar"), a German
         corporation, to conduct research and development for novel small
         molecule compounds and to develop and commercialize TBC's selectin
         antagonists. The Company retained an approximately 55% interest in
         Revotar. The Company is presently working on a number of long-term
         development projects that involve experimental and unproven
         technology, which may require many years and substantial expenditures
         to complete, and which may be unsuccessful. Sales of the Company's
         first product for which it receives royalty income, Argatroban, began
         during November 2000.

         (b)      Basis of Consolidation

                  The Company's consolidated financial statements include the
         accounts of the Company, its wholly owned subsidiaries, IPI and
         TBC-ET, Inc., and its majority controlled subsidiary, Revotar. All
         material intercompany balances and transactions have been eliminated.


                                       4
<PAGE>
         (c)      Cash, Cash Equivalents, Short-Term Investments and Long-Term
                  Investments

                  Cash equivalents are considered to be those securities or
         instruments with original maturities, when purchased, of three months
         or less and are recorded at cost. Short-term investments consist of
         debt securities with original maturities of less than one year and
         greater than three months at the purchase date. Long-term investments
         consist of debt securities with a remaining maturity of one to four
         years. The Company classifies all short-term and long-term investments
         as held-to-maturity. Held-to-maturity securities are those securities
         in which the Company has the ability and intent to hold the security
         until maturity. Short-term and long-term investments are stated at
         amortized cost plus accrued interest. Interest income is accrued as
         earned. The Company evaluates the carrying value of its securities by
         comparing the carrying values of the securities to their market
         values. In the event that the fair value of a security were to decline
         below its carrying cost, and in the opinion of management such decline
         were other than temporary, the Company would record a loss and reduce
         the carrying value of such instrument to its fair value. Composition
         of cash and investments was as follows (in thousands):


<TABLE>
<CAPTION>
                                                     March 31, 2003   December 31, 2002
                                                     --------------   -----------------

         <S>                                         <C>              <C>
         Cash and cash equivalents:
            Demand and money market accounts            $ 5,145            $   609
            Corporate commercial paper                   21,885             20,619
                                                        -------            -------
         Total cash and cash equivalents                $27,030            $21,228
                                                        =======            =======

         Short-term investments:
           U.S. Government agency securities            $ 5,000            $ 3,999
           Corporate commercial paper and
              loan participations                        14,569             22,333
           Accrued interest on above                        144                201
                                                        -------            -------
         Total short-term investments                   $19,713            $26,533
                                                        =======            =======

         Long-term investments:
           U.S. Government agency securities            $ 5,000            $12,000
           Corporate commercial paper and
              loan participations                         8,013              7,990
           Accrued interest on above                         92                254
                                                        -------            -------
         Total long-term investments                    $13,105            $20,244
                                                        =======            =======
</TABLE>

         (d)      Equipment and Leasehold Improvements

                  Equipment and leasehold improvements are stated at cost less
         accumulated depreciation and amortization. Depreciation of furniture
         and equipment is provided on the straight-line method over the
         estimated useful lives of the respective assets (3 to 10 years).
         Amortization of leasehold improvements is provided on the
         straight-line method over the remaining minimum lease term.

         (e)      Investment in ICOS - TBC (Encysive)

                  The Company accounts for the investment in ICOS-TBC using the
         equity method. Because the Company had no basis in the technology
         transferred to ICOS-TBC as the Company's original investment, the
         Company did not record an amount for its original investment. The
         Company records its share of the ICOS-TBC loss as a liability to
         related party until the Company funds its portion of the loss.

                  ICOS-TBC paid a license fee and a milestone payment to the
         Company in 2000 and 2001, respectively. Because the Company has
         continuing obligations to ICOS-TBC, the Company


                                       5
<PAGE>
         deferred these amounts and is amortizing them into revenue over the
         estimated developmental period of the underlying technology.
         Approximately $1,637,000 in remaining deferred license fee and
         milestone income received from ICOS-TBC at the date of the Acquisition
         will be recognized as an offset to the purchase price paid to ICOS.
         Subsequent to the Acquisition, the Company's consolidated financial
         statements will include the accounts of ICOS-TBC. See Note 14.

         (f)      Research and Development Costs

                  All research and development costs are expensed as incurred
         and include salaries of research and development employees, certain
         rent and related building services, research supplies and services,
         clinical trial expenses and other associated costs. Salaries and
         benefits charged to research and development in the three-month
         periods ended March 31, 2003 and 2002 were approximately $2,586,000
         and $2,373,000, respectively. Payments related to the acquisition of
         in-process research and development, if any, are expensed as incurred.

         (g)      Net Loss Per Common Share

                  Basic net loss per common share is calculated by dividing the
         net loss applicable to common shares by the weighted average number of
         common and common equivalent shares outstanding during the period. For
         the three-month periods ended March 31, 2003 and 2002, the weighted
         average common shares used to compute basic and diluted net loss per
         common share totaled 43,945,274 and 43,613,146 shares, respectively.
         Securities convertible into Common Stock, comprised of stock options
         and warrants totaling 5,637,230 and 5,485,252 shares at March 31, 2003
         and 2002, respectively, were not used in the calculation of diluted
         net loss per common share because the effect would have been
         antidilutive.

         (h)      Revenue Recognition

                  Revenue from service contracts is recognized as services are
         performed. Royalty revenue is recognized as products are sold by a
         licensee and the Company has received sufficient information to record
         a receivable. The Company defers the recognition of milestone payments
         related to contractual agreements which are still in the development
         stage and for which the Company continues to have obligations under
         the agreement. Such deferred revenues are amortized into income over
         the estimated remaining development period. Milestone payments
         received under contractual agreements which have completed the
         development stage are evaluated, and either recognized into income
         when earned, or amortized over a future period, depending upon whether
         or not the Company continues to have obligations under the terms of
         the arrangement. License fees received under the terms of licensing
         agreements for the Company's intellectual property are similarly
         deferred, and amortized into income over the estimated development
         period of the licensed item or items. The Company periodically
         evaluates its estimates of remaining development periods, and adjusts
         the recognition of remaining deferred revenues over the adjusted
         development period remaining. Revenue from grants is recognized as
         earned under the terms of the related grant agreements, typically as
         expenses are incurred. Amounts received in advance of services being
         performed under contracts are recorded as deferred revenue, and
         recognized as services are performed.

         (i)      Patent Application Costs

                  Costs incurred in filing for, defending and maintaining
         patents are expensed as incurred.

         (j)      Use of Estimates

                  Management of the Company has made a number of estimates and
         assumptions relating to the reporting of assets, liabilities, revenues
         and expenses and the disclosure of contingent assets and liabilities
         to prepare these consolidated financial statements in conformity with
         accounting principles


                                       6
<PAGE>
         generally accepted in the USA. Actual results could differ from these
         estimates.

         (k)      Intangible Assets

                  Intangible assets, included in other assets, consisting of
         amounts paid for products approved by the United States Food and Drug
         Administration ("FDA"), are amortized on a straight-line basis over
         their estimated useful lives. The Company periodically reviews the
         useful lives of its intangible and long-lived assets, which may result
         in future adjustments to the amortization periods. Related
         amortization expense for each of the three-month periods ended March
         31, 2003 and 2002 was $27,000. Amortization of intangible assets is
         included in general and administrative expense in the consolidated
         statements of operations and comprehensive loss.

         (l)      Treasury Stock

                  Treasury stock is recorded at cost. On May 3, 2001, the
         Company announced a stock repurchase program to buy up to 3 million
         shares, or approximately seven percent, of the Company's outstanding
         Common Stock over an 18 month period. Pursuant to the stock repurchase
         program, the Company had repurchased 213,000 shares for $1,602,000
         during the year ended December 31, 2001. No shares were repurchased in
         the three-month periods ended March 31, 2003 and 2002.

         (m)      Stock Based Compensation

                  At March 31, 2003, the Company has six stock-based
         compensation plans for employees and non-employee directors, which are
         described more fully in Note 4. The Company accounts for those plans
         under the recognition and measurement principles of Accounting
         Principles Board Opinion No. 25, Accounting for Stock Issued to
         Employees, and related interpretations. Net loss in the three-months
         ended March 31, 2003 and 2002 included stock-based compensation
         expense as a result of modifications made to certain options
         previously issued to retiring employees, and resulting from the grant
         of shares of restricted stock to certain employees. No other
         stock-based employee compensation expenses is reflected in net loss,
         however, as all options granted under those plans had an exercise
         price equal to the market price of the underlying Common Stock on the
         date of grant. The following table illustrates the effect on net loss
         and loss per share if the Company had applied the fair value
         recognition provisions of FASB Statement of Financial Accounting
         Standards No. 123, "Accounting for Stock-Based Compensation" to
         stock-based employee compensation ($ in thousands, except for per
         share data).


