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Delaware		2834		84-1568247
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

James C.T. Linfield, Esq.		David J. Segre, Esq.
Laura M. Medina, Esq.		Jose F. Macias, Esq.
Cooley Godward LLP		Wilson Sonsini Goodrich & Rosati
380 Interlocken Crescent		Professional Corporation
Suite 900		650 Page Mill Road
Broomfield, CO 80021		Palo Alto, California 94304
(720) 566-4000		(650) 493-9300

				Proposed Maximum		Proposed Maximum		Amount of
Title of Each Class		Amount to		Aggregate Offering		Aggregate Offering		Registration
of Securities to be Registered		be Registered(1)		Price Per Share(2)		Price(2)		Fee(3)(4)
Common Stock, $0.001 par value per share		5,750,000		$16.00		$92,000,000		$9,844

(1)	Includes 750,000 shares of common stock that may be purchased by the underwriters to cover over-allotments, if any.
(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3)	Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price.
(4)	A registration fee of $10,700 has been paid previously in connection with this Registration Statement based on an estimate of the aggregate offering price

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

		Per Share				Total
Price to Public			$				$
Underwriting Discounts and Commissions			$				$
Proceeds to Replidyne			$				$

Merrill Lynch & Co.	Morgan Stanley

Cowen and Company	Pacific Growth Equities, LLC

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		Page
Prospectus Summary			1
Risk Factors			7
Forward-Looking Statements			29
Use of Proceeds			30
Dividend Policy			31
Capitalization			32
Dilution			34
Selected Financial Data			36
Management’s Discussion and Analysis of Financial Condition and Results of Operations			39
Business			60
Management			84
Related Party Transactions			100
Principal Stockholders			104
Description of Capital Stock			107
Shares Eligible for Future Sale			112
Underwriters			114
Legal Matters			117
Experts			117
Where You Can Find Additional Information			118
Index to Financial Statements			F-1
Form of Underwriting Agreement
Certificate of Amendment of Restated Certificate of Incorporation
Specimen Common Stock Certificate
Opinion/Consent of Cooley Godward LLP
2006 Equity Incentive Plan
2006 Employee Stock Purchase Plan
Summary of Director Compensation Program
License Agreement
Amendment to License Agreement
Second Amendment to License Agreement
Supply Agreement
Collaboration and Commercialization Agreement
Consent of KPMG LLP

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	•	If any FDA approval of Orapem does not include approvals for at least two commercially viable respiratory indications, which must include both (i) acute sinusitis and (ii) either community-acquired pneumonia or acute exacerbation of chronic bronchitis, our partner, Forest Laboratories Holdings Limited, or Forest Laboratories, has the contractual right to delay launch of Orapem following such initial FDA approval.
	•	If any FDA approval of Orapem does not include approval of Orapem having at least an 18 month shelf-life, then Forest Laboratories has the contractual right to delay launch of Orapem following such initial FDA approval until sufficient supplies of Orapem having at least an 18 month shelf-life are available. The FDA will make a decision regarding shelf-life based on ongoing real time and accelerated stability studies combined with data from prior stability studies conducted by Bayer and we cannot assure you that, at the time of initial FDA approval, the FDA will consider this data sufficient for an 18 month shelf-life labeling.
	•	If the FDA’s inspections of the manufacturing facilities for Orapem drug substance or Orapem tablets or the proposed packaging operations for Orapem products reveal problems with the manufacturer or the manufacturer’s facilities, then the FDA may refuse to approve our pending NDA or issue a not approvable letter or may require additional manufacturing validation studies

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		or impose restrictions on operations, including new manufacturing requirements, any of which would be costly and time consuming and require further FDA review and approval.
	•	The supply chain for Orapem for the U.S. market is a complex process with highly interactive components consisting of the manufacture of Orapem drug substance, the manufacture of Orapem tablets, the packaging and labeling of Orapem, and the distribution in the U.S. We rely on third parties for each of these activities, including management of the supply chain. Any failure in the complex execution that would influence the ability to establish or manage these manufacturing, packaging and distribution relationships in an effective or timely manner could prevent us from achieving or maintaining market acceptance of Orapem.

	•	We and Forest Laboratories could disagree as to development plans, including clinical trials or regulatory approval strategy, or as to which additional indications for Orapem should be pursued. Disputes regarding the collaboration agreement that delay or terminate the development, commercialization or receipt of regulatory approvals of Orapem would harm our business and could result in significant litigation or arbitration.
	•	Forest Laboratories could fail to devote sufficient resources to the development, approval, commercialization, or marketing and distribution of Orapem. After the time periods stated in the collaboration agreement, Forest Laboratories could shift its research, development and commercialization resources to other product opportunities including those that might be competitive with Orapem.
	•	Forest Laboratories has the contractual right to delay launch of Orapem following the initial FDA approval if that approval does not include both (i) acute sinusitis and (ii) either community-acquired pneumonia or acute exacerbation of chronic bronchitis.

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	•	Forest Laboratories has the contractual right to delay launch of Orapem following the initial FDA approval until sufficient supplies of Orapem having at least an 18 month shelf-life are available, which we have not achieved to date.

	•	obtaining U.S. and foreign regulatory approvals for our lead product candidate, Orapem;
	•	successfully developing and securing regulatory approval for our other product candidate, REP8839; and
	•	successfully commercializing any product candidates for which we receive FDA approval.

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	•	the clinical indications for which the product candidate is approved;
	•	acceptance by physicians and patients of each product candidate as a safe and effective treatment;
	•	perceived advantages over alternative treatments;
	•	the cost of treatment in relation to alternative treatments, including numerous generic antibiotics;
	•	the extent to which the product candidate is approved for inclusion on formularies of hospitals and managed care organizations;
	•	the extent to which bacteria develop resistance to the product candidate, thereby limiting its efficacy in treating or managing infections;
	•	whether the product candidate is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;
	•	the availability of adequate reimbursement by third parties;
	•	relative convenience and ease of administration; and
	•	prevalence and severity of side effects.

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	•	an uncured material breach of the supply agreement by us;
	•	our liquidation or insolvency; or
	•	in some circumstances, following a change of control.

	•	reliance on the third party for regulatory compliance and quality assurance;
	•	the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
	•	the possibility of termination or nonrenewal of the agreement by the third party because of our breach of the manufacturing agreement or based on its own business priorities.

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	•	Pre-clinical testing and clinical trials are protracted, expensive and uncertain processes. It might take us and our partner several years to complete the testing process, and failure can occur at any stage of the process. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful. These risks are potentially more pronounced in clinical tests involving children.
	•	We have not completed any clinical trials in children to date. A clinical trial conducted by Bayer for tonsillitis/pharyngitis in adults did not meet its primary end point.
	•	Any regulatory approval we ultimately obtain may be limited or subject to post-approval commitments that render the product not commercially viable.
	•	Any NDA or other marketing authorization applications that we may file might be denied by the FDA and analogous foreign regulators.
	•	This product candidate, even if found to be safe and effective, might be difficult to develop into a commercially viable drug or to manufacture on a large scale or might be uneconomical to market commercially.
	•	Third parties might market superior drugs or be more effective in marketing equivalent drugs.

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	•	Even if this product candidate is successfully developed and effectively marketed, the size of the potential market might change such that our sales revenue is less than initially contemplated.
	•	Because of our relationship with our partner, Forest Laboratories, we are dependent on Forest Laboratories to commercialize Orapem.

	•	we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for a particular indication;
	•	the results of clinical trials may not meet the level of statistical significance required by the FDA or other regulatory authorities for approval;
	•	the FDA or other regulatory authorities may disagree with the design of our clinical trials;
	•	we may be unable to demonstrate that a product candidate’s benefits outweigh its risks;
	•	we may be unable to demonstrate that the product candidate presents an advantage over existing therapies, or over placebo in any indications for which the FDA requires a placebo-controlled trial;
	•	the FDA or comparable foreign regulatory authorities may disagree with out interpretation of data from pre-clinical studies or clinical trials;
	•	the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application or to obtain regulatory approval in the U.S. or elsewhere;

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	•	the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
	•	the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change.

	•	decreased demand for our product candidates;
	•	injury to our reputation;
	•	withdrawal of clinical trial participants;
	•	significant litigation costs;
	•	substantial monetary awards to or costly settlement with patients;
	•	product recalls;
	•	loss of revenue; and
	•	the inability to commercialize our product candidates.

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	•	complete the clinical development of Orapem and REP8839;
	•	license or acquire additional product candidates;
	•	launch and commercialize any product candidates for which we receive regulatory approval, including building our own sales force to address certain markets; and
	•	continue our research and development programs.

	•	seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and
	•	relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.

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	•	manage our development efforts effectively;
	•	manage our clinical trials effectively;
	•	integrate additional management, administrative, manufacturing and sales and marketing personnel;
	•	maintain sufficient administrative, accounting and management information systems and controls; and
	•	hire and train additional qualified personnel.

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	•	collaborators may not pursue further development and commercialization of compounds resulting from collaborations or may elect not to renew research and development programs;
	•	collaborators may delay clinical trials, underfund a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require the development of a new formulation of a product candidate for clinical testing;
	•	a collaborator with marketing and distribution rights to one or more of our products may not commit sufficient resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of these products; and
	•	disputes may arise delaying or terminating the research, development or commercialization of our product candidates, or result in significant litigation or arbitration.

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	•	others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our licensed patents, or for which we are not licensed under our license agreements;
	•	we or our licensors might not have been the first to make the inventions covered by our pending patent application or the pending patent applications and issued patents of our licensors;
	•	we or our licensors might not have been the first to file patent applications for these inventions;

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	•	others may independently develop similar or alternative technologies or duplicate any of our technologies;
	•	it is possible that our pending patent applications will not result in issued patents;
	•	our issued patents and the issued patents of our licensors may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties;
	•	we may not develop additional proprietary technologies that are patentable; or
	•	the patents of others may have an adverse effect on our business.

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	•	announcement of FDA approval or non-approval of our product candidates, or specific label indications for their use, or delays in the FDA review process;
	•	actions taken by regulatory agencies with respect to our product candidates, clinical trials, manufacturing process or sales and marketing activities;
	•	changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;
	•	the success of our development efforts and clinical trials;
	•	the success of our efforts to acquire or in-license additional products or product candidates;
	•	developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners;
	•	actual or anticipated variations in our quarterly operating results;
	•	announcements of technological innovations by us, our collaborators or our competitors;
	•	new products or services introduced or announced by us or our commercialization partners, or our competitors and the timing of these introductions or announcements;
	•	actual or anticipated changes in earnings estimates or recommendations by securities analysts;
	•	conditions or trends in the biotechnology and biopharmaceutical industries;
	•	announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
	•	general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors;

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	•	changes in the market valuations of similar companies;
	•	sales of common stock or other securities by us or our stockholders in the future;
	•	additions or departures of key scientific or management personnel;
	•	developments relating to proprietary rights held by us or our competitors;
	•	disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
	•	trading volume of our common stock; and
	•	sales of our common stock by us or our stockholders.

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	•	authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
	•	limiting the removal of directors by the stockholders;
	•	prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
	•	eliminating the ability of stockholders to call a special meeting of stockholders; and
	•	establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

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	•	the success and timing of our pre-clinical studies and clinical trials;
	•	our ability to obtain and maintain regulatory approval of our product candidates and the labeling under any approval we may obtain;
	•	our plans to develop and commercialize our product candidates;
	•	the loss of key scientific or management personnel;
	•	the size and growth of the potential markets for our product candidates and our ability to serve those markets;
	•	regulatory developments in the U.S. and foreign countries;
	•	the rate and degree of market acceptance of any future products;
	•	our use of the proceeds from this offering;
	•	the accuracy of our estimates regarding expenses, future revenues and capital requirements;
	•	our ability to obtain and maintain intellectual property protection for our product candidates;
	•	the successful development of our sales and marketing capabilities;
	•	the success of competing drugs that are or become available; and
	•	the performance of third party manufacturers.

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	•	approximately $33.0 million to fund clinical trials and other research and development activities for Orapem;
	•	approximately $21.0 million to fund future clinical trials for REP8839;
	•	approximately $8.0 million to fund activities in preparation for the potential commercial launch of Orapem; and
	•	the remainder, along with our available cash and cash equivalents, short-term investments and interest earned, to fund working capital and other general corporate purposes, including sales, general and administrative expenses and potential further expansion of our employee base and facilities, as well as amounts due to Daiichi Asubio under our license agreement, which amounts are uncertain as to timing and dependent on the achievement of milestones.

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	•	complete our Phase III placebo-controlled clinical trial for Orapem in the treatment of acute exacerbation of chronic bronchitis;
	•	complete our Phase II clinical trials for an oral liquid formulation of Orapem among pediatric patients; and
	•	initiate and advance a Phase I clinical trial for a REP8839/mupirocin combination product for topical use for skin and wound infections and prevention of S. aureus infections, including MRSA infections, in hospital settings.

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	•	on an actual basis,
	•	on a pro forma as adjusted basis to reflect:

	•	the filing of a restated certificate of incorporation to authorize 100,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock;
	•	the sale of 5,000,000 shares of common stock in this offering at an assumed initial offering price of $15.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses;
	•	the conversion of all of our outstanding shares of preferred stock into shares of common stock upon the closing of this offering; and
	•	the issuance of 1,182,332 shares of common stock upon the closing of this offering in satisfaction of accumulated dividends on our Series A, B, C and D convertible preferred stock, assuming an initial public offering price of $15.00 per share, and the closing of this offering occurs on June 30, 2006.

				As of March 31, 2006
								Pro Forma
				Actual				As Adjusted
				(in thousands, except
				share data)
Cash, cash equivalents and short-term investments				$	109,900			$	178,050
Preferred stock, $0.01 to $0.001 par value: 88,862,226 authorized, 88,602,223 issued and outstanding shares, actual; 5,000,000 authorized, issued and outstanding shares, as adjusted					139,568				—
Stockholders’ equity (deficit):
	Common stock, $0.001 par value: 115,000,000 authorized shares; 2,094,706 issued shares and 2,064,119 outstanding shares, actual; 100,000,000 authorized shares; 26,344,360 issued shares and 26,313,773 outstanding shares, as adjusted				2				26
	Additional paid-in capital				—				207,694
	Treasury stock, $0.01 par value; 30,587 shares				(2	)			(2	)
	Accumulated other comprehensive income				521				521
	Deficit accumulated during the development stage				(93,060	)			(93,060	)
		Total stockholders’ (deficit) equity			(92,539	)			115,179
Total capitalization				$	47,029			$	115,179

	•	1,626,286 shares of common stock issuable upon the exercise of outstanding options, with a weighted average exercise price of $2.59 per share;
	•	277,708 shares of common stock reserved for future issuance under our benefit plans; and

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	•	53,012 shares of common stock issuable upon the exercise of outstanding warrants, with a weighted average exercise price of $5.47 per share.

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Assumed initial public offering price per share				$15.00
Historical net tangible book value per share as of March 31, 2006		$(62.49)
Pro forma increase in net tangible book value per share attributable to conversion of convertible preferred stock and issuance of shares of common stock in satisfaction of accumulated dividends on convertible preferred stock		$64.76
Pro forma net tangible book value per share as of March 31, 2006 before this offering		$2.27
Increase in net tangible book value per share attributable to this offering		$2.21
Pro forma as adjusted net tangible book value per share after this offering				$4.48
Dilution per share to investors participating in this offering				$10.52

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			Shares Purchased								Total Consideration
																			Average Price
			Number				Percent				Amount				Percent				Per Share
Existing stockholders before this offering				21,313,773				81.00%			$	144,829,740				65.88	%		$	6.80
Investors participating in this offering				5,000,000				19.00				75,000,000				34.12				15.00
	Total			26,313,773				100	%		$	219,829,740				100	%

	•	1,626,286 shares of common stock subject to outstanding options, having a weighted average exercise price of $2.59 per share;
	•	277,708 shares of common stock reserved for future issuance under our benefit plans as of the completion of this offering; and
	•	53,012 shares of common stock subject to outstanding warrants, having a weighted average exercise price of $5.47 per share.

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				For the Period from																				Three Months Ended
				December 6, 2000				Years Ended December 31,																March 31,
				(Date of Inception)
				to December 31, 2001				2002				2003				2004				2005				2005				2006
				(in thousands, except share and per share amounts)
				(unaudited)				(unaudited				)
																								(unaudited)
Statement of Operations Data:
Revenue				$	49			$	—			$	726			$	834			$	441			$	267			$	2,877
Costs and expenses:
	Research and development				125				2,517				12,331				16,282				29,180				5,013				8,970
	Sales, general and administrative				397				1,275				2,155				2,994				5,329				686				1,953
		Total costs and expenses			522				3,792				14,486				19,276				34,509				5,699				10,923
		Loss from operations			(473	)			(3,792	)			(13,760	)			(18,442	)			(34,068	)			(5,432	)			(8,046	)
Other (expense) income, net					(12	)			30				(190	)			(797	)			399				42				344
Net loss					(485	)			(3,762	)			(13,950	)			(19,239	)			(33,669	)			(5,390	)			(7,702	)
Preferred stock dividends and accretion					—				(915	)			(1,294	)			(3,560	)			(7,191	)			(1,291	)			(2,653	)
Net loss attributable to common stockholders				$	(485	)		$	(4,677	)		$	(15,244	)		$	(22,799	)		$	(40,860	)		$	(6,681	)		$	(10,355	)
Basic and diluted net loss attributable to common stockholders per share(1):
	Historical			$	(0.72	)		$	(6.59	)		$	(20.82	)		$	(30.55	)		$	(39.20	)		$	(8.13	)		$	(7.21	)
	Pro forma (unaudited)																			$	(2.24	)						$	(0.38	)
Weighted average shares outstanding(1):
	Historical				674,599				709,568				732,044				746,306				1,042,388				821,757				1,435,726
	Pro forma (unaudited)																				15,031,566								20,508,603

		As of December 31,																				As of
																						March 31,
		2001				2002				2003				2004				2005				2006
																						(unaudited)
		(unaudited)
		(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments		$	80			$	8,549			$	692			$	27,018			$	59,420			$	109,900
Working capital			(498	)			7,400				(1,657	)			24,409				50,755				98,800
Total assets			412				11,988				4,169				30,067				63,579				116,112
Long-term debt, net of current portion and discount			—				1,688				1,208				84				—				—
Accumulated deficit			(485	)			(4,960	)			(20,105	)			(42,235	)			(83,107	)			(93,060	)
Preferred stock			—				13,764				20,058				69,447				136,815				139,568
Total stockholders’ deficit			(428	)			(4,918	)			(20,115	)			(42,202	)			(82,632	)			(92,539	)

(1)	Please see Note 1 to our financial statements for an explanation of the method used to calculate the historical and pro forma net loss attributable to common stockholders per share and the number of shares used in the computation of the per share amounts.

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	•	external research and development expenses, including the costs of materials relating to our pre-clinical studies and clinical trials;
	•	third party supplier, consultant and employee related expenses, including compensation and benefits;
	•	license fees associated with acquiring in-process research and development; and
	•	facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, information technology, laboratory and office supplies and depreciation of capital assets used to research and develop our product candidates.

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	•	pricing of private sales of our convertible preferred stock;
	•	relative rights and preferences of our common stock compared to the rights and preferences of our other outstanding equity securities;
	•	our progress towards clinical and product development milestones;
	•	the risks and uncertainties of obtaining FDA approval for Orapem;
	•	progress towards establishing a collaborative development and commercialization partnership for Orapem, and evaluation of the alternatives available to the Company if a commercialization partnership is not obtained;
	•	the status of our efforts to build our management team;
	•	changes in valuations of comparable publicly-traded companies and acquisitions of companies similar to ours;
	•	the likelihood of achieving a liquidity event such as an initial public offering or sale of our company, and the proceeds that would be allocated to holders of our common stock given the amounts contractually due to the holders of preferred stock in preference to, and participating with, the common shareholder;
	•	the inherent risks associated with the Company’s business at the time; and
	•	overall equity market conditions and general economic trends.

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										Estimated Fair
		Shares of Common								Value per share of
		Stock Underlying				Exercise Price per				the Underlying				Intrinsic Value per
Grant Date		Option Grants				Share				Common Stock				Option Share
March 9, 2005			243,680			$	0.613			$	0.613			$	0.00
May 26, 2005			74,920			$	0.613			$	0.613			$	0.00
June 10, 2005			103,996			$	0.613			$	0.613			$	0.00
August 18, 2005			36,832			$	1.324			$	0.932			$	0.00
September 8, 2005			46,900			$	1.324			$	0.932			$	0.00
November 30, 2005			46,900			$	1.324			$	1.324			$	0.00
December 8, 2005			16,313			$	1.324			$	1.324			$	0.00
Total 2005 Option Grants			569,541											$	0.00
														$	0.00
January 19, 2006			851,021			$	3.188			$	3.188			$	0.00
February 6, 2006			45,866			$	3.188			$	3.188			$	0.00
March 9, 2006			193,718			$	5.198			$	5.198			$	0.00
Total First Quarter 2006 Option Grants			1,090,605

										Subsequent Path
		Major Path
																		Other (No				Option
		With				Without				Public				Sale of				value to				Pricing
Valuation Date		Partner				Partner				Offering				Company/Assets				common)				Method				Fair Value
8-Sep-05			25	%							35	%			40	%			25	%
							75	%							25	%			50	%			25	%		$	0.93
30-Nov-05			40	%							50	%			25	%			25	%
							60	%							25	%			50	%			25	%		$	1.32
30-Dec-05			60	%							50	%			30	%			20	%
							40	%							25	%			50	%			25	%		$	2.21
19-Jan-06			75	%							50	%			25	%			25	%
							25	%							25	%			50	%			25	%		$	3.19
10-Feb-06			100	%							60	%			25	%			15	%						$	5.20

	•	In March and May 2005, the estimated fair of our common stock was determined by our board of directors to be $0.613 per share. At this time, we had not sufficiently developed our

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		product to a point in which we believed we could reasonably be considered for acquisition and we needed additional funding to support that development effort.
	•	In August 2005, the estimated fair value of our common stock was determined to be $0.932 per share. At that time, we had just completed a significant funding through issuance of Series D preferred stock in August 2005 for aggregate proceeds of $62.5 million. Our ability to secure this funding was based in significant part upon our determination shortly prior to that time that we would likely be able to file an NDA for Orapem with the FDA based on our existing clinical trials. Obtaining a collaboration partner with an appropriate distribution channel for Orapem was a critical factor in achieving value for our stockholders, both preferred and common. Consummating a collaboration partnership would allow us to focus on drug development without the need to expend significant costs, at significant risk, to distribute Orapem ourselves. As such, we determined the value of our common stock under a scenario in which we were successful in obtaining a collaboration partner and a scenario without a collaboration partner. In August 2005, we considered the fact that we had spoken with numerous potential collaboration partners for Orapem, including several major pharmaceutical companies, without successfully securing a partner due to the fact that these companies had a competing product already in their portfolio, did not believe that the product was compatible with their other products or for other reasons. Further, the number of remaining potential collaboration partners was limited and the risk was high that we would not be successful in obtaining a suitable collaboration partner. Accordingly, we determined that the probability was high that we would not be able to find such a collaboration partner and that the resulting possible liquidity events were limited. We also noted that the consensus among industry analysts was that an initial public offering without a collaboration partner would be unlikely.
	•	In November 2005, the estimated fair value of our common stock was increased to $1.324 per share, primarily based on the initiation of partnership discussions with Forest Laboratories, who we believed to be one of the few remaining appropriate potential collaboration partners. Following the initiation of partnership discussions, we considered the concerns raised by Forest Laboratories, including supply risks related to Orapem drug substance being manufactured at a single site with limited experience manufacturing in an FDA regulated environment and risks surrounding our ability to file an NDA for Orapem with the FDA that would be accepted for review, and ultimately approved by the FDA for sufficient indications to make the product commercially viable for us and for Forest Laboratories.
	•	In January 2006, the estimated fair value of our common stock was increased to $3.188 per share, primarily based on the filing of our NDA for Orapem on December 20, 2005 and continuing progress in our discussions with Forest Laboratories regarding a possible partnership and specifically addressing significant concerns raised by Forest Laboratories that threatened the possible partnership.
	•	On February 10, 2006, we signed the collaboration agreement with Forest Laboratories. It was only at this time that we believe we became a candidate for an initial public offering that would meet the valuation requirements of our preferred stockholders. Further, on February 17, 2006, our NDA for Orapem was accepted for review by the FDA. Accordingly, on the date that we next granted options for our common stock, March 9, 2006, the estimated fair value of our common stock was increased to $5.198 per share. Also at this time, our board of directors approved our proceeding with an initial public offering and investment bankers were retained. On April 5, 2006, we filed a registration statement for the initial public offering of our common stock.

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	•	the potential of an initial public offering at various market capitalizations;
	•	a sale of us or our assets in a merger or acquisition; or
	•	a transaction resulting in no value to the holders of common stock.

	•	historically, 22% of proposed initial public offerings have been withdrawn after filing;
	•	historically, initial public offerings that have not been withdrawn have been priced at approximately a 27% discount from the mid-point of the initial filing range; and
	•	of the 14 initial public offerings completed in 2006 through the date of our evaluation for biotechnology and pharmaceutical companies that may be considered comparable to us, 12 of those offerings were priced below the low point of the initial filing range.

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	•	prospects for liquidity, including the expectation of an initial public offering in the future;
	•	restrictions on the transferability of our common and preferred stock;
	•	risk and volatility associated with us, our industry and our peers;
	•	uncertainty of our value; and
	•	concentration and control of our ownership.

	•	we calculated the anticipated dilution to the common stockholders in each initial public offering scenario that we estimated based on available market data to be within the range of 25% to 35%; and
	•	then utilized a probability weighted average lack of marketability discount of 20% in February 2006, which was further reduced to 15% in April 2006 at the time we filed our initial registration statement.

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	Adoption of SFAS No. 123(R)

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	Comparison of Three Months Ended March 31, 2006 and 2005

	•	increased clinical trial costs and related expenses including continued clinical trials for an Orapem placebo controlled Phase III clinical trial among patients with acute exacerbation of chronic bronchitis and a Phase II clinical trial using an oral liquidation formulation targeted for pediatric use; and
	•	expense of $1.1 million payable to Daiichi Asubio in accordance with the February 2006 amended license agreement due to acceptance of the NDA by the FDA.