<TABLE>
<CAPTION>
                                                               Three Months Ended March 31,
                                                               ----------------------------
                                                                 2003                2002
                                                               -------             --------

         <S>                                                   <C>                 <C>
         Net loss, as reported                                 $(4,980)            $(6,750)
         Add: Stock-based employee compensation
             expense included in reported
             net loss                                               66                 181
         Deduct: Total stock-based employee
             compensation expense determined
             under fair value method for all awards             (1,162)               (866)
                                                               -------             -------
         Pro forma net loss                                    $(6,076)            $(7,435)
                                                               =======             =======

         Loss per share:
             As reported: basic and diluted                    $ (0.11)            $ (0.15)
             Pro forma: basic and diluted                      $ (0.14)            $ (0.17)
</TABLE>


                                       7
<PAGE>
                  The per-share weighted average fair value of stock options
         granted during the three-month periods ended March 31, 2003 and 2002
         was $0.52 and $3.53, respectively, on the grant date using the
         Black-Scholes option pricing model with the following assumptions:


<TABLE>
<CAPTION>
                                                    Three Months
                                                  Ended March 31,
                                               ----------------------
                                               2003              2002
                                               ----              ----

         <S>                                   <C>               <C>
         Expected dividend yield                0.0%              0.0%
         Risk-free interest rate                2.5%              2.8%
         Expected volatility                   71.9%             74.3%
         Expected life in years                 4.24              4.53
</TABLE>

         (n)      Income Taxes

                  The Company uses the asset and liability method of accounting
         for income taxes. Under the asset and liability method, deferred tax
         assets and liabilities are recognized for the future tax consequences
         attributable to differences between the financial statement carrying
         amounts of existing assets and liabilities and their respective tax
         bases and operating loss and tax credit carryforwards.

                  Deferred tax assets and liabilities are measured using
         enacted tax rates expected to apply to taxable income in the years in
         which those temporary differences are expected to be recovered or
         settled. The effect on deferred tax assets and liabilities of a change
         in tax rates is recognized in income in the period that includes the
         enactment date.

         (o)      Impairment of Long-lived Assets

                  As circumstances dictate, the Company evaluates the
         recoverability of its intangible and long-lived assets by comparing
         the projected undiscounted net cash flows associated with such assets
         against their respective carrying values. Impairment, if any, is based
         on the excess of the carrying value over the fair value.

         (p)      New Accounting Pronouncements

                  In April 2002, the FASB issued Statement of Financial
         Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
         and 64, Amendment of FASB Statements No. 13 and Technical
         Corrections," (SFAS145). SFAS145 provides guidance for income
         statement classification of gains and losses on extinguishments of
         debt and accounting for certain lease modifications that have economic
         effects that are similar to sale-leaseback transactions. SFAS145 was
         effective for the Company in January 2003. The Company's adoption of
         SFAS145 did not have a significant impact on its financial condition
         or results of operations.

                  In July 2002, the FASB issued Statement of Financial
         Accounting Standards No. 146, "Accounting for Costs Associated With
         Exit or Disposal Activities," (SFAS146) which addresses significant
         issues regarding the recognition, measurement and reporting of costs
         that are associated with exit and disposal activities, including
         restructuring activities that are currently accounted for pursuant to
         the guidance set forth in EITF Issue No. 94-3, "Liability Recognition
         of Certain Employee Termination Benefits and Other Costs to Exit an
         Activity." SFAS146 was effective for the Company in January 2003. The
         Company's adoption of SFAS146 did not have a significant impact on its
         financial condition or results of operations.


                                       8
<PAGE>
                  In January 2003, the FASB issued FASB Interpretation (FIN)
         No. 46, "Consolidation of Variable Interest Entities." FIN No. 46
         requires a company to consolidate a variable interest entity if it is
         designated as the primary beneficiary of that entity even if the
         company does not have a majority of voting interests. A variable
         interest entity is generally defined as an entity where its equity is
         unable to finance its activities or where the owners of the entity
         lack the risk and rewards of ownership. The provisions of this
         statement apply at inception for any entity created after January 31,
         2003. For an entity created before February 1, 2003, the provisions of
         this Interpretation must be applied at the beginning of the first
         interim or annual period beginning after June 15, 2003. When the
         Company adopts the provisions of FIN No. 46 in the third quarter of
         2003 for existing entities its investment in Encysive, L.P. will be
         consolidated.

                  In April 2003, the FASB issued Statement of Financial
         Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 on
         Derivative Instruments and Hedging Activities." SFAS No. 149 amends
         and clarifies financial accounting and reporting for derivative
         instruments. This statement is effective for contracts entered into or
         modified after June 30, 2003. The Company will adopt this statement in
         the third quarter of 2003 and is currently evaluating the provisions
         of this statement to determine its impact on the financial statements.

         (q)      Reclassifications

                  Certain reclassifications have been made to prior period
         financial statements to conform to the March 31, 2003 presentation
         with no effect on net loss or stockholders' equity previously
         reported.

(3)      CAPITAL STOCK

         The Company has reserved Common Stock for issuance as of March 31,
2003 as follows:


<TABLE>
                  <S>                                           <C>
                  Stock option plans ...............            7,321,346
                  Warrants outstanding .............              246,586
                                                                ---------
                        Total shares reserved ......            7,567,932
                                                                =========
</TABLE>

         The Company's only warrants outstanding at March 31, 2003 include
142,858 warrants issued to Genentech in 1997, and 103,728 warrants granted in
1999 in connection with non-employee services.

         Shareholders' Rights Plan

                  In January 2002, the Company adopted a shareholder rights
         plan under which the Board of Directors declared a dividend of one
         preferred stock purchase right ("Right") for each outstanding share of
         the Company's Common Stock held of record as of the close of business
         on January 22, 2002. Each Right initially entitles a stockholder to
         purchase a one one-thousandth fraction of a share of Preferred Stock -
         Junior Participating Series A (the "Preferred Stock") for $55.00. Each
         such fraction of a share of Preferred Stock has terms designed to make
         it essentially equivalent to one share of Common Stock. The Rights
         will become exercisable only in the event a person or group acquires
         15% or more of the Company's Common Stock or commences a tender or
         exchange offer which, if consummated, would result in that person or
         group owning 15% of the Common Stock. Prior to such an event, the
         Rights will be evidenced by and traded in tandem with the Common
         Stock.

                  If a person or group acquires a 15% or larger position in the
         Company, each Right (except those held by the acquiring party) will
         then entitle its holder to purchase fractional shares of Preferred
         Stock having twice the value of the $55.00 exercise price, with each
         fractional Preferred Share valued at the market price of the Common
         Stock. Also, if following an acquisition of 15% or more of the
         Company's Common Stock, the Company is acquired by that person or
         group in a merger or other business combination transaction, each
         Right would then entitle its holder to purchase


                                       9
<PAGE>
         Common Stock of the acquiring company having a value of twice the
         $55.00 exercise price. The effect will be to entitle the Company's
         shareholders to buy stock in the acquiring company at 50% of its
         market price.

                  The Company may redeem the Rights at $.001 per Right at any
         time on or prior to the tenth business day following the acquisition
         of 15% or more of its Common Stock by a person or group or
         commencement of a tender offer for such 15% ownership. The Rights
         expire on January 2, 2012.

(4)      STOCK OPTIONS

         The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans and applies FASB Statement No. 123, Accounting for
Stock-Based Compensation, and related interpretations in reporting for its
plans.

         A summary of stock options as of March 31, 2003, follows:


<TABLE>
<CAPTION>
                                   EXERCISE PRICE                                  EXERCISED/                     AVAILABLE
STOCK OPTION PLANS                   PER SHARE       AUTHORIZED     OUTSTANDING      OTHER        EXERCISABLE     FOR GRANT
------------------                 --------------    ----------     -----------    ----------     -----------     ---------

<S>                                <C>               <C>            <C>            <C>            <C>             <C>
1990 Plan ..................       $ 1.38-$21.59        285,715         88,348        197,367         88,348             --
1992 Plan ..................       $ 1.41-$21.59      1,700,000        683,140      1,016,860        680,307             --
Director Plan ..............       $ 3.50-$ 4.54         71,429         28,527         42,902         28,527             --
1995 Plan ..................       $ 0.93-$21.59      2,000,000      1,595,461        395,133      1,485,265          9,406
1995 Director Plan (1) .....       $ 1.38-$11.31        800,000        386,596         65,033        324,096        348,371
1999 Plan  (2) .............       $ 0.93-$20.13      4,750,000      2,608,572        568,504      1,137,013      1,572,924
                                                      ---------      ---------      ---------      ---------      ---------
       TOTALS ..............                          9,607,144      5,390,644      2,285,799      3,743,556      1,930,701
                                                      =========      =========      =========      =========      =========
</TABLE>

(1)      Includes 300,000 authorized shares which are subject to approval of
         stockholders at the 2003 Annual Meeting, to be held May 16, 2003.

(2)      Includes 1,750,000 authorized shares and 132,752 outstanding but not
         exercisable options which were issued subject to approval of
         stockholders at the 2003 Annual Meeting, to be held May 16, 2003.