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		Three Months
		Ended
		March 31,								Change
		2005				2006				$				%
		(unaudited)
		(in thousands)
Orapem		$	4,322			$	6,199			$	1,877				43%
REP8839			625				1,245				620				99%
Other research and development			66				1,526				1,460				2212%
		$	5,013			$	8,970			$	3,957				79%

	•	advance our Phase III placebo controlled clinical trial for Orapem in the treatment of acute exacerbation of chronic bronchitis;
	•	complete our Phase II clinical trials for an oral liquid formulation of Orapem among pediatric patients; and
	•	advance REP8839 into clinical trials.

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	Comparison of Years Ended December 31, 2005 and 2004

	•	the commencement of clinical trials for Orapem higher dose therapy for acute exacerbation of chronic bronchitis and an oral liquid formulation for pediatric use;
	•	activities related to completing our NDA for Orapem that was submitted in December 2005;
	•	expenses of $2.1 million payable to Daiichi Asubio upon submission of our NDA for Orapem in accordance with the terms of our license agreement; and
	•	expanded pre-clinical development spending on REP8839.

		Years Ended
		December 31,								Change
		2004				2005				$				%
		(in thousands)
Orapem		$	12,626			$	24,744			$	12,118				96	%
REP8839			2,629				3,589				960				37
Other research and development			1,027				847				(180	)			(18	)
		$	16,282			$	29,180			$	12,898				79	%

	•	advance our placebo controlled Phase III clinical trial for use of adult Orapem therapy in the treatment of acute exacerbation of chronic bronchitis;

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	•	complete our Phase II clinical trials for an oral liquid formulation of Orapem among pediatric patients; and
	•	initiate clinical development of REP8839.

	Comparison of Years Ended December 31, 2004 and 2003

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		Years Ended
		December 31,								Change
		2003				2004				$				%
		(in thousands)
Orapem		$	634			$	12,626			$	11,992				1,891	%
REP8839			6,239				2,629				(3,610	)			(58	)
Other research and development			5,458				1,027				(4,431	)			(81	)
		$	12,331			$	16,282			$	3,951				33	%

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	•	the rate of progress and cost of our pre-clinical studies, clinical trials and other research and development activities;
	•	the scope and number of clinical development and research programs we pursue;
	•	the costs, timing and outcomes of regulatory approvals;
	•	the costs of establishing or contracting for marketing and sales capabilities, including the establishment of our own sales force;

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	•	the extent to which we acquire or in-license new products, technologies or businesses;
	•	the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
	•	the terms and timing of any additional collaborative, strategic partnership or licensing agreements that we may establish.

		Payments Due by Period
						Less than												Over
		Total				1 Year				1-3 Years				3-5 Years				5 Years
		(in thousands)
Operating lease obligations		$	3,592			$	712			$	1,213			$	1,256			$	411
Equipment financing obligations			172				172				—				—				—
Milestone payments (1)			1,500				1,500				—				—				—
		$	5,264			$	2,384			$	1,213			$	1,256			$	411

(1)	Represents a $1.5 million milestone payment due to GSK by July 4, 2006, or ten days after the IND for REP8839 is considered filed with the FDA. We submitted an IND for REP8839 in combination with mupirocin in May 2006.

	•	contractual obligations for clinical trials that are payable on a per patient basis;
	•	royalty obligations, which would be payable based on sales of Orapem in future periods;
	•	amounts due to Daiichi Asubio under our license agreement, which amounts are uncertain as to timing and dependent on the achievement of milestones; and
	•	contingent amounts that may become due under supply agreements.

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	•	Maximize commercial potential for Orapem as a leading community antibiotic. If approved, we intend to establish Orapem as a leading community antibiotic and a preferred branded oral beta-lactam in adult and pediatric markets. We believe that Orapem’s safety profile and spectrum of activity make it suitable for use against a wide variety of common bacterial infections. Forest Laboratories will market Orapem in the U.S. to primary care physicians using its established primary care sales force. We will seek to commercialize Orapem outside the U.S. and Canada through additional strategic collaborations.
	•	Develop specialty sales and marketing capabilities. We intend to build our own sales and marketing capabilities to target specialist physicians in major metropolitan areas. If Orapem is approved for adult use, we intend to promote Orapem directly to otolaryngologists (ear, nose and throat physicians) and Forest Laboratories will reimburse us for most of the related marketing and sales force costs. If Orapem is approved for pediatric use, we intend to expand our sales force to market Orapem to pediatricians. We plan to leverage this sales force to market other products that we may develop, acquire or in-license.

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	•	Develop REP8839 to treat S. aureus infections. We are developing REP8839 for topical use in treatment of skin and wound infections and prevention of S. aureus infections, including MRSA infections, in hospital settings. Our pre-clinical studies have shown promising activity in each of these target indications. We submitted an IND application for the development of a REP8839/mupirocin combination product in May 2006 and plan to aggressively pursue clinical development if the IND is approved.
	•	Discover and develop novel anti-infective products. We intend to expand our pipeline of novel anti-infective product candidates by continuing to pursue our discovery research programs. We plan to use our DNA replication inhibitor expertise to develop anti-infective products with novel mechanisms of action based on inhibition of bacterial DNA replication, which we believe may limit development of resistance to those products. We also have an active program to develop a treatment for C. difficile, a growing medical problem in hospital settings for which existing therapies have significant limitations, and are conducting pre-clinical testing of several small molecules to treat C. difficile.
	•	Acquire or in-license additional products or product candidates. We plan to leverage our development, regulatory and commercial resources by acquiring or in-licensing additional products or product candidates. These may include anti-infective products or other products that are prescribed by the physicians targeted by our sales force.

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										Drug Class Share of Indication
						Adult
						Oral Market				Beta-				Macrolides/								Other
Bacterial Infection Type				Indication		Prescriptions				Lactams				Ketolides				Quinolones				Antibiotics
						(in millions)
Upper Respiratory Tract Infections				Acute Bacterial Sinusitis			34.4				49.3	%			32.7	%			13.2	%			4.8	%
				Acute Otitis Media			9.0				68.2	%			21.4	%			6.8	%			3.6	%
				Tonsilitis/ Pharyngitis			19.0				70.8	%			25.4	%			2.4	%			1.3	%
Lower Respiratory Tract Infections				Acute Exacerbation of Chronic Bronchitis			33.5				21.5	%			50.5	%			19.2	%			8.9	%
				Community-Acquired Pneumonia			6.6				11.5	%			35.5	%			49.6	%			3.4	%
	Skin Infections			Uncomplicated Skin & Skin Structure Infections			34.2				62.8	%			6.7	%			14.3	%			16.1	%
Total											42.9	%			26.1	%			19.9	%			11.1	%

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										Drug Class Share of Indication
						Pediatric
						Oral Market				Beta-												Other
Bacterial Infection Type				Indication		Prescriptions				Lactams				Macrolides				Quinolones				Antibiotics
						(in millions)
Upper Respiratory Tract Infections				Acute Bacterial Sinusitis			4.8				84.8	%			14.0	%			0.0	%			1.1	%
				Acute Otitis Media			22.7				88.9	%			9.2	%			0.0	%			1.9	%
				Tonsillitis/Pharyngitis			9.3				89.0	%			10.0	%			0.0	%			1.0	%
Lower Respiratory Tract Infections				Acute Exacerbation of Chronic Bronchitis			3.5				43.0	%			53.7	%			0.0	%			3.3	%
				Community-Acquired Pneumonia			1.5				49.3	%			50.7	%			0.0	%			0.0	%
	Skin Infections			Uncomplicated Skin & Skin Structure Infections			2.8				81.8	%			8.6	%			0.0	%			9.6	%
Total											82.0	%			14.6	%			0.0	%			3.4	%

	•	Emergence of Drug-resistant Bacteria. Over the past several decades, many of the most prevalent bacteria that cause adult and pediatric respiratory and skin infections have developed resistance to currently marketed antibiotics. If bacteria are resistant, the infection can become difficult or impossible to treat and may lead to serious complications, including death. The two most prevalent bacteria in respiratory infections include Streptococcus pneumoniae, or S. pneumoniae and Haemophilus influenzae, or H. influenzae. According to the 2006 PROTEKT U.S. surveillance study, designed to track antibiotic resistance, more than 29% of the Streptococcus species are resistant to at least one of the drugs most commonly used to treat these infections. The rate of H. influenzae resistance to at least one of the drugs most commonly used to treat infections caused by this bacteria has reached 30%, as reported in the 2005 Journal of Clinical Infectious Disease. The U.S. Centers for Disease Control has stated that antibiotic resistance is now among that organization’s top concerns.
	•	Tolerability Issues. Many current oral antibiotics have been associated with tolerability issues that cause patients extreme discomfort and compliance issues that can lead to product failures. The most widely reported adverse event among leading oral antibiotics is diarrhea. The prescribing label for two of the leading oral beta-lactam antibiotics for use in adults, Augmentin and Omnicef, list diarrhea incidence levels that are approximately 15%.
	•	Safety Issues. Many of the common oral antibiotics in the quinolone and macrolide/ketolide classes are burdened with safety issues such as hepatotoxicity (drug related liver damage), heart rhythm abnormalities, photosensitivity (increased sensitivity to sunlight), hypoglycemia (low blood sugar), hyperglycemia (high blood sugar) or rash. Macrolide and ketolide class antibiotics are also associated with clinically meaningful drug

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		interaction issues with frequently prescribed drugs such as cholesterol lowering agents. To date, four of the nine quinolone antibiotics that have been marketed have been withdrawn from the market due to safety issues.

						Commercial Rights
Product Candidate
(Dosage Form)		Target Indications		Development Status		Replidyne		Partner
Orapem
300 mg tablet		Acute bacterial sinusitis Community-acquired pneumonia Acute exacerbation of chronic bronchitis Uncomplicated skin and skin structure infections		NDA submitted December 2005; currently under review		U.S.: specialists; co-promote option to exclusively promote to pediatricians Canada Sole negotiation right in rest of world, except Japan		Forest: U.S. primary care physicians and other non- specialists First refusal right in Canada
600 mg tablet		Acute exacerbation of chronic bronchitis		Phase III
Oral liquid		Acute otitis media		Phase II
formulation		(pediatric)
REP8839		Skin and wound infections Prevention of S. aureus infections, including MRSA infections, in hospital settings		Pre-clinical		Worldwide		Not applicable

	Orapem Program

	•	First oral penem available in the U.S. If approved by the FDA, Orapem would represent the first new sub-class of beta-lactams (penems) to be introduced in oral form for community use in more than 30 years. According to IMS Health, beta-lactams are the most widely used first-line therapy; however, over the years many bacteria have developed resistance to older beta-lactam antibiotics. Penems are intrinsically able to resist degradation by beta-lactamase enzymes. Because Orapem is a first product in a new class of antibiotics, its introduction should not be burdened with the resistance issues at the levels associated with other existing antibiotics.

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	•	Potency Profile. In vitro studies have indicated that Orapem is four times more active than Augmentin (amoxicillin/clavulanate) against S. pneumoniae, including those strains that have evolved resistance to penicillin or amoxicillin. Orapem is also generally twice as active as Augmentin against H. influenzae, including those strains that have evolved resistance to other beta-lactam antibiotics. In vitro potency does not always correlate to clinical efficacy.
	•	Safety profile consistent with other beta-lactam antibiotics. Due to its safety profile, we believe that Orapem would be appropriate as a first-line treatment for common respiratory and skin infections in the primary care setting. We believe that Orapem would allow physicians to reserve quinolones for second-line therapy, reducing quinolone resistance and improving the risk-to-benefit ratio for individual patients. Unlike carbapenems, Orapem has a low potential for neurotoxicity. In Phase III clinical testing, Orapem did not exhibit the potentially serious safety issues that affect the macrolide/ketolide and quinolone classes of antibiotics. Due to the safety issues previously listed for the ketolide and quinolone antibiotics, we do not anticipate competitive activity from products in these classes in the leading pediatric disease states (i.e. acute otitis media).
	•	Tolerability Profile. In the Phase II and Phase III clinical studies referenced in our NDA, the overall incidence of diarrhea was less than 5% in over 5,000 patients treated with Orapem. This rate of incidence compares favorably with the incidence of diarrhea reported in other commonly used beta-lactam antibiotics. Further, in two Phase III clinical studies in which Orapem was compared directly to Augmentin, the incidence of diarrhea was two to three times lower in the Orapem-treated patients.

	Pre-clinical Data

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			MIC90 (Ug/mL)
			Orapem				Augmentin				Omnicef				Zithromax				Levaquin
Respiratory Pathogens
S. pneumoniae
	Penicillin-susceptible			0.008				0.03				0.12				0.25				1
	Penicillin-intermediate			0.25				1				4				³512				1
	Penicillin-resistant			1				4				>4				³512				1
H. influenzae
	ß -Lactamase-positive			0.5				2				0.5				4				0.015
	ß -Lactamase-negative			1				1				1				4				0.015
M. catarrhalis
	ß -Lactamase-positive			0.5				0.5				0.25				£0.06				0.06
	ß -Lactamase-negative			0.12				0.03				0.12				£0.06				0.06
Skin Pathogens
S. aureus
	Methicillin-susceptible			0.12				1				0.5				>64				0.25
	Methicillin-resistant			>32				>32				—				>64				—
S. pyogenes				0.03				£0.015				£0.03				0.25				1

	Orapem for the Adult Market

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							Cefuroxime
			Orapem		Orapem		Axetil		Statistical
			300 mg		300 mg		250 mg		Result
Study			2x/day		2x/day		2x/day		95% CI
Population			n/n		n/n		n/n		%
Study 100288			7 days		10 days		10 days		Clinically Non-Inferior
	Clinically Evaluable		237/295(80%)		229/280(82%)		213/286(74%)		0.1, 13.6 (7 day) 1.7, 15.2 (10 day)
	Intent-to-Treat		262/366(72%)		255/363(70%)		250/370(68%)		-2.7, 10.5 (7 day) -3.9, 9.5 (10 day)
Study 10186			7 days				7 days		Clinically Non-Inferior
	Clinically Evaluable		203/228(89%)		—		198/224(88%)		-5.2, 6.4
	Intent-to-Treat		237/274(86%)		—		239/273(88%)		-7.0, 4.0
Study 100287			7 days						Open Label
	Clinically Evaluable		246/300(82%)		—		—		Not relevant
	Intent-to-Treat		269/353(76%)		—		—		Not relevant

			Orapem				Statistical Result
Study			300 mg 2x/day 10 days		Comparator		95% CI
Population			n/n		n/n		%
					Amoxicillin		Clinically
Study 10188					1g 3x/day 10 days		Non-Inferior
	Clinically Evaluable		260/284 (92%)		237/268 (88%)		-1.9, 8.1
	Intent-to-Treat		289/314 (92%)		270/304 (89%)		-1.4, 7.8
					Amoxicillin/Clavulanate		Clinically
Study 10189					625 mg 3x/ day 10 days		Non-Inferior
	Clinically Evaluable		222/257 (86%)		223/253 (88%)		-7.6, 3.9
	Intent-to-Treat		242/305(79%)		242/309(78%)		-5.4, 5.9
					Cefpodoxime		Clinically
Study 100290					200 mg 2x/day 14 days		Non-Inferior
	Clinically Evaluable		205/229 (90%)		203/229 (89%)		-4.1, 7.1
	Intent-to-Treat		223/304 (73%)		224/298 (75%)		-7.4, 6.3
Study 100289							Open Label
	Clinically Evaluable		252/294 (86%)		—		Not relevant
	Intent-to-Treat		287/388 (74%)		—		Not relevant

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			Orapem				Statistical Result
Study			300 mg 2x/day 5 days		Comparator		95% CI
Population			n/n		n/n		%
					Azithromycin		Clinically
Study 100291					500 mg 1 day, 200 mg 4 days		Non-Inferior
	Clinically Evaluable		225/278 (81%)		236/279 (85%)		-9.5, 2.6
	Intent-to-Treat		277/410 (68%)		283/405 (70%)		-8.5, 4.0
					Clarithromycin		Clinically
Study 10187					500 mg 2x/day 7days		Non-Inferior
	Clinically Evaluable		262/299 (88%)		288/318 (91%)		-7.9, 2.0
	Intent-to-Treat		316/369 (86%)		337/379 (89%)		-7.2, 2.0

			Orapem				Statistical Result
Study			300 mg 2x/day 7 days		Comparator		95% CI
Population			n/n		n/n		%
					Cephalexin
Study 100292					500 mg 2x/day 7 days		Clinically Inferior
	Clinically Evaluable		210/246 (85%)		226/246 (92%)		-12.3, -1.3
	Intent-to-Treat		220/290 (76%)		228/283 (81%)		-11.5, 2.1
					Amoxicillin/Clavulanate		Clinically
Study 10190					625 mg 3x/day 7 days		Non-Inferior
	Clinically Evaluable		224/246 (91%)		207/227 (91%)		-5.1, 5.3
	Intent-to-Treat		258/298 (87%)		254/295 (86%)		-4.7, 6.4

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	Safety and Tolerability Data

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	Orapem for the Pediatric Market

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	REP8839 Program

	Market Opportunity

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	Differentiating Characteristics

	•	Novel mechanism of action. REP8839 is a synthetic antibiotic with a distinct mechanism of action from mupirocin and other marketed antibiotics. REP8839 is an inhibitor of methionyl tRNA synthetase, a previously unexploited drug target. REP8839 showed potent antibacterial activity in vitro against important skin pathogens such as S. aureus and S. pyogenes and is more potent than mupirocin in vitro against these skin pathogens.
	•	Low rate of spontaneous resistance emergence. Antibiotics are sometimes used in combination to prevent or delay the emergence of drug-resistant strains of bacteria. When drugs that act on different molecular targets are used in combination, the probability of emergence of strains resistant to both drugs is substantially reduced. Since REP8839 and mupirocin act on two distinct essential enzymes (tRNA synthetases), the probability that bacterial resistance will develop during therapy is low.
	•	REP8839/mupirocin combination is unlikely to compromise the effectiveness of antibiotics used for the treatment of systemic infections. Because REP8839 and mupirocin have different mechanisms of action from the systemic antibacterial agents that are commonly used to treat more serious hospital infections, development of resistance to mupirocin or REP8839 would not jeopardize the efficacy of these systemic agents.

	Pre-Clinical Data and Clinical Development Strategy

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	•	treatment of uncomplicated skin and wound infections, including secondarily infected traumatic skin lesions caused by S. aureus, MRSA and S. pyogenes; and
	•	prevention of S. aureus infections, including MRSA infections, in hospital settings.

	•	DNA Replication Inhibitors Program. Bacterial DNA replication is an attractive target system for new antibacterial drugs since it is an essential process and stalled DNA replication can trigger cell death. However, to date, this is an underexploited drug target. Our high-throughput assays are designed to mimic the bacterial DNA replication systems from the following bacteria: Escherichia coli, S. pyogenes, Pseudomonis aeruginosa, S. aureus and Bacillus subtilis. Each high-throughput assay includes at least six protein components and many include twelve or more proteins that constitute the replication system of bacteria that need to work together in highly cooperative DNA replication reactions. These assays simultaneously target multiple sites that are amenable to inhibition by small molecules. We have screened a library of approximately 250,000 compounds assembled from various sources and are currently optimizing the initial inhibitors identified from the assays.
	•	Clostridium difficile Program. Another one of our discovery programs is focused on the identification of novel antibacterial drugs that are active against C. difficile. In recent years, C. difficile associated diarrhea has emerged as a major public health threat among elderly patients in health care or long-term care institutions. Oral vancomycin is the only antibiotic that is currently approved by the FDA for the treatment of C. difficile associated diarrhea. Metronidazole is also used extensively in clinical practice following early reports of its efficacy in C. difficile associated diarrhea. However, recent studies have noted relatively high and growing incidence of treatment failure and relapse following both vancomycin and metronidazole therapy. Furthermore, widespread vancomycin use raises resistance concerns. Overall, options for the treatment of C. difficile associated diarrhea are currently limited and a need exists for the development of new agents to address this emerging problem.

		An ideal drug for treating C. difficile associated diarrhea would have good activity against C. difficile but limited activity against normal intestinal flora, low oral bioavailability and a mechanism-of-action that is distinct from antibiotics currently used for the treatment of systemic infections. We have recently identified a class of compounds with in vitro activity against C. difficile that may meet the above criteria. To date, we have synthesized and

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		tested approximately 140 structurally related compounds and identified several compounds that have considerably improved antibacterial activity against C. difficile. We are currently studying pharmacology, toxicology and animal efficacy of several representative compounds.

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	•	Phase I. After an IND becomes effective, Phase I human clinical trials may begin. These trials evaluate a drug’s safety profile and the range of safe dosages that can be administered to healthy volunteers and/or patients, including the maximum tolerated dose that can be given to a trial subject with the target disease or condition. Phase I trials also determine how a drug is absorbed, distributed, metabolized and excreted by the body and the duration of its action.
	•	Phase II. Phase II clinical trials are typically designed to evaluate the potential effectiveness of the drug in patients and to further ascertain the safety of the drug at the dosage given in a larger patient population.
	•	Phase III. In Phase III clinical trials, the drug is usually tested in one or more controlled, randomized trials comparing the investigational new drug to an approved form of therapy or placebo in an expanded and well defined patient population and at multiple clinical sites. The goal of these trials is to obtain definitive statistical evidence of safety and effectiveness of the investigational new drug regimen as compared to a placebo or an approved standard therapy in defined patient populations with a given disease and stage of illness.
	•	Phase IV. Clinical trials are studies required of or agreed to by a sponsor that are conducted after the FDA has approved a product for marketing. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase III/ IV post approval clinical trials. Failure to promptly conduct Phase IV clinical trials could result in withdrawal of approval for products approved under accelerated approval regulations.

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Name		Age				Position
Kenneth J. Collins(1)			59			President, Chief Executive Officer and Director
Roger M. Echols, M.D.(1)			58			Chief Medical Officer
Nebojsa Janjic, Ph.D.(1)			46			Chief Scientific Officer and Secretary
Peter W. Letendre, Pharm.D.(1)			48			Chief Commercial Officer
Donald J. Morrissey, Jr.(1)			40			Senior Vice President, Corporate Development
Mark L. Smith(1)			44			Chief Financial Officer and Treasurer
Kirk K. Calhoun(2)			62			Director
Ralph E. Christoffersen, Ph.D.(4)			68			Director
Geoffrey Duyk, M.D., Ph.D.(3)			47			Director
Christopher D. Earl, Ph.D.(2)			50			Director
Augustine Lawlor(2)(3)			49			Director
Daniel J. Mitchell(3)(4)			49			Director
Henry Wendt(4)			72			Director

(1)	Executive officer.
(2)	Member of the audit committee.
(3)	Member of the compensation committee.
(4)	Member of the corporate governance and nominating committee.

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	•	Class I, which will consist of Drs. Christoffersen and Earl, and whose term will expire at our annual meeting of stockholders to be held in 2007;
	•	Class II, which will consist of Messrs. Wendt and Mitchell and Dr. Duyk, and whose term will expire at our annual meeting of stockholders to be held in 2008; and
	•	Class III, which will consist of Messrs. Calhoun, Lawlor and Collins, and whose term will expire at our annual meeting of stockholders to be held in 2009.

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	Audit Committee

	•	evaluating the performance of our independent auditors and deciding whether to retain their services;
	•	reviewing and pre-approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;
	•	reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent auditors and management;
	•	reviewing and approving all related-party transactions;
	•	reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls; and
	•	establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters.

	Compensation Committee

	•	determining the compensation and other terms of employment of our executive officers and senior management and reviewing and approving corporate performance goals and objectives relevant to such compensation;
	•	evaluating and recommending to our board of directors the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs;
	•	reviewing and approving appropriate insurance coverage for our officers and directors; and
	•	reviewing and approving the terms of any employment agreements, severance arrangements, change-in-control protections and any other compensatory arrangements for our executive officers.

	Corporate Governance and Nominating Committee

	•	developing and maintaining a current list of the functional needs and qualifications of members of our board of directors;
	•	evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate;
	•	interviewing, evaluating, nominating and recommending individuals for membership on our board of directors;

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	•	evaluating nominations by stockholders of candidates for election to our board;
	•	reviewing and reporting annually to our board of directors an assessment of our board’s performance;
	•	reviewing and recommending to our board of directors any amendments to our corporate governance documents; and
	•	reviewing and recommending to our board of directors changes with respect to corporate governance issues, issues of broad social significance and our overall conduct as a responsible corporate citizen.

	•	$17,500 per year for service as a board member;
	•	$7,500 per year for service as chairman of the audit committee;
	•	$2,500 per year for service as chairman of the compensation committee or the nominating and corporate governance committee;
	•	$1,500 for each board meeting attended in person ($750 for meetings attended by video or telephone conference);
	•	$1,500 for each audit or compensation committee meeting attended by the chairman of such committee in person ($750 for meetings attended by video or telephone conference); and
	•	$1,000 for each committee meeting attended in person by members who are not chairman of such committee ($500 for meetings attended by video or telephone conference).

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			Annual Compensation								Number of
											Securities				All Other
Name and Principal Position			Salary				Bonus				Underlying Options				Compensation
Kenneth J. Collins			$	305,000			$	122,000				—				—
	President, Chief Executive Officer and Member of the Board of Directors
Roger M. Echols, M.D.				325,000				149,500				—				—
	Chief Medical Officer
Nebojsa Janjic, Ph.D.				250,000				75,000				—				—
	Chief Scientific Officer and Secretary
Peter W. Letendre, Pharm.D				217,708				210,000				203,915			$	299,603	(1)
	Chief Commercial Officer
Donald J. Morrissey, Jr.				205,000				61,500				16,313				—
	Senior Vice President, Corporate Development

(1)	Represents housing and relocation costs.

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		Individual Grants(1)
																		Potential Realizable
						% of Total												Value at Assumed
						Options												Annual Rates of
		Number of				Granted to												Stock Price
		Securities				Employees in												Appreciation
		Underlying				the Year Ended				Exercise or								for Option Term(3)
		Options				December 31,				Base Price
Name		Granted				2005(2)				($/Sh)				Expiration Date				5%				10%
Kenneth J. Collins			—				—				—				—				—				—
Roger M. Echols, M.D.			—				—				—				—				—				—
Nebojsa Janjic, Ph.D.			—				—				—				—				—				—
Peter W. Letendre, Pharm.D.			203,915				35.8%			$	0.61				03/09/15			$	4,861,334			$	7,797,710
Donald J. Morrissey, Jr.			16,313				2.9%			$	0.61				05/26/15				388,902				623,809

(1)	The option grants listed above to Peter Letendre and Donald Morrissey vest over a four year period with 25% of the shares vesting one year from the vesting commencement date and the remaining shares vesting in equal monthly installments over the next 36 months. These options may be exercised immediately for shares of restricted stock, which are subject to a repurchase right by us that lapses on the same vesting schedule as the options.
(2)	Based on 569,541 options granted during the fiscal year ended December 31, 2005 under our amended and restated 2006 Equity Incentive Plan, including grants to executive officers.
(3)	Potential realizable values are computed by (a) multiplying the number of shares of common stock subject to a given option by an assumed initial public offering price of $15.00 per share, (b) assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire ten-year term of the option and (c) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rates of stock price appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future common stock prices.