         Pursuant to provisions contained within his employment agreement, in
March 2002 the Company's new chief executive officer purchased 5,000 shares at
market price and was awarded 50,000 shares of the Company's Common Stock out of
the 1999 Plan. The awarded shares will vest after completion of three years'
service to the Company. The Company recorded deferred compensation expense of
$309,000, which is being recognized over the vesting period. General and
administrative expenses in the three-month periods ended March 31, 2003 and
2002 included $26,000 and $9,000, respectively, related to this grant.

         In January 2003, the Company issued 105,250 shares of restricted
Common Stock to non-officer employees remaining after the restructuring. The
shares will vest after completion of one year of service to the Company. The
Company recorded deferred compensation expense of $162,000, which will be
recognized over the vesting period. Research and Development expenses and
General and Administrative expenses during the three months ended March 31,
2003 included $35,000 and $5,000, respectively related to these grants.

         In conjunction with the retirement of the Company's former chief
executive officer, the Company modified provisions regarding vesting and time
to exercise of certain stock options of the officer and recorded compensation
expense of approximately $173,000, which was included in general and
administrative expenses, during the three months ended March 31, 2002.


                                      10
<PAGE>
(5)      INCOME TAXES

         The Company did not incur tax expense during the three-month period
ended March 31, 2003, due to operating losses and the related increase in the
valuation allowance.

         The reconciliation of income taxes at the statutory rate of 35%
applied to loss before taxes for the three months ended March 31, 2003 and 2002
is as follows ($ in thousands):


<TABLE>
<CAPTION>
                                                           2003                2002
                                                         -------             -------

         <S>                                             <C>                 <C>
         Computed "expected" tax benefit                 $(1,743)            $(2,362)
         Effect of:
              Permanent differences                           34                 178
              Increase in valuation allowance              1,709               2,184
                                                         -------             -------
         Tax benefit                                     $    --             $    --
                                                         =======             =======
</TABLE>

         The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets as of March 31, 2003 and
December 31, 2002 are as follows ($ in thousands):


<TABLE>
<CAPTION>
                                                MARCH 31, 2003      DECEMBER 31, 2002
                                                --------------      -----------------

         <S>                                    <C>                 <C>
         Loss carryforwards                        $ 44,475             $ 41,946
         Start-up costs                               7,315                8,001
         Property, plant and equipment                  (87)                 (71)
         Deferred revenue                             1,920                2,053
         Other                                        1,062                1,047
                                                   --------             --------
              Gross deferred tax assets              54,685               52,976
              Valuation allowance                   (54,685)             (52,976)
                                                   --------             --------
              Net deferred tax assets              $     --             $     --
                                                   ========             ========
</TABLE>

         The Company has established a valuation allowance for the full amount
of these deferred tax assets, as management believes that it is more likely
than not that the Company will not recover these assets. Utilization of the
Company's net operating loss carryforwards is subject to certain limitations
due to specific stock ownership changes which have occurred or may occur. To
the extent not utilized, the carryforwards will expire during the years
beginning 2005 through 2023.

(6)      EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Equipment and leasehold improvements consist of the following ($ in
thousands):


<TABLE>
<CAPTION>
                                                               MARCH 31, 2003    DECEMBER 31, 2002
                                                               --------------    -----------------

         <S>                                                   <C>               <C>
         Laboratory and office equipment                           $10,803            $10,667
         Leasehold improvements                                      4,311              4,311
                                                                   -------            -------
                                                                    15,114             14,978
         Less accumulated depreciation and amortization              9,660              9,399
                                                                   -------            -------
                                                                   $ 5,454            $ 5,579
                                                                   =======            =======
</TABLE>


                                      11
<PAGE>
(7)      ENTITY-WIDE GEOGRAPHIC DATA

         The Company operates in a single business segment that includes
research and development of pharmaceutical products. The following table
summarizes the Company's long-lived assets in different geographic locations ($
in thousands):


<TABLE>
<CAPTION>
                                    MARCH 31, 2003  DECEMBER 31, 2002
                                    --------------  -----------------

         <S>                        <C>             <C>
         Long-lived assets:
            United States              $4,749            $4,884
            Germany                     1,441             1,457
                                       ------            ------
         Total                         $6,190            $6,341
                                       ======            ======
</TABLE>


<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED
                                    -------------------------------
                                    MARCH 31, 2003   MARCH 31, 2002
                                    --------------   --------------

         <S>                        <C>              <C>
         Revenues:
            United States              $2,933            $2,593
            Germany                       283                --
                                       ------            ------
         Total                         $3,216            $2,593
                                       ======            ======
</TABLE>

(8)      RESEARCH AGREEMENTS

         Under the terms of the Company's agreement with ICOS-TBC, prior to the
Acquisition, the Company provided, and was reimbursed for, research and
development activities conducted on behalf of ICOS-TBC. See Note 9, License
Agreements, and Note 14, Subsequent Event.

         The Company also receives reimbursement for certain research costs
pursuant to its agreements with Schering-Plough (Note 9), Revotar (Note 10) and
GlaxoSmithKline ("GSK") (Note 11).

(9)      LICENSE AGREEMENTS

         Mitsubishi Pharma Agreement

                  TBC has entered into an agreement with Mitsubishi Pharma
         Corporation, formerly Mitsubishi-Tokyo Pharmaceuticals, Inc.
         ("Mitsubishi") to license Mitsubishi's rights and technology relating
         to Argatroban and to license Mitsubishi's own proprietary technology
         developed with respect to Argatroban (the "Mitsubishi Agreement").
         Under the Mitsubishi Agreement, the Company has an exclusive license
         to use and sell Argatroban in the U.S. and Canada for all specified
         indications. The Company is required to pay Mitsubishi specified
         royalties on net sales of Argatroban by the Company and its
         sublicensees after its commercial introduction in the U.S. and Canada.
         Either party may terminate the Mitsubishi Agreement on 60 days notice
         if the other party defaults in its material obligations under the
         agreement, declares bankruptcy or is insolvent, or if a substantial
         portion of its property is subject to levy. Unless terminated sooner
         pursuant to the above described termination provisions, the Mitsubishi
         Agreement expires on the later of termination of patent rights in a
         particular country or 20 years after first commercial sale of
         products. Under the Mitsubishi Agreement, TBC has access to an
         improved formulation patent granted in 1993 which expires in 2010, a
         patent on the manufacturing process to produce Argatroban that expires
         in 2012, and a patent for the use of Argatroban as a
         fibrinolysis-enhancing agent which expires in 2009. The Mitsubishi
         composition of matter patent on Argatroban has expired. During 2000,
         the Company signed an additional agreement with Mitsubishi that
         provides TBC with royalties on sales of Argatroban in certain European
         countries, and up to a total of $5.0 million in milestones for the
         development of ischemic stroke and certain other provisions. In
         conjunction with the Mitsubishi Agreement, a


                                      12
<PAGE>
         consulting firm involved in negotiations related to the agreement will
         receive a percentage of net sales received as a result of the
         agreement. The Company enrolled its first patient in a clinical trial
         for ischemic stroke in April 2001, and received a $2.0 million
         milestone payment in May 2001, which is being recognized in revenues
         over the expected development period, and accordingly, revenues in the
         three-month periods ended March 31, 2003 and 2002 include
         approximately $95,000 related to such milestone payment. In light of a
         lack of a positive overall efficacy trend and the high risk and high
         costs associated with stroke trials, it is unlikely that we will
         proceed independently with a full Phase III program.

                  In exchange for the license from Genentech, Inc, (the "Former
         Licensor") of its Argatroban technology, TBC issued the Former
         Licensor 285,714 shares of Common Stock during 1993 and issued an
         additional 214,286 shares of Common Stock on October 9, 1997, after
         acceptance of the filing of the first New Drug Application ("NDA")
         with the FDA for Argatroban. On June 30, 2000, the Company issued an
         additional 71,429 shares of Common Stock to Genentech in conjunction
         with the approval of the NDA for Argatroban in patients with
         heparin-induced thrombocytopenia ("HIT"). The value of $965,970 was
         recorded as an intangible asset and is being amortized over the
         estimated useful life of the asset. Amortization expense recorded in
         the three-month periods ended March 31, 2003 and 2002 was
         approximately $26,000. Additionally, on October 9, 1997, upon
         acceptance of the filing of the first NDA for Argatroban with the FDA,
         the Company granted the Former Licensor a warrant to purchase an
         additional 142,858 shares of Common Stock at an exercise price of
         $14.00 per share, subject to adjustment, which expires on October 9,
         2004. TBC has also granted the Former Licensor demand and piggyback
         registration rights with regard to shares of Common Stock issued to
         the Former Licensor.

         ICOS Corporation Partnership

                  On June 6, 2000, ICOS and the Company entered into the
         ICOS-TBC limited partnership agreement. The partnership seeks to
         develop and globally commercialize ET(A) receptor antagonists. As a
         result of the Company's contribution of technology, ICOS-TBC paid a
         license fee to the Company in June 2000. The license fee is being
         amortized over the estimated development period of the licensed
         technology, and the Company recognized approximately $62,000 and
         $121,000 of it as revenue during the three-month periods ended March
         31, 2003 and 2002, respectively.