										Number of Securities								Value of Unexercised
										Underlying Unexercised								In-the-Money Options
		Shares								Options at Fiscal Year-End								at Fiscal Year-End(1)
		Acquired				Value
Name		on Exercise				Realized(1)				Exercisable				Unexercisable				Exercisable				Unexercisable
Kenneth J. Collins			356,851			$	5,134,015				—				—				—				—
Roger M. Echols, M.D.			101,957			$	1,466,855				101,957				—			$	1,466,855				—
Nebojsa Janjic, Ph.D.			224,306			$	3,227,090				—				—				—				—
Peter W. Letendre, Pharm.D.			0				—				203,915				—			$	2,933,725				—
Donald J. Morrissey, Jr.			0				—				144,779				—			$	2,089,958				—

(1)

Amounts described under “value realized” and the value of an unexercised in-the-money option as of December 31, 2005 is equal to the excess of an assumed initial public offering price of $15.00 per share over the exercise price for the option, multiplied by the number of shares issued or issuable upon exercise of the option, without taking into account any taxes that may be payable in connection with the transaction.

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	Employment Agreements

	•	salary continuation for a period of 12 months from the date of termination; and
	•	reimbursement for the cost of continued medical insurance coverage through the end of this 12 month period or, if earlier, the date on which the employee obtains alternative group health insurance.

	•	salary continuation for a period of 12 months (or 18 months with respect to Mr. Collins and Dr. Janjic) from the date of termination;
	•	reimbursement for the cost of continued medical insurance coverage through the end of this 12 month period (or 18 month period with respect to Mr. Collins and Dr. Janjic) or if earlier, the date on which the employee obtains alternative group health insurance; and
	•	acceleration of vesting of all of the employee’s outstanding unvested options to purchase our common stock.

Officer		Base Salary				Bonus Eligibility
Kenneth J. Collins		$	350,000				50% of Base Salary
Roger M. Echols, M.D.		$	345,000				30% of Base Salary
Nebojsa Janjic, Ph.D.		$	275,000				30% of Base Salary
Peter W. Letendre, Pharm.D.		$	295,000				40% of Base Salary
Donald J. Morrissey, Jr.		$	240,000				30% of Base Salary
Mark L. Smith		$	280,000				30% of Base Salary

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	Confidential Information and Inventions Agreement

	2006 Equity Incentive Plan

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	•	Initial Option Grant. Each non-employee member of our board of directors who has been a non-employee member of our board of directors for at least 12 months as of the effective date of this offering will, on the effective date of this offering, be eligible to receive an option to purchase 16,313 shares of our common stock. In addition, each new non-employee member of our board of directors elected or appointed after the effective date of this offering will, at the time of his or her initial election or appointment to the board of directors, be eligible to receive an option to purchase 16,313 shares of our common stock. An option grant described in this paragraph is referred to as an “initial option grant.”
	•	Annual Awards. On the date of each annual meeting of our stockholders, commencing with the annual meeting in 2007 (the “annual award date”), each non-employee member of our board of directors who has been a non-employee member of our board of directors for at least six months as of the date of such annual meeting, will be eligible to receive a stock award (the “annual award”) as follows:

	•	Form of Annual Award. The annual award will be either in the form of a nonstatutory stock option grant or restricted stock award. In the calendar year prior to the grant of an annual award, the board of directors decides whether the annual award will be in the form of a nonstatutory stock option or restricted stock award. If the board of directors does not make such a determination by December 31st of the preceding calendar year, the annual awards to be granted in the subsequent calendar year will be granted in the form of a nonstatutory stock option.
	•	Number of Shares for Annual Awards. If the annual award is in the form of a nonstatutory stock option (the “annual option grant”), each non-employee director receiving an annual award will be eligible to receive an option to purchase 8,156 shares of our common stock. If the annual award is in the form of a restricted stock award, the annual award will not be more favorable to a non-employee director than that number of unvested shares of our common stock equal to the quotient obtained by dividing (a) the “fair value” of an annual option grant at such time, as determined under generally accepted accounting principles and using the option pricing model employed by us for purposes of estimating the value of compensatory stock options, by (b) the fair market value of our common stock on the date of grant. In addition, the board of directors has the authority to provide that the issuance of an annual award will be delivered in a restricted stock unit award with shares to be delivered when shares would have otherwise vested under the restricted stock award.

	•	Terms of Non-Discretionary Grant Program Options. The exercise price of each option granted under the non-discretionary grant program shall be equal to 100% of the fair market value of the common stock subject to the option on the date of grant. The maximum term

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		of options granted under the non-discretionary grant program is 10 years. Vesting ceases when the optionee is no longer in our service as a director, employee or consultant. The remaining terms and conditions of each option is set forth in an option agreement in the form adopted from time to time by the board of directors.
	•	Terms of Non-Discretionary Grant Program Restricted Stock Awards and Restricted Stock Unit Awards. Restricted stock awards and Restricted Stock Unit Awards under the non-discretionary grant program are granted in consideration for past or future services rendered to us or any of our affiliates. Vesting ceases when the optionee is no longer in our service as a director, employee or consultant. The remaining terms and conditions of each restricted stock award and restricted stock unit award is set forth in the restricted stock award agreement or restricted stock unit award agreement, in the form adopted from time to time by the Board.
	•	Change in Control. In the event of certain significant corporate transactions constituting a change in control, the vesting of stock awards granted under the non-discretionary grant program will automatically accelerate in full, unless provided otherwise in an applicable award agreement.

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	2006 Employee Stock Purchase Plan

	•	85% of the fair value of a share on the first day of the offering, or
	•	85% of the fair value of a share on the purchase date.

	•	85% of the market value of a share on the day they began participating in the purchase plan, or
	•	85% of the market value of a share on the purchase date.

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	401(k) Plan

	•	breach of their duty of loyalty to the corporation or its stockholders;
	•	act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	•	unlawful payment of dividends or redemption of shares; or
	•	transaction from which the directors derived an improper personal benefit.

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Stockholder(1)		Series A Preferred				Series C Preferred				Series D Preferred
Holders of More than 5%
HealthCare Investment Partners Holdings III, LLC			—				—				5,555,556
HealthCare Ventures VI, L.P.(2)			8,250,300				7,200,000				3,447,188
Morgenthaler Partners VII, L.P.			2,000,000				6,400,000				1,874,163
OZ Master Fund, Ltd.			—				—				7,777,778
Perseus-Soros Biopharmaceutical Fund, LP			—				5,600,000				1,110,554
Entities affiliated with Sequel Limited Partnership III(3)			2,000,000				3,200,000				1,160,196
Entities affiliated with TPG Biotechnology Partners, L.P.(4)			—				9,600,000				2,705,756
Entities affiliated with Duquesne Capital Management LLC(5)			—				—				6,388,889

(1)	Additional detail regarding these stockholders and their equity holdings is provided in “Principal Stockholders.”
(2)	Includes: (a) 8,250,300 shares of Series A preferred stock held by HealthCare Ventures VI, L.P.; (b) 7,200,000 shares of Series C preferred stock held by HealthCare Ventures VI, L.P.; and (c) 3,447,188 shares of Series D preferred Stock held by HealthCare Ventures VIII, L.P. Upon completion of this offering, these shares will convert into 3,853,483 shares of common stock.
(3)	Includes: (a) 1,945,920 shares of Series A preferred stock held by Sequel Limited Partnership III; (b) 54,080 shares of Series A preferred stock held by Sequel Entrepreneurs’ Fund III, L.P.; (c) 3,113,472 shares of Series C preferred stock held by Sequel Limited Partnership III; (d) 86,528 shares of Series C preferred stock held by Sequel Entrepreneurs’ Fund III, L.P.; (e) 1,128,824 shares of Series D preferred stock held by Sequel Limited Partnership III; and (f) 31,372 shares of Series D preferred stock held by Sequel Entrepreneurs’ Fund III., L.P. Upon completion of this offering, these shares will convert into 1,296,938 shares of common stock.
(4)	Includes: (a) 2,880,000 shares of Series C preferred stock held by TPG Ventures, L.P.; (b) 6,720,000 shares of Series C preferred stock held by TPG Biotechnology Partners, L.P.; (c) 811,727 shares of Series D preferred stock held by TPG Ventures, L.P.; and (d) 1,894,029 shares of Series D preferred stock held by TPG Biotechnology Partners, L.P. Upon completion of this offering, these shares will convert into 2,509,328 shares of common stock.
(5)	Includes: (a) 1,111,111 shares of Series D preferred stock held by Juggernaut Fund, L.P.; (b) 211,111 shares of Series D preferred stock held by Iron City Fund, Ltd.; and (c) 5,066,667 shares of Series D preferred stock held by Windmill Master Fund, L.P. Upon completion of this offering, these shares will convert into 1,302,790 shares of common stock.

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Director		Principal Stockholder
Henry Wendt		HealthCare Investment Partners
Augustine Lawlor		HealthCare Ventures VI, L.P.
Ralph E. Christoffersen, Ph.D.		Morgenthaler Partners VII, L.P.
Daniel J. Mitchell		Sequel Limited Partnership III
Geoffrey Duyk M.D., Ph.D.		TPG Biotechnology Partners, L.P.

						Shares of Series C
						Preferred Stock
		Principal Amount				Issued upon
Holders of More Than 5%		of Loan				Conversion
HealthCare Ventures VI, L.P.		$	2,800,000				2,240,000
Morgenthaler Partners, VII, L.P.		$	2,800,000				2,240,000
Entities affiliated with Sequel Limited Partnership III(1)		$	1,400,000				1,120,000

(1)	Includes: (a) a loan of $1,362,144 from Sequel Limited Partnership III and 1,089,715 shares of Series C preferred stock issued upon conversion; and (b) a loan of $37,856 from Sequel Entrepreneurs’ Fund III, L.P. and 30,285 shares of Series C preferred stock issued upon conversion.

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	•	each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;
	•	each of our directors;
	•	each of our named executive officers; and
	•	all of our directors and executive officers as a group.

						Percentage of Shares
						Beneficially Owned
		Number of Shares
Name and Address of Beneficial Owner		Beneficially Owned				Before Offering				After Offering
5% Stockholders
Duquesne Capital Management LLC and its affiliates(1)			1,302,790				6.47%				5.00%
HealthCare Investment Partners Holdings II LLC(2)			1,132,862				5.62%				4.46%
HealthCare Ventures VI, L.P.(3)			3,869,796				19.21%				16.00%
Morgenthaler Partners VII, L.P.(4)			2,095,057				10.47%				8.40%
OZ Master Fund, Ltd(5)			1,586,006				7.87%				6.27%
Perseus-Soros Biopharmaceutical Fund, LP(6)			1,368,382				6.79%				5.50%
Sequel Limited Partnership III and its affiliates(7)			1,296,938				6.48%				5.54%
TPG Biotechnology Partners, L.P. and its affiliates(8)			2,509,328				12.46%				10.24%
Named Executive Officers and Directors
Kenneth J. Collins(9)			530,176				2.63%				2.01%
Kirk K. Calhoun			0				*				*
Ralph E. Christoffersen Ph.D.(4)			2,095,057				10.47%				8.40%

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						Percentage of Shares
						Beneficially Owned
		Number of Shares
Name and Address of Beneficial Owner		Beneficially Owned				Before Offering				After Offering
Geoffrey Duyk M.D., Ph.D.(8)			2,509,328				12.46%				10.24%
Christopher D. Earl Ph.D.(10)			0				*				*
Augustine Lawlor(3)			3,869,796				19.21%				16.00%
Daniel J. Mitchell(7)			1,296,938				6.48%				5.54%
Henry Wendt(2)			1,132,862				5.62%				4.46%
Roger M. Echols M.D.(11)			101,957				*				*
Nebojsa Janjic Ph.D.(12)			397,633				1.97%				1.51%
Peter W. Letendre Pharm.D.(13)			74,768				*				*
Donald J. Morrissey, Jr.(14)			136,110				*				*
Mark Smith			0				*				*
All directors and executive officers as a group (13 persons)(15)			1,130,024				6.13%				4.69%

	*	Represents beneficial ownership of less than 1%.