                  Pursuant to the terms of the limited partnership agreement,
         ICOS-TBC was initially capitalized by a cash contribution from ICOS
         and the Company's contribution of intellectual property associated
         with sitaxsentan sodium. The intellectual property contributed by the
         Company to ICOS-TBC had no basis for financial reporting purposes and,
         accordingly, the Company assigned no value to the transfer of
         technology.

                  In July 2001, the Company earned a milestone as a result of
         the achievement of an objective defined in the partnership agreement.
         The Company is recognizing the revenue associated with the milestone
         over the expected development period, and revenues included
         approximately $86,000 and $167,000 in the three-month periods ended
         March 31, 2003 and 2002, respectively.

                  During the three-month periods ended March 31, 2003 and 2002,
         the Company recognized a loss of approximately $2,386,000 and
         $2,510,000, respectively, representing the Company's proportionate
         share of the losses of ICOS-TBC.

                  Approximately $1,637,000 in remaining deferred license fee
         and milestone income received from ICOS at the date of the Acquisition
         will be recognized as an offset to the purchase price paid to ICOS.
         See Note 14. Subsequent to the Acquisition, the Company's consolidated
         financial statements will include the accounts of ICOS-TBC.

         Schering-Plough Research Collaboration and License Agreement


                                      13
<PAGE>
                  On June 30, 2000, TBC and Schering-Plough ("Schering")
         entered into a worldwide research collaboration and license agreement
         to discover, develop and commercialize VLA-4 antagonists. VLA-4
         antagonists represent a new class of compounds that has shown promise
         in multiple preclinical animal models of asthma. The primary focus of
         the collaboration will be to discover orally available VLA-4
         antagonists as treatments for asthma.

                  Under the terms of the agreement, Schering obtains the
         exclusive worldwide rights to develop, manufacture and market all
         compounds from TBC's library of VLA-4 antagonists, as well as the
         rights to a second integrin antagonist. TBC will be responsible for
         optimizing a lead compound and additional follow-on compounds.
         Schering is supporting research at TBC and will be responsible for all
         costs associated with the worldwide product development program and
         commercialization of the compound. In addition to reimbursing research
         costs, Schering paid an upfront license fee and will pay development
         milestones and royalties on product sales resulting from the
         agreement. This upfront license fee is being amortized into revenue
         over the expected development period. License fees, milestones and
         grants in the three-month periods ended March 31, 2003 and 2002
         included approximately $92,000, related to this upfront license fee.

                  In June 2002, the Company achieved a milestone under the
         agreement with Schering as a result of the nomination of an initial
         candidate for Schering's further development. This milestone payment
         will be recognized into revenue over the expected development period.
         License fees, milestones and grants for the three-month period ended
         March 31, 2003 included approximately $45,000 related to this
         milestone payment. Total payments to TBC under the terms of the
         agreement, excluding royalties, could reach $87.0 million.
         Additionally, in June 2002, Schering and the Company agreed to extend
         Schering's support of the research collaboration to a third year,
         through June 30, 2003.

(10)     FOREIGN SUBSIDIARY

         During the third quarter 2000, TBC formed Revotar to conduct research
and development of novel small molecule compounds and to develop and
commercialize selectin antagonists. Upon formation, Revotar received certain
development and commercialization rights to the Company's selectin antagonist
compounds as well as rights to certain other TBC research technology. Revotar
also received approximately $5 million in funding from three German venture
capital funds. The Company retained ownership of approximately 55% of the
outstanding common stock of Revotar and has consolidated the financial results
of Revotar into TBC's consolidated financial statements. Since the development
and commercialization rights contributed by the Company to Revotar had no basis
for financial reporting purposes, the Company assigned no value to its
contribution of intellectual property rights. The minority interest in Revotar
at March 31, 2003 and December 31, 2002, was $2,418,000 and $2,608,000,
respectively. The Company's consolidated net loss for the three-month periods
ended March 31, 2003 and 2002 was reduced by $190,000 and $257,000,
respectively, for the Revotar minority shareholders' interest in Revotar's
losses.

         Revotar has been awarded research grants from the German government,
and earned approximately $283,000 during the three-months ended March 31, 2003,
which is included in license fees, milestones and grants.

         The Company and the other stockholders of Revotar have executed an
agreement to provide approximately $4.5 million in unsecured loans, of which
the Company's commitment will be approximately $3.4 million. The terms of the
loans require quarterly interest payments and repayment of all principal on or
before April 1, 2007. The interest rate for the first two years will be seven
percent, after which the interest rate will be reset to the U.S. prime rate
plus 2.5 % if such rate is higher than seven percent. Pursuant to such
agreement, the Company has advanced approximately $2,237,000 to Revotar as of
March 31, 2003. Revotar's management has informed the Company that they
anticipate that Revotar will borrow the remaining commitment of approximately
$1.1 million from the Company in the fourth quarter of 2003. The loan is
denominated in U.S. dollars. To mitigate the risk of fluctuations in foreign


                                      14
<PAGE>
currency exchange rates, Revotar entered into a forward contract with a bank to
fix the exchange rate at which it will borrow the remaining loan commitment.

         As part of the agreement to form Revotar, the Company and the other
initial investors agreed to issue rights to purchase common stock of Revotar
held by them to Aqua Partners LLC ("Aqua"), which assisted in the formation of
Revotar. The shareholders have signed an agreement that provides Aqua with the
option to acquire up to 3.26% of the shares owned by each shareholder for a
total amount of approximately $540,000, payable to the shareholders.

(11)     COMMERCIALIZATION AGREEMENT

         In connection with TBC's development and commercialization of
Argatroban, in August 1997, TBC entered into a Product Development, License and
CoPromotion Agreement with GSK (the "GSK Agreement") whereby GSK was granted
exclusive rights to work with TBC in the development and commercialization of
Argatroban in the U.S. and Canada for specified indications. GSK paid $8.5
million in upfront license fees during August 1997, a $5 million milestone
payment in October 1997, and a $7.5 million milestone payment in June 2000.
Additional milestone payments may be earned upon the clinical development and
FDA approval for the acute myocardial infarction indication. Future milestone
payments for the acute myocardial infarction indication are subject to GSK's
agreement to market Argatroban for such indication. The parties have also
formed a joint development committee to analyze the development of additional
Argatroban indications to be funded 60% by GSK except for certain Phase IV
trials which shall be funded entirely by GSK. At this time, GSK has no plans to
conduct development work for the acute myocardial infarction and stroke
indications. TBC began a Phase II clinical trial in March 2001 to evaluate the
use of Argatroban for ischemic stroke, and announced preliminary results in
October 2002. GSK has the exclusive right to commercialize all products arising
out of the collaboration, subject to the obligation to pay royalties on net
sales to TBC and to the rights of TBC to co-promote these products through its
own sales force in certain circumstances. TBC will retain the rights to any
indications which GSK determines it does not wish to pursue (such as ischemic
stroke), subject to the requirement that TBC must use its own sales force to
commercialize any such indications. Any indications which TBC elects not to
pursue will be returned to Mitsubishi. In conjunction with the GSK Agreement, a
consulting firm involved in negotiations related to the agreement will receive
a percentage of all consideration received by TBC as a result of the agreement.

         At present, Mitsubishi is the only manufacturer of Argatroban and has
entered into the Mitsubishi Supply Agreement with GSK to supply Argatroban in
bulk in order to meet GSK and TBC's needs under the GSK Agreement. Should
Mitsubishi fail during any consecutive nine-month period to supply GSK at least
80% of its requirements, and such requirements cannot be satisfied by existing
inventories, the Mitsubishi Supply Agreement provides for the nonexclusive
transfer of the production technology to GSK. If GSK cannot commence
manufacturing of Argatroban or alternate sources of supply are unavailable or
uneconomic, the Company's results of operations would be materially and
adversely affected.

         The GSK Agreement generally terminates on a country by country basis
upon the earlier of the termination of TBC's rights under the Mitsubishi
Agreement, the expiration of applicable patent rights or, in the case of
royalty payments, the commencement of substantial third-party competition. GSK
also has the right to terminate the agreement on a country by country basis by
giving TBC at least three months written notice at any time before GSK first
markets products in that country based on a reasonable determination by GSK
that the commercial profile of the product in question would not justify
continued development in that country. GSK has similar rights to terminate the
GSK Agreement on a country by country basis after marketing has commenced. In
addition, either party may terminate the GSK Agreement on 60 days notice if the
other party defaults in its obligations under the agreement, declares
bankruptcy or is insolvent.

(12)     401(K) PLAN

         The Company has a 401(k) plan under which all employees with three
months of service are eligible to participate and may contribute up to 60 % of
their compensation, with a maximum contribution of


                                      15
<PAGE>
$12,000 per employee in 2003. Under the terms of the Economic Growth and Tax
Relief Reconciliation Act, employees aged 50 or older may contribute an
additional $2,000 to the 401(k) Plan in 2003, such additional contribution
would be eligible for employer matching. The Company provides a matching
contribution of $0.50 on the dollar of employee contributions up to 6% of
salaries. Charges to operating expense for employer match during the
three-month periods ended March 31, 2003 and 2002 were approximately $46,000
and $50,000, respectively.