(1)	Includes 1,033,170 shares held by Windmill Master Fund, L.P., 226,572 shares held by Juggernaut Fund, L.P. and 43,048 shares held by Iron City Fund, Ltd. The Chairman and Chief Executive Officer of Duquesne Capital Management LLC, Stanley F. Druckenmiller, possesses voting and investment authority over these shares. The address for all entities and individuals affiliated with Duquesne Capital Management LLC is 2579 Washington Road, Suite 322, Pittsburgh, PA 15241.
(2)	HealthCare Investment Partners LLC is the managing member of HealthCare Investment Partners Holdings II LLC. The managing members of HealthCare Investment Partners LLC, Henry Wendt, Edward Brown and Reid Perper, share voting and investment authority with respect to these shares. Mr. Wendt disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest in these securities. The address for all entities and individuals affiliated with HealthCare Investment Partners Holdings II LLC is 400 West Dry Creek Road, Healdsburg, CA 95448.
(3)	Includes 702,933 shares held by HealthCare Ventures VIII, L.P. HealthCare Ventures VI, L.P. disclaims beneficial ownership of those shares owned by HealthCare Ventures VIII, L.P. Mr. Lawlor is a general partner of HealthCare Partners VI, L.P. which is the general partner of HealthCare Ventures VI, L.P. Mr. Lawlor shares voting and investment authority over the shares held by HealthCare Ventures VI, L.P. with Eric Aguiar, James Cavanaugh, William Crouse, John Littlechild, Christopher Mirabelli and Harold Werner. Mr. Lawlor is also a managing director of HealthCare Partners VIII LLC which is the general partner of HealthCare Partners VIII, L.P. which is the general partner of HealthCare Ventures VIII, L.P. Mr. Lawlor shares voting and investment authority over the shares held by HealthCare Ventures VIII, L.P. with Eric Aguiar, James Cavanaugh, John Littlechild, Christopher Mirabelli and Harold Werner. Mr. Lawlor disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest in these securities. The address for HealthCare Ventures VI, L.P. is 44 Nassau Street, Princeton, NJ 08542.
(4)	Includes 16,311 shares that Morgenthaler Partners VII, L.P. has the right to acquire from us within 60 days of May 31, 2006 pursuant to the exercise of outstanding warrants. Morgenthaler Management Partners VII, LLC is the managing general partner of Morgenthaler Partners VII, L.P. The members of Morgenthaler Management Partners VII, LLC, Ralph E. Christoffersen, Robert C. Bellas, Jr., Greg E. Blonder, James W. Broderick, Daniel F. Farrar, Andrew S. Lanza, Theodore A. Laufik, Paul H. Levine, Gary R. Little, John D. Lutsi, Gary J. Morgenthaler, Robert D. Pavey, G. Gary Shaffer, Alfred J.V. Stanley and Peter G. Taft, share voting and investment authority over these shares. Dr. Christoffersen disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest in these securities. The address for Morgenthaler Partners VII, L.P. is 4430 Arapahoe Avenue, Suite 220, Boulder, CO 80303.

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(5)	Daniel S. Och is the Senior Managing Member of OZ Management, L.L.C., the investment manager of OZ Master Fund, Ltd. As such, Mr. Och may be deemed to exercise voting and investment discretion of the shares held by OZ Master Fund, Ltd. The address of Oz Master Fund, Ltd. is 9 West 57th Street, 39th Floor, New York, NY 10019.
(6)	Perseus-Soros Partners, LLC is the general partner of the Perseus-Soros BioPharmaceutical Fund, LP. Perseus BioTech Fund Partners, LLC and SFM Participation, L.P. are the managing members of Perseus-Soros Partners, LLC. Perseuspur, LLC is the managing member of Perseus BioTech Fund Partners, LLC. Frank Pearl is the sole member of Perseuspur, LLC and in such capacity may be deemed a beneficial owner of securities held for the account of the Perseus-Soros BioPharmaceutical Fund, LP. SFM AH, LLC is the general partner of SFM Participation, L.P. The sole managing member of SFM AH, LLC is Soros Fund Management LLC. George Soros is the Chairman of Soros Fund Management LLC and in such capacity may be deemed a beneficial owner of securities held for the account of the Perseus-Soros BioPharmaceutical Fund, LP. The address of Perseus-Soros BioPharmaceutical Fund, LP is 888 Seventh Avenue, 30th Floor, New York, New York 10106.
(7)	Includes 35,068 shares held by Sequel Entrepreneurs’ Fund III, L.P. Also includes 8,154 shares that Sequel Limited Partnership III and Sequel Entrepreneurs’ Fund III, L.P. have the right to acquire from us within 60 days of May 31, 2006 pursuant to the exercise of outstanding warrants. Sequel Venture Partners L.L.C. is the general partner of Sequel Limited Partnership III and Sequel Entrepreneurs’ Fund III, L.P. The managers of Sequel Venture Partners, L.L.C., Daniel Mitchell, Timothy Conner, Thomas Washing, John Greff and Kinney Johnson, share voting and investment authority over these shares. Mr. Mitchell disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest in these securities. The address for all entities and individuals affiliated with Sequel Limited Partnership III is 4430 Arapahoe Avenue, Suite 220, Boulder, CO 80303.
(8)	Includes 752,798 shares held by TPG Ventures, L.P. Jeff Ekberg, John Viola and David Spuria share voting authority with respect to these shares. Steve Foster, Fred Cohen, Geoffrey Duyk, Bill McGlashan, Vivek Paul, David Bonderman, Jim Coulter and Bill Price share investment authority over these shares. Dr. Duyk disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest in these securities. The address for all entities and individuals affiliated with TPG Biotechnology Partners, L.P. is 345 California Street, Suite 2600, San Francisco, CA 94104.
(9)	Includes 63,192 unvested shares which are subject to a right of repurchase in our favor as of July 30, 2006, 25,488 shares held by Ryan D. Collins and 25,488 shares held by Brendan C. Collins, of which Mr. Collins is custodian.

(10)	Christopher D. Earl does not have voting or dispositive power with respect to any of the shares owned by Perseus-Soros Biopharmaceutical Fund, LP.
(11)	Includes 21,241 unvested shares which are subject to a right of repurchase in our favor as of July 30, 2006.
(12)	Includes 39,721 unvested shares which are subject to a right of repurchase in our favor as of July 30, 2006.
(13)	Includes 74,768 shares Dr. Letendre has the right to acquire within 60 days of May 31, 2006 through the exercise of vested options.
(14)	Includes 35,853 shares Mr. Morrissey has the right to acquire within 60 days of May 31, 2006 through the exercise of vested options.
(15)	Includes shares, options and warrants described in the notes above, as applicable to our directors and named executive officers. Includes an aggregate of 124,154 shares subject to a repurchase option in favor of us and an aggregate of 110,621 additional shares subject to vested options exercisable within 60 days of May 31, 2006 held by our directors and named executive officers.

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	•	prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder,
	•	the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do

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		not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or
	•	on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3 % of the outstanding voting stock which is not owned by the interested stockholder.

	•	any merger or consolidation involving the corporation and the interested stockholder,
	•	any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation,
	•	subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, and
	•	the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

	•	permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);
	•	provide that the authorized number of directors may be changed only by resolution adopted by a majority of the authorized number of directors constituting the board of directors;
	•	provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
	•	divide our board of directors into three classes;
	•	require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;
	•	provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice;
	•	do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); and

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	•	provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors.

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	•	no restricted shares will be eligible for immediate sale upon the completion of this offering;
	•	19,372,003 restricted shares, less shares subject to a repurchase option in our favor tied to the holders’ continued service to us, which will be eligible for sale upon lapse of the repurchase option, will be eligible for sale upon expiration of lock-up agreements 180 days after the date of this prospectus; and
	•	the remainder of the restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective one-year holding periods, but could be sold earlier if the holders exercise any available registration rights.

	•	1% of the number of shares of our common stock then outstanding, which will equal approximately 263,270 shares immediately after this offering; or
	•	the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

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		Number of
Underwriters		Shares
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Cowen and Company, LLC
Pacific Growth Equities, LLC
Total			5,000,000

Per Share

Without Option

With Option

Public offering price

$

$

$

Underwriting discount

$

$

$

Proceeds, before expenses, to us

$

$

$

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	•	offer, pledge, sell or contract to sell any common stock;
	•	sell any option or contract to purchase any common stock;
	•	purchase any option or contract to sell any common stock;
	•	grant any option, right or warrant for the sale of any common stock;
	•	otherwise dispose of or transfer any common stock;
	•	file or cause to be filed any registration statement related to the common stock; or
	•	enter into any swap or other arrangement or any transaction that transfers, in whole or in party, directly or indirectly, any of the economic consequences of ownership of any common stock, whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

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	•	the valuation multiples of publicly traded companies that the representatives and the lead managers believe to be comparable to us;
	•	our financial information;
	•	the history of, and the prospects for, our company and the industry in which we compete;
	•	an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
	•	the present state of our development; and
	•	the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

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		Page(s)
Report of Independent Registered Public Accounting Firm			F-2
Balance Sheets			F-3
Statements of Operations			F-4
Statements of Preferred Stock, Stockholders’ Deficit, and Comprehensive Loss			F-5
Statements of Cash Flows			F-9
Notes to Financial Statements			F-10

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	/s/ KPMG LLP

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				December 31,
												March 31,
				2004				2005				2006
												(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	4,640			$	4,353			$	32,385
	Short-term investments				22,378				55,067				77,515
	Receivable from Forest Laboratories				—				—				2,140
	Notes receivable from officers				—				375				—
	Prepaid expenses and other current assets				105				275				802
		Total current assets			27,123				60,070				112,842
Property and equipment, net					2,904				3,248				3,032
Other assets					40				261				238
		Total assets		$	30,067			$	63,579			$	116,112
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Accounts payable and accrued expenses			$	1,216			$	9,154			$	9,598
	Current portion of deferred revenue				283				—				4,444
	Current portion of long-term debt, net of discount				1,215				161				—
		Total current liabilities			2,714				9,315				14,042
Deferred revenue, net of current portion					24				—				54,966
Long-term debt, net of current portion and discount					84				—				—
Other long-term liabilities					—				81				75
		Total liabilities			2,822				9,396				69,083
Commitments and contingencies
Preferred stock:
	Series A redeemable convertible preferred stock, $0.01 par value. Authorized 13,140,000 shares; issued and outstanding 13,000,000 shares (liquidation preference of $15,975, $17,015 and $17,275 at December 31, 2004, 2005 and March 31, 2006 (unaudited), respectively) at accreted redemption value				15,886				16,940				17,203
	Series B convertible preferred stock, $0.01 par value. Authorized 4,000,000 shares; issued and outstanding 4,000,000 shares (liquidation preference of $5,630, $6,030, and $6,130 at December 31, 2004, 2005 and March 31, 2006 (unaudited), respectively)				5,630				6,030				6,130
	Series C redeemable convertible preferred stock, $0.01 par value. Authorized 37,000,004 shares; issued and outstanding 36,800,000 shares at December 31, 2005 and 36,880,001 at March 31, 2006 (unaudited) (liquidation preference of $48,084, $51,764 and $52,785 at December 31, 2004, 2005 and March 31, 2006 (unaudited), respectively); at accreted redemption value				47,931				51,635				52,660
	Series D redeemable convertible preferred stock, $0.001 par value. Authorized 34,722,222 shares; issued and outstanding 34,722,222 shares at December 31, 2005 and March 31, 2006 (unaudited) (liquidation preference of $64,364 at December 31, 2005 and $65,614 at March 31, 2006 (unaudited)); at accreted redemption value				—				62,210				63,575
Stockholders’ deficit:
	Common stock, $0.001 par value. Authorized 66,600,000 and 115,000,000 shares; issued 789,995, 1,897,660 and 2,094,706 shares; 759,408, 1,867,073 and 2,064,119 shares outstanding at December 31, 2004, 2005 and March 31, 2006 (unaudited), respectively				1				2				2
	Treasury stock, $0.01 par value; 30,587 shares				(2	)			(2	)			(2	)
	Deferred stock-based compensation				(7	)			(4	)			—
	Accumulated other comprehensive income				41				479				521
	Deficit accumulated during the development stage				(42,235	)			(83,107	)			(93,060	)
		Total stockholders’ deficit			(42,202	)			(82,632	)			(92,539	)
		Total liabilities, preferred stock and stockholders’ deficit		$	30,067			$	63,579			$	116,112

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																Period from
																December 6,
																2000 (date of
				Year Ended December 31,												inception) to				Three Months Ended March 31,
																December 31,
				2003				2004				2005				2005				2005				2006
																				(unaudited)				(unaudited)
Revenue				$	726			$	834			$	441			$	2,050			$	267			$	2,877
Costs and expenses:
	Research and development				12,331				16,282				29,180				60,435				5,013				8,970
	Sales, general and administrative				2,155				2,994				5,329				12,150				686				1,953
		Total costs and expenses			14,486				19,276				34,509				72,585				5,699				10,923
		Loss from operations			(13,760	)			(18,442	)			(34,068	)			(70,535	)			(5,432	)			(8,046	)
Interest and other income					88				172				722				1,085				77				674
Interest and other expense					(278	)			(500	)			(323	)			(1,186	)			(35	)			(330	)
Loss on extinguishment of convertible notes payable					—				(469	)			—				(469	)			—				—
		Net loss			(13,950	)			(19,239	)			(33,669	)			(71,105	)			(5,390	)			(7,702	)
Preferred stock dividends and accretion					(1,294	)			(3,560	)			(7,191	)			(12,960	)			(1,291	)			(2,653	)
		Net loss attributable to common stockholders		$	(15,244	)		$	(22,799	)		$	(40,860	)		$	(84,065	)		$	(6,681	)		$	(10,355	)
Net loss attributable to common stockholders per share — basic and diluted				$	(20.82	)		$	(30.55	)		$	(39.20	)		$	(109.51	)		$	(8.13	)		$	(7.21	)
Weighted average shares outstanding — basic and diluted					732,044				746,306				1,042,388				767,638				821,757				1,435,726
Pro forma net loss attributable to common stockholders per share — basic and diluted (unaudited)																$	(2.24	)						$	(0.38	)
Pro forma weighted average shares outstanding — basic and diluted (unaudited)																	15,031,566								20,508,603