(13)     COMMITMENTS AND CONTINGENCIES

         (a)      Foreign Currency Exchange Risk

                  The Company is exposed to market risk primarily from changes
         in foreign currency exchange rates.

                  The Company has a majority-owned subsidiary in Germany and
         consolidates the results of operations into its consolidated financial
         results. Although not significant to date, the Company's reported
         assets, liabilities, expenses and cash flows from this subsidiary are
         exposed to changing exchange rates. The Company, accordingly, included
         an unrealized gain of $60,000 and unrealized loss of $61,000,
         respectively, in its comprehensive loss for the three-month periods
         ended March 31, 2003 and 2002. The Company had an intercompany
         receivable from its German subsidiary at March 31, 2003 and December
         31, 2002; however, this amount is denominated in U.S. dollars and is
         not exposed to exchange risk. Revotar's management has informed the
         Company that they anticipate that Revotar will borrow the remaining
         commitment of approximately $1.1 million from the Company in the
         fourth quarter of 2003. The loan is denominated in U.S. dollars. To
         mitigate the risk of fluctuations in foreign currency exchange rates,
         Revotar entered into a forward contract with a bank to fix the
         exchange rate at which it will borrow the remaining loan commitment.
         The Company contracts with entities in other areas outside the U.S.
         and these transactions are denominated in a foreign currency. To date,
         the currencies of these other countries have not fluctuated
         materially.

         (b)      Other Contingencies

                  Like other biopharmaceutical companies, the Company is
         subject to other contingencies, including legal proceedings and claims
         arising out of its business that cover a wide range of matters,
         including, among others, environmental matters, contract and
         employment claims, and product liability. The Company may be involved
         in legal actions from time to time. The Company has used various
         substances in its research and development which have been or may be
         deemed to be hazardous or dangerous, and the extent of its potential
         liability, if any, under environmental, product liability and workers'
         compensation statutes, rules, regulations and case law is unclear. The
         Company is presently involved in several legal actions, none of which
         are expected to have a material adverse effect upon the results of
         operations or financial condition of the Company when considered
         either individually or in the aggregate.

(14)     SUBSEQUENT EVENT

         On April 22, 2003, the Company and ICOS executed a purchase and sale
agreement (the "Agreement") pursuant to which the Company purchased the
partnership interest of ICOS and its subsidiaries in ICOS-TBC. Under the
Agreement, the Company agreed to pay to ICOS a purchase price of $10,000,000,
of which $4,000,000 was paid on April 22, 2003. The remaining $6,000,000 is
subject to a secured promissory note (the "Note") which requires a payment of
$4,000,000 on April 22, 2004, and a payment of $2,000,000 on October 22, 2004.
The outstanding principal balance of the Note shall accrue interest at a rate
which approximates the three-month London interbank offering rate for U.S.
Dollars (LIBOR) plus 1.5%. The interest rate was established on April 22, 2003
at approximately 2.82% and will be adjusted on the first business day of each
April, July, October and January thereafter (the LIBOR Adjustment Dates).
Interest is payable on or before the tenth day after each LIBOR Adjustment
Date. The Company's obligations under the Note are secured with an irrevocable
standby letter of credit, for which the Company has pledged marketable
securities with a value of approximately $7,000,000.


                                      16
<PAGE>
         Approximately $1,637,000 in remaining deferred license fee and
milestone income received from ICOS at the date of the Acquisition will be
recorded as a reduction in the acquisition cost recorded by the Company,
resulting in a charge to operating expenses of approximately $8,363,000 in the
second quarter of 2003.

         Following the Acquisition, the Company has changed the name of
ICOS-TBC to Encysive, L.P. The Company's consolidated financial statements will
include the accounts of Encysive, L.P..


                                      17
<PAGE>
ITEM 2.

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

              THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002


                                    OVERVIEW

         The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes to the financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2002, and our
condensed consolidated financial statements and the related notes to the
financial statements included in this Quarterly Report on Form 10-Q.

         Since our inception in 1989, we have primarily devoted our resources
to funding drug discovery, research and development. We are a biopharmaceutical
company focused on the discovery, development and commercialization of novel,
synthetic, small molecule compounds for the treatment of a variety of
cardiovascular, vascular and related inflammatory diseases. We believe that
synthetic, small molecule therapeutics have several advantages over protein and
peptide based large molecules. Small molecules generally are not immunogenic,
can typically be protected with composition-of-matter patents and can be
produced by conventional lower cost pharmaceutical manufacturing methods. Our
research and development programs are focused on inhibitors (also referred to
as antagonists or blockers) that can interrupt certain disease processes. Our
programs seek to address unmet medical needs in cardiovascular diseases,
thrombocytopenia, pulmonary arterial hypertension, heart failure and
inflammatory diseases such as asthma.

         In the biopharmaceutical industry, a substantial percentage of the
profits generated from successful drug development are typically retained by
the entity directly involved in the sales and marketing of the drug. Licensing
our drug candidates to a third party who will complete development and provide
sales and marketing resources in exchange for upfront payments, milestone
payments and a royalty on sales may reduce some of our risks, particularly for
diseases outside our strategic interest or in territories outside of the United
States and Canada.

         In June 2000, we established ICOS-TBC, a 50/50-owned limited
partnership with ICOS Corporation ("ICOS"), to develop and commercialize
endothelin receptor antagonists, including sitaxsentan and TBC3711. In January
2003, ICOS announced that they had reached a conclusion that joint development
of the endothelin receptor antagonist program should not continue, and in April
2003, we purchased the partnership interest of ICOS in ICOS-TBC for a purchase
price of $10 million. Following the Acquisition, as discussed below, we intend
to continue the development of the endothelin receptor antagonist program. Our
strategy for managing our capital requirements includes seeking to license
rights to sitaxsentan for select markets, while preferably retaining North
American rights.

                      APPROVED DRUGS IN COMMERCIAL MARKET

ARGATROBAN

         Argatroban was approved by the FDA in 2000, is indicated for
prophylaxis or treatment of thrombosis in patients with heparin-induced
thrombocytopenia ("HIT") and for use in HIT patients undergoing percutaneous
coronary intervention ("PCI".) Argatroban was approved in Canada in 2002 for
use as anticoagulant therapy in patients with heparin-induced thrombocytopenia
syndrome. During 2002, we completed initial studies to evaluate the use of
Argatroban in hemodialysis patients and in PCI. The drug is being marketed in
the U.S. and Canada by GlaxoSmithKline, plc ("GSK") and has been on the


                                      18
<PAGE>
market in the U.S. and Canada since November 2000 and June 2002, respectively.
GSK is our development, manufacturing and marketing partner for Argatroban.

         GSK currently markets Argatroban and enjoys market exclusivity
pursuant to the Waxman/Hatch Act that provides protection from competition
until June 30, 2005. We recently received a formal Written Request from FDA to
conduct a study with Argatroban in pediatric patients. Upon completion of this
study, we will be eligible for an additional six months of market exclusivity.
Argatroban is currently marketed in a formulation that is covered under a
formulation patent that expires in 2010. We will also be submitting a process
patent, that would expire in 2019, to the FDA for inclusion in the FDA Orange
Book of Approved Drug Products. Following expiration of Waxman/Hatch
protection, it is possible that generic manufacturers may be able to produce
Argatroban without violating the formulation or process patents. The
composition of matter patent on Argatroban has expired. The Company has access
to other patents held by Mitsubishi, however, these are not being utilized
currently.

                       RESEARCH AND DEVELOPMENT PROGRAMS

         Presently, we have four major product development programs.

Endothelin Antagonist Program. We are developing sitaxsentan, an endothelin(A)
receptor antagonist, or ET(A), for the treatment of pulmonary arterial
hypertension. During June 2000, we formed a partnership, ICOS-TBC, with ICOS
Corporation to develop and commercialize ET(A) receptor antagonists. During
2002, ICOS-TBC successfully completed a Phase IIb/III pivotal clinical trial in
pulmonary arterial hypertension with sitaxsentan. TBC3711, a second generation
ET(A), has previously completed Phase I clinical trials and may be developed
for cardiovascular or other diseases. Following the Acquisition, discussed
above, we intend to initiate a final pivotal study in PAH during the second
quarter of 2003, to include 50 and 100 mg oral doses of sitaxsentan, placebo
and bosentan.

Thrombosis. During 2002, we completed a Phase II human clinical trial for
Argatroban as a mono-therapy treatment for acute ischemic stroke. The clinical
trial met the primary endpoint based on safety and showed positive results in
the secondary safety endpoint. In light of a lack of a positive overall
efficacy trend and the high risk and high costs associated with stroke trials,
it is unlikely that we will proceed independently with a full Phase II program.
Currently, Argatroban is being evaluated in a clinical trial in combination
with recombinant tissue Plasminogen Activator (rt-PA) as a new approach to the
treatment of acute ischemic stroke by an investigator at the University of
Texas Medical School at Houston.