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		Preferred Stock																																Stockholders’ Deficit
		Series A																Series C								Series D
		Redeemable								Series B								Redeemable								Redeemable																																				Deficit
		Convertible								Convertible								Convertible								Convertible																																Accumulated				Accumulated
		Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Treasury Stock								Additional				Deferred Stock-				Other				During the				Total
																																																		Paid-In				Based				Comprehensive				Development				Stockholders’
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Compensation				Income				Stage				Deficit
Balances, December 6, 2000 (date of inception)			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—			$	—			$	—			$	—			$	—			$	—
Estimated fair value of common stock issued to founder in December 2000 for services ($27) and contributed assets (at historical cost of $24)			—				—				—				—				—				—				—				—				550,570				1				—				—				50				—				—				—				51
Issuance of common stock to employee in December 2000 for cash at $0.049 per share			—				—				—				—				—				—				—				—				110,114				—				—				—				6				—				—				—				6
Estimated fair value of common stock issued to university for license to technology in January 2001 at $0.049 per share			—				—				—				—				—				—				—				—				13,213				—				—				—				—				—				—				—				—
Estimated fair value of common stock issued to non-employee for services in July 2001 at $0.049 per share			—				—				—				—				—				—				—				—				3,058				—				—				—				—				—				—				—				—
Issuance of common stock upon exercise of stock options			—				—				—				—				—				—				—				—				1,325				—				—				—				—				—				—				—				—
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(485	)			(485	)
Comprehensive loss																																																																			(485	)
Balances, December 31, 2001			—				—				—				—				—				—				—				—				678,280				1				—				—				56				—				—				(485	)			(428	)
Return of common stock issued to founder in January 2002 at $0.049 per share			—				—				—				—				—				—				—				—				—				—				(203,915	)			(10	)			10				—				—				—				—
Estimated fair value of common stock issued to an employee in January 2002 for services, at $0.049 per share			—				—				—				—				—				—				—				—				63,213				—				—				—				3				—				—				—				3
Estimated fair value of common stock issued to an employee from treasury stock in January 2002 for services, at $0.049 per share			—				—				—				—				—				—				—				—				—				—				173,328				8				—				—				—				—				8
Issuance of Series A redeemable convertible preferred stock in February 2002 for cash of $1.00 per share, net of $151 of issuance costs			13,000,000				12,849				—				—				—				—				—				—				—				—				—				—				—				—				—				—				—
Stock-based compensation related to stock option grants to non-employees			—				—				—				—				—				—				—				—				—				—				—				—				5								—				—				5
Warrants issued in conjunction with debt			—				—				—				—				—				—				—				—				—				—				—				—				128				—				—				—				128
Accretion of offering costs on redeemable preferred stock			—				20				—				—				—				—				—				—				—				—				—				—				(20	)			—				—				—				(20	)

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		Preferred Stock																																Stockholders’ Deficit
		Series A																Series C								Series D
		Redeemable								Series B								Redeemable								Redeemable																																				Deficit
		Convertible								Convertible								Convertible								Convertible																																Accumulated				Accumulated
		Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Treasury Stock								Additional				Deferred Stock-				Other				During the				Total
																																																		Paid-In				Based				Comprehensive				Development				Stockholders’
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Compensation				Income				Stage				Deficit
Non-cash dividends on preferred stock			—			$	895				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—			$	(182	)		$	—			$	—			$	(713	)		$	(895	)
Unrealized gain on available-for-sale equity securities			—				—				—				—				—				—				—				—				—				—				—				—				—				—				43				—				43
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(3,762	)			(3,762	)
Comprehensive loss																																																																			(3,719	)
Balances, December 31, 2002			13,000,000				13,764				—				—				—				—				—				—				741,493				1				(30,587	)			(2	)			—				—				43				(4,960	)			(4,918	)
Issuance of common stock upon exercise of stock options			—				—				—				—				—				—				—				—				9,715				—				—				—				4				—				—				—				4
Estimated fair value of common stock issued to university for license to technology in February 2003 at $0.49 per share			—				—				—				—				—				—				—				—				17,373				—				—				—				9				—				—				—				9
Issuance of Series B convertible preferred stock in June 2003 for research and development, at estimated fair value of $1.25 per share			—				—				4,000,000				5,000				—				—				—				—				—				—				—				—				—				—				—				—				—
Warrants issued in conjunction with convertible notes			—				—				—				—				—				—				—				—				—				—				—				—				69				—				—				—				69
Stock-based compensation related to stock option grants to non-employees			—				—				—				—				—				—				—				—				—				—				—				—				7				—				—				—				7
Deferred stock-based compensation related to stock option grants to employees			—				—				—				—				—				—				—				—				—				—				—				—				10				(10	)			—				—				—
Amortization of deferred stock-based compensation			—				—				—				—				—				—				—				—				—				—				—				—				—				1				—				—				1
Accretion of offering costs on redeemable preferred stock			—				24				—				—				—				—				—				—				—				—				—				—				(24	)			—				—				—				(24	)
Non-cash dividends on preferred stock			—				1,040				—				230				—				—				—				—				—				—				—				—				(75	)			—				—				(1,195	)			(1,270	)

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		Preferred Stock																																Stockholders’ Deficit
		Series A																Series C								Series D
		Redeemable								Series B								Redeemable								Redeemable																																				Deficit
		Convertible								Convertible								Convertible								Convertible																																Accumulated				Accumulated
		Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Treasury Stock								Additional				Deferred				Other				During the				Total
																																																		Paid-In				Stock-Based				Comprehensive				Development				Stockholders’
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Compensation				Income				Stage				Deficit
Realized gain on available-for-sale equity securities			—				—				—				—				—				—				—				—				—				—				—				—				—				—				(43	)			—				(43	)
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(13,950	)			(13,950	)
Comprehensive loss																																																																			(13,993	)
Balances, December 31, 2003			13,000,000				14,828				4,000,000				5,230				—				—				—				—				768,581				1				(30,587	)			(2	)			—				(9	)			—				(20,105	)			(20,115	)
Issuance of common stock upon exercise of stock options			—				—				—				—				—				—				—				—				21,414				—				—				—				11				—				—				—				11
Issuance of Series C redeemable, convertible preferred stock in April, August, September, and November 2004 for cash of $1.25 per share and the conversion of $7,000 of convertible notes payable, net of $171 of issuance costs			—				—				—				—				36,800,000				45,829				—				—				—				—				—				—				—				—				—				—				—
Warrants issued in conjunction with convertible notes			—				—				—				—				—				—				—				—				—				—				—				—				652				—				—				—				652
Stock-based compensation related to stock option grants to non-employees			—				—				—				—				—				—				—				—				—				—				—				—				6				—				—				—				6
Amortization of deferred stock-based compensation			—				—				—				—				—				—				—				—				—				—				—				—				—				2				—				—				2
Accretion of offering costs on redeemable preferred stock			—				18				—				—				—				18				—				—				—				—				—				—				(36	)			—				—				—				(36	)
Non-cash dividends on preferred stock			—				1,040				—				400				—				2,084				—				—				—				—				—				—				(633	)			—				—				(2,891	)			(3,524	)
Unrealized gain on available-for-sale equity securities			—				—				—				—				—				—				—				—				—				—				—				—				—				—				41				—				41
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(19,239	)			(19,239	)
Comprehensive loss																																																																			(19,198	)
Balances, December 31, 2004			13,000,000				15,886				4,000,000				5,630				36,800,000				47,931				—				—				789,995				1				(30,587	)			(2	)			—				(7	)			41				(42,235	)			(42,202	)
Issuance of common stock upon exercise of stock options			—				—				—				—				—				—				—				—				1,107,665				1				—				—				290				—				—				—				291
Issuance of Series D redeemable, convertible preferred stock in August 2005 for cash of $1.80 per share, net of issuance costs of $2,323			—				—				—				—				—				—				34,722,222				60,177				—				—				—				—				—				—				—				—				—
Stock-based compensation related to stock option grants to an employee			—				—				—				—				—				—				—				—				—				—				—				—				54				—				—				—				54
Stock-based compensation related to stock option grants to non-employees			—				—				—				—				—				—				—				—				—				—				—				—				1				—				—				—				1

F-7

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Table of Contents

		Preferred Stock																																Stockholders’ Deficit
		Series A																Series C								Series D
		Redeemable								Series B								Redeemable								Redeemable																																				Deficit
		Convertible								Convertible								Convertible								Convertible																																Accumulated				Accumulated
		Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Treasury Stock								Additional				Deferred				Other				During the				Total
																																																		Paid-In				Stock-Based				Comprehensive				Development				Stockholders’
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Compensation				Income				Stage				Deficit
Reclassification of warrants on redeemable preferred stock			—				—				—				—				—				—				—				—				—				—				—				—				(345	)			—				—				(12	)			(357	)
Amortization of deferred stock-based compensation			—				—				—				—				—				—				—				—				—				—				—				—				—				3				—				—				3
Accretion of offering costs on redeemable preferred stock			—				14				—				—				—				24				—				169				—				—				—				—				—				—				—				(207	)			(207	)
Non-cash dividends on preferred stock			—				1,040				—				400				—				3,680				—				1,864				—				—				—				—				—				—				—				(6,984	)			(6,984	)
Realized gain on available-for-sale equity securities			—				—				—				—				—				—				—				—				—				—				—				—				—				—				(41	)			—				(41	)
Unrealized gain on available-for-sale equity securities			—				—				—				—				—				—				—				—				—				—				—				—				—				—				479				—				479
Net loss			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(33,669	)			(33,669	)
Comprehensive loss																																																																			(33,231	)
Balances, December 31, 2005			13,000,000				16,940				4,000,000				6,030				36,800,000				51,635				34,722,222				62,210				1,897,660				2				(30,587	)			(2	)			—				(4	)			479				(83,107	)			(82,632	)
Issuance of Series C preferred stock upon exercise of stock purchase warrants (unaudited)			—				—				—				—				80,001				100				—				—				—				—				—				—				183				—				—				—				183
Issuance of common stock upon exercise of stock options (unaudited)			—				—				—				—				—				—				—				—				197,046				—				—				—				155				—				—				—				155
Changes in restricted stock, net (unaudited)			—				—				—				—				—				—				—				—				—				—				—				—				(44	)			—				—				—				(44	)
Reclassification of deferred stock based compensation (unaudited)			—				—				—				—				—				—				—				—				—				—				—				—				(4	)			4				—				—				—
Stock-based compensation expense related to options granted (unaudited)			—				—				—				—				—				—				—				—				—				—				—				—				112				—				—				—				112
Accretion of offering costs on redeemable preferred stock (unaudited)			—				3				—				—				—				4				—				115				—				—				—				—				(122	)			—				—				—				(122	)
Non-cash dividends on preferred stock (unaudited)			—				260				—				100				—				921				—				1,250				—				—				—				—				(280	)			—				—				(2,251	)			(2,531	)
Unrealized gain on available-for-sale equity securities (unaudited)			—				—				—				—				—				—				—				—				—				—				—				—				—				—				42				—				42
Net loss (unaudited)			—				—				—				—				—				—				—				—				—				—				—				—				—				—				—				(7,702	)			(7,702	)
Comprehensive loss (unaudited)																																																																			(7,660	)
Balances, March 31, 2006 (unaudited)			13,000,000			$	17,203				4,000,000			$	6,130				36,880,001			$	52,660				34,722,222			$	63,575				2,094,706			$	2				(30,587	)		$	(2	)		$	—			$	—			$	521			$	(93,060	)		$	(92,539	)