Vascular Inflammation Program. Revotar, our majority owned German affiliate
located in Berlin is developing a selectin antagonist, bimosiamose, for the
treatment of asthma and psoriasis. The intravenous form of the drug
demonstrated positive anti-inflammatory effects in Phase II clinical trials.
Revotar was formed during 2000, to further the development of this program.
Revotar completed Phase I clinical trials for asthma utilizing an inhaled form
of bimosiamose. A Phase IIa clinical trial is currently being conducted with an
inhaled form of bimosiamose and a Phase IIa clinical trial in psoriasis is
planned to commence during the first half of 2003, using a topical formulation.
A Phase IIa proof-of-concept clinical trial in psoriasis, completed during 2002
with an injectable form of bimosiamose, demonstrated efficacy. We are also
conducting research with respect to other cell adhesion molecules including
vascular cell adhesion molecule, or VCAM, junctional adhesion molecules, or JAM
2/3 and several integrins including very late antigen 4, or VLA-4,
(alpha)4(beta)7 and others to develop antagonists for the treatment of asthma,
rheumatoid arthritis, multiple sclerosis, restenosis and inflammatory bowel
disease. We have signed a collaboration and license agreement for the VLA-4
program with Schering-Plough and have received a milestone payment from
Schering-Plough for nominating a compound as a clinical candidate.
Additionally, we are conducting research on backup VLA-4 antagonists for
Schering-Plough under this agreement.

Vascular Disease. Many disease processes involve changes in blood vessels and
heart tissue. There are numerous mediators, like endothelin, which may
contribute to the development of these diseases. Several of these act though
G-protein coupled receptors, GPCRs, to carry out their action. We are
conducting research on urotensin and other GPCRs to identify inhibitors which
could be useful in treating diseases including congestive heart failure, CHF,
ischemic stroke and acute myocardial infarction.


                                      19
<PAGE>
                             RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

         -        We recognize revenue from service contracts as services are
                  performed.

         -        Royalty revenue is recognized as products are sold by a
                  licensee and we have received sufficient information to
                  record a receivable. Our royalty revenue is based on net
                  sales of product, that is, sales net of discounts, returns
                  and allowances. We have estimated a percentage of gross
                  sales, based on recent experience, as an allowance for future
                  returns, however there can be no assurance that our estimate
                  will be accurate.

         -        Revenue from collaborative research and development
                  activities is recognized as services are performed.

         -        We defer the recognition of milestone payments related to
                  contractual agreements which are still in the development
                  stage. Such deferred revenues are amortized into income over
                  the estimated remaining development period. Milestone
                  payments received under contractual agreements which have
                  completed the development stage are evaluated, and either
                  recognized into income when earned, or amortized over a
                  future period, depending upon whether or not the Company
                  continues to have obligations under the terms of the
                  arrangement.

         -        License fees received under the terms of licensing agreements
                  for our intellectual property are similarly deferred, and
                  amortized into income over the estimated developmental period
                  of the licensed item or items.

         -        Revenue from grants is recognized as earned under the terms
                  of the related grant agreements, typically as expenses are
                  incurred.

         Amounts received in advance of services being performed under
contracts are recorded as deferred revenue, and recognized as services are
performed. We periodically evaluate our estimates of remaining development
periods, and adjust the recognition of remaining deferred revenues over the
adjusted development period remaining.

Partnership Accounting

         From its inception in June 2000 through December 31, 2002, we and ICOS
shared equally in the costs of ICOS-TBC. In January 2003, however, ICOS
informed us that they had reached the conclusion that joint development of the
endothelin receptor antagonist program through ICOS-TBC should not continue. As
a result, since January 2003 we have agreed to be responsible for 100% of the
costs of ICOS-TBC. Following the Acquisition, we have increased our ownership
and potential commercial benefit of the endothelin receptor antagonist program
from 50% to 100%.

         Operating results of ICOS-TBC include expenses related to our internal
research staff that we recognize as revenue and record as collaborative
research and development revenue from ICOS-TBC. Due to the nature of the
ICOS-TBC collaborative agreement, our collaborative research and development
revenue from ICOS-TBC largely depends on the continued progression of clinical
trial and development activities, and can be expected to vary from quarter to
quarter and year to year.

         From its inception in June 2000 through March 31, 2003, we have
accounted for our investment in ICOS-TBC under the equity method. As a result
of the Acquisition, in the future we will include the accounts of Encysive,
L.P. in our consolidated financial statements. A result of the consolidation of
Encysive, L.P. with our financial statements is that the revenue item,
"Collaborative research and development from ICOS-TBC, L.P." and the expense
item, "Equity in loss of ICOS-TBC, L.P." will be eliminated. The operating
expenses of Encysive will be included in our operating expenses.


                                      20
<PAGE>
         Remaining deferred revenue, comprised of the portion of the license
fee and milestone payment received from ICOS that has not been recognized as
revenue totaled $1,637,000 at March 31, 2003. The recognition of this amount
upon the Acquisition will offset the effect of the $10,000,000 purchase price
paid to ICOS and result in a net charge of approximately $8,363,000 in the
second quarter of 2003.

Stock Options

         We apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations ("APB 25") in
accounting for our stock option plans and apply FASB Statement No. 123,
"Accounting for Stock-Based Compensation", and related interpretations ("FAS
123") in reporting for our stock option plans. APB 25 utilizes the "intrinsic
value" of stock options, defined as the difference between the exercise price
of an option and the market price of the underlying share of common stock, on
the "measurement date" which is generally the date of grant. Since the exercise
price of employee stock options issued under our plans is set to match the
market price of our Common Stock, there is generally no compensation expense
recognized upon grant of employee stock options. Options granted to
non-employees, if any, are valued at the "fair value" of the option as defined
by FAS 123, utilizing the Black-Scholes option pricing model. We recorded
compensation expense for the "fair value" of options granted to non-employees.

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.

GENERAL

         Our operating results have fluctuated significantly during each
quarter, and we anticipate that such fluctuations, which are largely
attributable to varying research and development commitments and expenditures,
will continue for the next several years.

         We have been unprofitable to date and expect to incur substantial
operating losses for the next several years as we invest in product research
and development, preclinical and clinical testing and regulatory compliance. We
may initiate certain commercial activities in the future, which could
contribute to future operating losses. We have sustained net losses of
approximately $153.1 million from the date of our inception to March 31, 2003.
We have primarily financed our operations to date through a series of private
placement and public offerings of our Common Stock and several collaborative
agreements with third parties to jointly pursue product research and
development. See discussion of "Liquidity and Capital Resources" below. See
also "Additional Risk Factors" in Item 1 "Business" of our Annual Report on
Form 10-K for the year ended December 31, 2002.

               THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002

         Revenues increased $623,000, or approximately 24.0% in the three
months ended March 31, 2003, compared with the three months ended March 31,
2002. The increase was comprised of increased collaborative research and
development revenues from ICOS-TBC, increased royalty income and increased
license fees, milestones and grants. Research agreement revenues, however,
declined $177,000 or approximately 19%. During the prior year quarter, we,
along with GSK, were conducting clinical trials for additional uses of
Argatroban and those trials completed during 2002.

         Collaborative research and development from ICOS-TBC, L.P. in the
quarter ended March 31, 2003 increased $424,000, or approximately 177% compared
with the quarter ended March 31, 2002. Beginning January 1, 2003, a
significantly higher percentage of the development activity was performed by
our employees than in previous periods.


                                      21
<PAGE>
         Royalty income from the sales of Argatroban increased $183,000, or
approximately 19% as a result of increased sales by GSK. During 2002, GSK
created a hospital based sales force and initiated programs to increase its
sales efforts on Argatroban in the U.S. and Canada that we believe could have a
positive effect on our royalties from GSK.

         License fees, milestones and grants increased $187,000, or
approximately 39%, primarily due to the receipt of German government grants by
Revotar during the quarter ended March 31, 2003.

         Research and development expense decreased $971,000, or approximately
19% in the three months ended March 31, 2003, compared with the three months
ended March 31, 2002. The decrease is primarily due to a reduction in clinical
trials expenses of $1,092,000 as we were conducting several trials, primarily
ARGIS-I for Argatroban in stroke, during the prior year quarter. During the
quarter ended March 31, 2003, research and development expense includes a
restructuring charge, primarily comprised of severance benefits paid to
terminated employees, of $503,000. In January 2003, we announced a reduction of
headcount, primarily in the areas of basic exploratory biology, early stage
target identification and support functions. As a result of the headcount
reduction, our ongoing employee costs for research and development declined
$392,000 in the three months ended March 31, 2003, compared with the three
months ended March 31, 2002.

         Equity in loss of ICOS-TBC, L.P. declined $124,000, or approximately
5%, in the three months ended March 31, 2003, compared with the three months
ended March 31, 2002. Our equity in loss for the three months ended March 31,
2002 is comprised of 50% of the loss of ICOS-TBC, which totaled $5,020,000. Our
equity in loss for the three months ended March 31, 2003 is comprised of 100%
of the loss of ICOS-TBC. The expenses of ICOS-TBC declined in the current year
primarily in clinical trial costs, as the STRIDE trial was in progress during
the prior year period.

         General and administrative expenses declined $513,000, or
approximately 19% in the three months ended March 31, 2003, compared with the
three months ended March 31, 2002. The prior year period included stock
compensation expenses of $182,000, primarily resulting from modifications to
stock options issued to our retiring CEO. General and administrative expenses
in 2003 include $53,000 in costs related to the January 2003 restructuring. The
remaining decrease in general and administrative expenses is primarily due to
reduced travel and other employee related costs. In 2003 we intend to continue
with strict cost control measures to minimize cash spent on administrative
activities.

         Total operating expenses declined $1,608,000, or approximately 16% in
the three months ended March 31, 2003, compared with the three months ended
March 31, 2002. Operating expenses in the three months ended March 31, 2003
include a charge of $556,000 resulting from the restructuring of our research
activities in January 2003. Operating expenses in the three months ended March
31, 2002 include stock compensation expenses of $182,000, primarily resulting
from modifications to stock options issued to our retiring CEO. After taking
these charges into consideration, other operating expenses declined $1,958,000,
or approximately 19% in the current quarter, compared to the comparable prior
year quarter. As discussed above, the decline is primarily due to reduced
clinical trials costs and reduced headcount during the current year quarter.

         Operating loss declined $2,231,000, or approximately 29%, in the three
months ended March 31, 2003, compared with the three months ended March 31,
2002, due to higher revenues and reduced operating expenses in the current year
period.

         Investment income declined $394,000, or approximately 51% in the three
months ended March 31, 2003, compared with the three months ended March 31,
2002 due to lower levels of funds available for investment in the current
quarter.

         The minority interest in the loss of Revotar in the three months ended
March 31, 2003 declined $67,000, or approximately 26% compared to the three
months ended March 31, 2002, reflecting reduced expenses, primarily clinical
trials costs, at Revotar in the current year quarter.


                                      22
<PAGE>
         Net loss in the three months ended March 31, 2003 declined $1,770,000,
or approximately 26% compared with the three months ended March 31, 2002. The
decreased net loss in the current quarter is due to higher revenues and lower
operating expenses in the current quarter, partially offset by reduced
investment income in the current quarter, all as discussed above.

                        LIQUIDITY AND CAPITAL RESOURCES

         We have financed our research and development activities and other
operations primarily through public and private offerings of our Common Stock
and from funds received through our collaborations, research agreements and
partnerships. We also have received royalty revenue from sales of Argatroban.
We have not conducted any offerings in 2003, and have relied on our cash
balances from prior offerings and our revenues to fund operations, with the
result that our cash balance has decreased in 2003.

         Cash, cash equivalents and investments in marketable securities,
including accrued interest thereon, was $59,848,000 at March 31, 2003, compared
with $68,005,000 at December 31, 2002. We used $7,876,000 in cash in operating
activities during the three months ended March 31, 2003, compared to cash used
in operating activities of $7,526,000 during the three months ended March 31,
2002. The increased use of cash in the current year period is primarily due to
the effect of changing our relationship with ICOS in January 2003, after which
we became responsible for 100% of the costs of Encysive, L.P. As a result of
the Acquisition, as discussed in Note 14 to the Financial Statements included
herein, we have made a payment to ICOS of $4 million on April 22, 2003 and
agreed to pay $4 million in April 2004 and $2 million in October 2004. The Note
is secured with an irrevocable standby letter of credit for which we have
pledged marketable securities with a value of approximately $7,000,000. Pledged
securities will be returned to us by the bank as payments are made on the Note.

         Investing activities generated $13,685,000 during the three months
ended March 31, 2003, compared to $23,636,000 in the three months ended March
31, 2002. Purchases of equipment and leasehold improvements declined $1,189,000
in the current quarter, as a result of programs implemented by management to
conserve cash. Other than expenditures for purchases of equipment and leasehold
improvements, investing activities consist of purchases of, and maturities of
investments. During the quarter ended March 31, 2002, the net cash provided
from investing activities was primarily used to fund an increase of cash and
cash equivalents in that quarter of $16,222,000. In the current quarter, cash
and cash equivalents increased $5,802,000, which was primarily funded from
investing activities.

         Cash flows from financing activities in the quarter ended March 31,
2002 of $157,000 reflected proceeds from the sale of Common Stock and option
exercises. There was no financing activity in the quarter ended March 31, 2003.

Material Commitments

         As a result of the Acquisition, as discussed in Note 14 to the
Financial Statements included herein, we have made a payment to ICOS of $4
million on April 22, 2003 and agreed to pay $4 million in April 2004 and $2
million in October 2004. The Note is secured with an irrevocable standby letter
of credit for which we have pledged marketable securities with a value of
approximately $7,000,000. Pledged securities will be returned to us by the bank
as payments are made on the Note.

         Our only other material contractual commitments are comprised of a
loan commitment to Revotar and office and laboratory facility leases. We and
the minority shareholders of Revotar have committed to lend Revotar, on an
unsecured basis, approximately $4.5 million, of which our commitment is
approximately $3.4 million. The terms of the loans require quarterly interest
payments and repayment of all principal on or before April 1, 2007. Our portion
of the loan is denominated in U.S. dollars at an interest rate of seven percent
fixed for the first two years and resets to the greater of seven percent or
U.S. prime plus two and one-half percent on April 1, 2004. As of March 31,
2003, we have advanced $2,237,000 to Revotar under our loan commitment. Revotar
will need to seek additional funding through collaborative arrangements and/or
through public or private financings in the future. If they are not


                                      23
<PAGE>
successful, Revotar will be unable to repay our loans. A likely result of
additional financings would be to reduce our ownership percentage in Revotar.

         The Company had long-term obligations under our office and laboratory
leases as follows (in thousands):


<TABLE>
<CAPTION>
                                               Less than        1-3          4-5       After 5
         Contractual Obligations      Total      1 year        years        years       years
         -----------------------      -----    ---------      ------        -----      -------

         <S>                         <C>       <C>            <C>           <C>        <C>
         Operating Leases            $4,873      $1,616       $3,126         $131          --
</TABLE>

Outlook for 2003

         In connection with the Acquisition, we have announced new guidance for
2003 as follows:


<TABLE>
         <S>                                                        <C>
         Net sales of Argatroban by GSK..................           $30.0 to $35.0 million
         Revenues........................................           $10.0 to $11.5 million
         Expenses (1)....................................           $50.0 to $53.0 million
         Investment income...............................           $0.8 to $1.0 million
         Estimated net loss..............................           $39.0 to $42.0 million
         Cash and Investments at Year-End 2003...........           $30.0 to $32 million
</TABLE>

         (1)      Expenses net of minority interest in Revotar and include a
charge of $8.4 million related to the Acquisition.

         These expectations are based upon various assumptions, which are
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected. Among these risks, trends
and uncertainties are timing and cost of our clinical trials, attainment of
research and clinical goals and milestones of product candidates, and sales
levels of Argatroban. We have assumed that sales trends of Argatroban over the
previous year will continue. While we do not sell Argatroban, our revenues
include a royalty from GSK which is based on sales and will, accordingly, vary
with sales. Our actual royalty revenues could vary from our assumptions to the
extent that GSK's actual sales of Argatroban differ from assumed levels.

         As a result of the Acquisition, our projected revenues do not include
any revenues associated with ICOS-TBC beyond the amount recognized through
March 31, 2003. Projected revenues contain continued amortization of deferred
license fees and milestones previously received from Schering-Plough,
Mitsubishi and ICOS-TBC, which are being deferred over the estimated
development period of the respective compound or program. We periodically
review our estimates of development periods, and actual recognized revenues
could increase or decrease to the extent that we decrease or increase our
estimated development periods. We have assumed that research agreement revenues
from Schering-Plough will end upon the expiration of the agreement, at June 30,
2003.

         Projected operating expenses are based upon our approved operating
budget for the year, adjusted to take into consideration the effect of the
Acquisition. After the Acquisition, we became responsible for all development
costs of the endothelin receptor antagonist program. We have not assumed
significant changes in numbers of employees during year 2003, and other
budgeted items remained unchanged from previously projected amounts.. Our
budgeted expenses also include basic research efforts on our other programs,
and levels of administrative support we believe to be necessary.

         Projected investment income assumes that the rate of return on
invested funds of approximately 2% on an average of approximately $50 million
in funds available for investment throughout the year.

         Cash and investments at year-end is projected based upon our projected
sources and uses of cash during the year. In projecting our end of year cash
and investment balances, we have not assumed additional financing, or
collaborative arrangements other than those in place at this time.


                                      24
<PAGE>
         The range of estimated net loss is based upon our projected revenues
and expenses, as discussed above.

         For a number of reasons discussed elsewhere in this Form 10-Q, we
cannot estimate, with a reasonable degree of certainty, total completion costs
or dates of completion of our ongoing research and development projects. See
"Additional Risk Factors" in Item 1, "Business" of our annual report on Form
10-K for the year ended December 31, 2002, and "Longer-Term Outlook", below.

Longer-Term Outlook

         We expect to continue to incur substantial research and development
expenditures as we design and develop biopharmaceutical products for the
prevention and treatment of cardiovascular and other diseases. We anticipate
that our operating expenses will increase in subsequent years because:

         -        We expect to incur significant expenses in conjunction with
                  additional clinical trial costs for sitaxsentan and research
                  and clinical trial costs for development of bimosiamose
                  compounds and expect to begin to incur cost for clinical
                  trials related to additional compounds. These costs include:

                  -        hiring personnel to direct and carry out all
                           operations related to clinical trials;

                  -        hospital and procedural costs;

                  -        services of contract research organizations; and

                  -        purchasing and formulating large quantities of the
                           compound to be used in such trials.

         -        There will be additional costs in future periods related to
                  Argatroban in complying with ongoing FDA requirements and
                  possible clinical trial expenditures for additional
                  therapeutic indications.

         We have been unprofitable to date and expect to incur operating losses
for the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, to fund the $6 million required future payments to ICOS and to
market our products. Estimates of our future capital requirements will depend
on many factors, including:

         -        market acceptance and commercial success of Argatroban;

         -        expenses and risks associated with clinical trials to expand
                  the use of Argatroban;

         -        possible emergence of generic competition;

         -        continued scientific progress in our drug discovery programs;

         -        the magnitude of these programs;

         -        progress with preclinical testing and clinical trials;

         -        the time and costs involved in obtaining regulatory
                  approvals;

         -        the costs involved in filing, prosecuting and enforcing
                  patent claims;

         -        competing technological and market developments and changes
                  in our existing research relationships;


                                      25
<PAGE>
         -        our ability to maintain and establish additional
                  collaborative arrangements; and

         -        effective commercialization activities and arrangements.

         Subject to these factors, we anticipate that our existing capital
resources and other revenue sources, should be sufficient to fund our cash
requirements through the end of the third quarter of 2004. We anticipate that
we may need to secure additional funds to continue the required levels of
research and development to reach our current long-term goals. We intend to
seek such additional funding through collaborative arrangements and/or through
public or private financings, if required. Our strategy for managing our
capital requirements includes seeking to license rights to sitaxsentan for
select markets, while preferably retaining North American rights. There can be
no assurances that such funding or licensing arrangements will be available on
acceptable terms. As we review our research and development programs, we may
also consider various measures to reduce our costs in order to effectively
utilize our capital resources.

Off-Balance Sheet Arrangements

         We do not engage in off-balance sheet financing arrangements.

                 HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

         Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous
materials and waste products. Although we believe that our safety procedures
for handling and disposing of hazardous materials comply with the standards
prescribed by laws and regulations, the risk of accidental contamination or
injury from these materials cannot be eliminated completely. In the event of an
accident, we could be held liable for any damages that result. This liability
could exceed our resources or not be covered by our insurance. Although we
believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not
be required to incur significant costs to comply with environmental laws and
regulations in the future. There can also be no assurance that our operations,
business or assets will not be materially adversely affected by current or
future environmental laws or regulations.

                    IMPACT OF INFLATION AND CHANGING PRICES

         The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on our
operations.

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). All statements other
than statements of historical fact included in and incorporated by reference
into this Form 10-Q are forward-looking statements. These forward-looking
statements include, without limitation, statements regarding our estimate of
the sufficiency of our existing capital resources and our ability to raise
additional capital to fund cash requirements for future operations, and
regarding the uncertainties involved in the drug development process and the
timing of regulatory approvals required to market these drugs. Although we
believe that the expectations reflected in these forward-looking statements are
reasonable, we cannot give any assurance that such expectations reflected in
these forward-looking statements will prove to have been correct.


                                      26
<PAGE>
         When used in this Form 10-Q, the words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate" and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. Because these
forward-looking statements involve risks and uncertainties, actual results
could differ materially from those expressed or implied by these
forward-looking statements for a number of important reasons, including those
discussed under "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."

         You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our Common Stock, you
should be aware that the occurrence of any of the contingent factors described
herein under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and described under
"Additional Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2002 could substantially harm our business, results of operations
and financial condition. Upon the occurrence of any of these events, the
trading price of our Common Stock could decline, and you could lose all or part
of your investment.

         We cannot guarantee any future results, levels of activity,
performance or achievements. Except as required by law, we undertake no
obligation to update any of the forward-looking statements in this Form 10-Q
after the date of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RISK

         We are exposed to market risk primarily from changes in foreign
currency exchange rates. The following describes the nature of this risk that
is not believed to be material to us.

         We have a majority-owned subsidiary in Germany and consolidate the
results of operations into our consolidated financial results. Although not
significant to date, our reported assets, liabilities, expenses and cash flows
from this subsidiary are exposed to changing exchange rates. We, accordingly,
included an unrealized gain of $61,000 and an unrealized loss of $61,000,
respectively, in our comprehensive loss for the three-month periods ended March
31, 2003 and 2002. We had an intercompany receivable from its German subsidiary
at March 31, 2003 and December 31, 2002; however, this amount is denominated in
U.S. dollars and is not exposed to exchange risk. The Company contracts with
entities in other areas outside the U.S. and these transactions are denominated
in a foreign currency. To date, the currencies of these other countries have
not fluctuated materially. At this time, management has not deemed it cost
effective to engage in a program of hedging the effect of foreign currency
fluctuations on the Company's operating results using derivative financial
instruments.

         The Company and the other stockholders of Revotar have executed an
agreement to provide approximately $4.5 million in unsecured loans, of which
the Company's commitment will be approximately $3.4 million. The terms of the
loans require quarterly interest payments and repayment of all principal on or
before April 1, 2007. The interest rate for the first two years will be seven
percent, after which the interest rate could then be reset to the U.S. prime
rate plus 2.5 % if such rate is higher than seven percent. Pursuant to such
agreement, the Company has advanced approximately $2,237,000 to Revotar as of
March 31, 2003. Revotar's management has informed the Company that they
anticipate that Revotar will borrow the remaining commitment of approximately
$1.1 million from the Company in the fourth quarter of 2003. The loan is
denominated in U.S. dollars. To mitigate the risk of fluctuations in foreign
currency exchange rates, Revotar entered into a forward contract with a bank to
fix the exchange rate at which it will borrow the remaining loan commitment


                                      27
<PAGE>
ITEM 4. CONTROLS AND PROCEDURES

         Within 90 days prior to the filing date of this report, we carried out
an evaluation, under the supervision and with the participation of management,
including our President and Chief Executive Officer, and our Vice President of
Finance and Administration, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon that evaluation, our
President and Chief Executive Officer and our Vice President of Finance and
Administration concluded that our disclosure controls and procedures are
effective, providing management with material information relating to the
Company that is required to be included in our reports filed or submitted under
the Exchange Act on a timely basis. There have been no significant changes in
our internal controls or in other factors that could significantly affect
internal controls subsequent to the date we carried out our evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

                  None

ITEM 2.  CHANGES IN SECURITIES

                  None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

                  None

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None

ITEM 5.  OTHER INFORMATION

                  None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

                  Five reports on Form 8-K were filed during the quarter ended
         March 31, 2003. A report on Form 8-K dated January 7, 2003 was filed
         regarding the Company's restructuring plan. A report on Form 8-K dated
         January 30, 2003 was filed announcing the Company's negotiations
         regarding the reacquisition of full development and marketing rights
         to Sitaxsentan. A report on Form 8-K dated February 6, 2003 was filed
         regarding the amending of the license and research and development
         agreement the Company has with Revotar Biopharmaceuticals AG. A report
         on Form 8-K dated February 26, 2003 was filed regarding updated
         guidance for 2002 and initial estimates for 2003. A report on Form 8-K
         dated March 6, 2003 and amended on April 2, 2003 was filed regarding
         the Company's full year 2002 results.


<TABLE>
<CAPTION>
         EXHIBIT NO.   DESCRIPTION

         <S>           <C>
         31.1          Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under
                       the Securities Exchange Act of 1934, as amended.

         31.2          Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under
                       the Securities Exchange Act of 1934, as amended.

         32.1          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                       Sarbanes-Oxley Act of 2002.
</TABLE>


                                      28
<PAGE>
<TABLE>
<CAPTION>
         EXHIBIT NO.   DESCRIPTION

         <S>           <C>
         32.2          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                       Sarbanes-Oxley Act of 2002.
</TABLE>


                                      29
<PAGE>
                         ENCYSIVE PHARMACEUTICALS INC.

                               NOVEMBER 14, 2003

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 14th day of November, 2003.


                                ENCYSIVE PHARMACEUTICALS INC.


                                By: /s/ Stephen L. Mueller
                                   --------------------------------------------
                                Stephen L. Mueller
                                Vice President, Finance and Administration
                                Secretary and Treasurer
                                (Principal Financial and Accounting Officer)


                                      30
<PAGE>
INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT NO.    DESCRIPTION

<S>            <C>
31.1           Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under
               the Securities Exchange Act of 1934, as amended.

31.2           Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under
               the Securities Exchange Act of 1934, as amended.

32.1           Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

32.2           Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.
</TABLE>


                                      31