F-8

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																		Period from
																		December 6,
																		2000 (date of				Three Months
						Year Ended December 31,												inception) to				Ended March 31,
																		December 31,
						2003				2004				2005				2005				2005				2006
																						(Unaudited)
Cash flows from operating activities:
	Net loss					$	(13,950	)		$	(19,239	)		$	(33,669	)		$	(71,105	)		$	(5,390	)		$	(7,702	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation					877				1,013				1,258				3,302				350				363
		Stock-based compensation					17				9				58				128				—				112
		Amortization of debt discount and issuance costs					39				282				35				357				9				9
		Issuance of Series B convertible preferred stock for research and development					5,000				—				—				5,000				—				—
		Loss on extinguishment of convertible notes payable					—				469				—				469				—				—
		Other					—				—				28				28				(1	)			43
		Realized gains on investments					(77	)			(142	)			(469	)			(752	)			(66	)			(564	)
		Changes in operating assets and liabilities:
			Receivable from Forest Laboratories				—				—				—				—				—				(2,140	)
			Government grants receivable				155				124				—				72				—				—
			Prepaid expenses and other current assets				(201	)			134				(182	)			(272	)			—				(65	)
			Other assets				(46	)			43				(288	)			(330	)			(78	)			23
			Accounts payable and accrued expenses				197				528				6,996				8,118				277				809
			Deferred revenue				435				(407	)			(307	)			—				(307	)			59,410
			Other long-term liabilities				—				—				81				81				—				(6	)
				Net cash provided by (used in) operating activities			(7,554	)			(17,186	)			(26,459	)			(54,904	)			(5,206	)			50,292
Cash flows from investing activities:
	Purchases of short-term investments						(6,984	)			(158,346	)			(157,281	)			(342,235	)			(13,905	)			(57,842	)
	Maturities of short-term investments						13,000				136,150				125,500				288,399				15,500				36,000
	Proceeds from sale of equipment						—				—				1				1				1				—
	Acquisition of property and equipment						(823	)			(886	)			(1,570	)			(6,475	)			(288	)			(171	)
				Net cash provided by (used in) investing activities			5,193				(23,082	)			(33,350	)			(60,310	)			1,308				(22,013	)
Cash flows from financing activities:
	Advances from stockholder						—				—				—				90				—				—
	Repayment of advances from stockholder						—				—				—				(90	)			—				—
	Proceeds from debt						709				—				—				3,410				—				—
	Principal payments on debt						(894	)			(957	)			(1,173	)			(3,241	)			(369	)			(169	)
	Proceeds from convertible notes payable						667				6,333				—				7,000				—				—
	Proceeds from issuance of common stock						4				11				291				311				146				155
	Proceeds from notes receivable from officers						—				—				—				—				—				356
	Proceeds from exercise of preferred stock warrants						—				—				—				—				—				100
	Proceeds from sale of Series A redeemable convertible preferred stock, net						—				—				—				12,849				—				—
	Proceeds from sale of Series C redeemable convertible preferred stock, net						—				38,829				—				38,829				—				—
	Deferred offering costs						—				—				—				—				—				(462	)
	Cash contributed from an affiliated entity upon formation						—				—				—				5				—				—
	Bank overdraft						—				—				227				227				—				(227	)
	Proceeds from sale of Series D redeemable convertible preferred stock, net						—				—				60,177				60,177				—				—
				Net cash provided by (used in) financing activities			486				44,216				59,522				119,567				(223	)			(247	)
				Net (decrease) increase in cash and cash equivalents			(1,875	)			3,948				(287	)			4,353				(4,121	)			28,032
Cash and cash equivalents:
	Beginning of period						2,567				692				4,640				—				4,640				4,353
	End of period					$	692			$	4,640			$	4,353			$	4,353			$	519			$	32,385
Supplemental cash flow information:
	Cash paid for interest					$	239			$	307			$	75			$	687			$	46			$	15
Supplemental disclosure of non-cash investing and financing activities:
	Net assets contributed by an affiliated entity upon formation:
		Cash				$	—			$	—			$	—			$	5			$	—			$	—
		Government grants receivable					—				—				—				72				—				—
		Property and equipment					—				—				—				42				—				—
		Accrued expenses					—				—				—				(95	)			—				—
				Net assets		$	—			$	—			$	—			$	24			$	—			$	—
	Warrants issued in conjunction with debt and convertible notes payable					$	69			$	652			$	—			$	848			$	—			$	—
	Conversion of convertible bridge note into Series C redeemable, convertible preferred stock					$	—			$	7,000			$	—			$	7,000			$	—			$	—
	Notes receivable issued to officers for the exercise of stock options					$	—			$	—			$	356			$	356			$	356			$	—

F-9

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Table of Contents

(1)	The Company and Summary of Significant Accounting Policies

(a)	The Company

(b)	Development Stage Risks

(c)	Basis of Presentation

(d)	Unaudited Interim Financial Statements

F-10

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Table of Contents

(e)	Reverse Stock Split

(f)	Accounting Estimates in the Preparation of Financial Statements

(g)	Cash and Cash Equivalents

(h)	Short-Term Investments

F-11

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Table of Contents

(i)	Concentrations of Credit Risk

(j)	Derivative Instruments

(k)	Property and Equipment

F-12

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Table of Contents

(l)	Long-Lived Assets and Impairments

(m)	Segments

(n)	Stock-Based Compensation

F-13

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Table of Contents

																		Three Months
		Years Ended December 31,												Inception to				Ended
														December 31,				March 31,
		2003				2004				2005				2005				2005
Net loss attributable to common stockholders, as reported		$	(15,244,000	)		$	(22,799,000	)		$	(40,860,000	)		$	(84,065,000	)		$	(6,681,000	)
Add: stock-based employee compensation expense included in reported net loss attributable to common stockholders			1,000				3,000				57,000				101,000				14,000
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards			(6,000	)			(29,000	)			(98,000	)			(172,000	)			(25,000	)
Pro forma net loss attributable to common stockholders		$	(15,249,000	)		$	(22,825,000	)		$	(40,901,000	)		$	(84,136,000	)		$	(6,692,000	)
Net loss attributable to common stockholders per share — basic and diluted, as reported		$	(20.82	)		$	(30.55	)		$	(39.20	)		$	(109.51	)		$	(8.13	)
Pro forma net loss attributable to common stockholders per share — basic and diluted		$	(20.83	)		$	(30.58	)		$	(39.24	)		$	(109.60	)		$	(8.14	)

														Inception
		2003				2004				2005				to Date
Expected dividend yield			—	%			—	%			—	%			—	%
Risk-free interest rates			2.71	%			3.93	%			4.19	%			3.86	%
Volatility			0.001	%			0.001	%			0.001	%			0.001	%
Expected lives			5  years				5  years				5  years				5 years

F-14

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F-15

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Research and development		$	41
Sales, general and administrative			71
		$	112

F-16

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										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Term (years)				Value
														(in millions)
Options at January 1, 2006			733,340			$	0.687
Granted			1,090,605				3.546
Exercised			(197,086	)			0.785
Forfeited or expired			(573	)			0.613
Shares under option at March 31, 2006			1,626,286			$	2.594				9.45			$	10.4
Options vested at March 31, 2006			866,742			$	0.623				7.94			$	7.2
Options exerciseable at March 31, 2006			112,681			$	1.084				8.54			$	0.9
Options nonvested at March 31, 2006			2,096,780			$	2.158				9.28			$	14.3

(o)	Net Loss Per Share

F-17

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														Three Months Ended
		Year Ended December 31,												March 31,
		2003				2004				2005				2005				2006
		(In thousands, except per share amounts)
														(unaudited)
Historical
Numerator:
Net loss attributable to common stockholders		$	(15,244	)		$	(22,799	)		$	(40,860	)		$	(6,681	)		$	(10,355	)
Denominator:
Weighted average common shares outstanding			732				746				1,042				822				1,435
Net loss attributable to common stockholders per share — basic and diluted		$	(20.82	)		$	(30.55	)		$	(39.20	)		$	(8.13	)		$	(7.21	)
Unaudited Pro Forma
Numerator:
Net loss attributable to common stockholders used above										$	(40,860	)						$	(10,355	)
Pro forma adjustment to eliminate dividends and accretion on preferred stock											7,191								2,653
Pro forma net loss attributable to common stockholders										$	(33,669	)						$	(7,702	)
Denominator:
Shares used above											1,042								1,436
Pro forma adjustment to reflect weighted average effect of assumed conversion of Series A, B, C and D preferred stock and accrued dividends payable in common stock											13,990								19,073
Shares used to compute pro forma basic and diluted net loss attributable to common stockholders											15,032								20,509
Pro forma net loss attributable to common stockholders per share — basic and diluted										$	(2.24	)						$	(0.38	)

(p)	Fair Value of Financial Instruments

F-18

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(q)	Revenue Recognition

(r)	Research and Development

F-19

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Table of Contents

(s)	Comprehensive Loss

(t)	Income Taxes

(u)	Recent Accounting Pronouncements

F-20

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(2)	Property and Equipment

			December 31,
			2004				2005
Laboratory equipment			$	2,627,000			$	2,993,000
Furniture and fixtures				384,000				737,000
Computer equipment and software				438,000				871,000
Leasehold improvements				1,527,000				1,974,000
	Total property and equipment, at cost			4,976,000				6,575,000
Less accumulated depreciation and amortization				(2,072,000	)			(3,327,000	)
	Property and equipment, net		$	2,904,000			$	3,248,000

F-21

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(3)	Accounts Payable and Accrued Expenses

		December 31,
		2004				2005
Accounts payable — trade		$	844,000			$	3,458,000
Accrued payments to Daiichi Asubio (Note 6)			—				2,122,000
Accrued clinical trial costs			—				493,000
Accrued employee bonuses			—				977,000
Proceeds from common shares subject to repurchase			—				373,000
Value of warrants on redeemable convertible preferred stock			—				580,000
Accrued rent under the straight-line method			212,000				220,000
Bank overdraft			—				227,000
Payroll taxes payable			4,000				149,000
Accrued professional fees			9,000				108,000
Accrued vacation			31,000				106,000
Other accrued expenses			116,000				341,000
		$	1,216,000			$	9,154,000

(4)	Long-Term Debt

(a)	Equipment Loan and Security Agreement

F-22

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(b)	Convertible Promissory Notes

(5)	Related-Party Transactions

(a)	Clinical Trials Service Agreement with Quintiles, Inc.

F-23

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(b)	Notes Receivable from Officers

(6)	Commitments and Contingencies

(a)	Operating Leases

For the Year Ending December 31,
2006			$	712,000
2007				590,000
2008				623,000
2009				657,000
2010				599,000
Thereafter				411,000
	Total future minimum lease payments		$	3,592,000

(b)	Indemnifications

(c)	Daiichi Asubio License Agreement

F-24

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Table of Contents

(d)	Daiichi Asubio and Nippon Soda Supply Agreement

(e)	Tropon Supply Agreement

F-25

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(f)	Derivative Instruments

			Notional				Fair
			Amount				Value
Option contracts:
	Purchased		$	9,316,000			$	151,000
	Sold			—				—

(7)	Preferred Stock

						Shares				Aggregate
		Shares				Issued and				Liquidation
		Designated				Outstanding				Preference
Series A			13,140,000				13,000,000			$	17,015,000
Series B			4,000,000				4,000,000				6,030,000
Series C			37,000,004				36,800,000				51,764,000
Series D			34,722,222				34,722,222				64,364,000
			88,862,226				88,522,222			$	139,173,000

(a)	Series A Redeemable Convertible Preferred Stock

F-26

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(b)	Series B Convertible Preferred Stock

(c)	Series C Redeemable Convertible Preferred Stock

(d)	Series D Redeemable Convertible Preferred Stock

(e)	Redeemable Convertible Preferred Stock Warrants

F-27

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(f)	Preferred Stockholder Rights and Preferences

	Preferred Stockholders are entitled to receive, when and as declared or paid by the board of directors, dividends at the rate of 8% per annum of the applicable original purchase price, accrued on a quarterly basis. Dividends shall be payable, as accrued, and whether or not declared, on any liquidation, sale, redemption or conversion of Series A, Series B, Series C, or Series D, respectively, to common stock. No dividend shall be declared or paid on common stock unless, concurrently, a similar dividend or distribution is declared or paid on each outstanding share of Series A, Series B, Series C, and Series D.
	If the funds of the Company are insufficient to pay the holders of Preferred Stock the full amount of accrued dividends to which each of them are entitled, then such funds will be distributed first among the holders of Series D at the time outstanding; thereafter, any remaining funds will be distributed among the holders of the remaining series of preferred stock at the time outstanding.

With respect to rights on liquidation, including a sale of substantially all of the Company’s assets, the shares of Series D shall rank senior and prior to the shares of Series A, Series B, and Series C stock. In the event of any liquidation, dissolution or winding-up of the Company, Series D stockholders shall be entitled to receive an amount per share equal to the original purchase price, plus an amount equal to accrued dividends and declared but unpaid dividends (without compounding) before any payment shall be made to the Series A, Series B, and Series C stockholders. In the event of any liquidation dissolution or winding-up of the Company, and after the payment of the full liquidation preference shall have been made to the Series D stockholders, Series C stockholders shall be entitled to receive an amount per share equal to the original purchase price, plus an amount equal to accrued and declared but unpaid dividends (without compounding) before any payment is made to the Series A and Series B stockholders (the Junior Preferred) or common stockholders. In the event of any liquidation, and after the payment of the full liquidation preference made to the Series D stockholders and Series C stockholders, the holders of shares of the Junior Preferred then outstanding shall be entitled to receive an amount per share equal to the original purchase price, plus an amount equal to accrued dividends and declared but unpaid dividends (without compounding) before any payment is made to the common stockholders. After all liquidation payments have been made in full to the Preferred Stockholders, the Preferred Stockholders participate with the common stockholders in the remaining proceeds on an as-if-converted to common stock basis.

	At the request of the holders of a majority of the shares of Series D then outstanding (a Series D Requesting Holder), the Company shall redeem at any time after July 31, 2010 (the Series D Redemption Date) all of the shares of Series D then outstanding at a redemption price per share equal to the original purchase price, plus an amount equal to accrued dividends and declared but unpaid dividends (without compounding).
	At the request of the holders of a majority of the shares of Series C (a Series C Requesting Holder), and subject to the approval of the holders of a majority of the shares of Series D then outstanding (the Required Holders), the Company shall redeem at any time after July 31, 2011 (the Series C Redemption Date) up to 25% of the Series C preferred stock owned

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	of record by the requesting stockholder and in each subsequent year thereafter up to 25% of the Series C preferred stock that was owned of record by the requesting stockholder on the redemption date, plus the number of shares of Series C that could have been redeemed in the year or years following the redemption date which the requesting stockholder elected not to redeem, at a redemption price per share equal to the original purchase price, plus an amount equal to accrued dividends and declared but unpaid dividends (without compounding).
	At the request of the holders of a majority of the shares of Series A (a Series A Requesting Holder and, together with a Series D Requesting Holder and a Series C Requesting Holder, a Requesting Holder), the Company, subject to the approval of the Required Holders, shall redeem at any time after July 31, 2011 (the Series A Redemption Date) up to 25% of the Series A preferred stock owned of record by the requesting stockholder and in each subsequent year thereafter up to 25% of the Series A preferred stock that was owned of record by the requesting stockholder on the redemption date, plus the number of shares of Series A preferred stock that could have been redeemed in the year or years following the redemption date which the requesting stockholder elected not to redeem, at a redemption price per share equal to the original purchase price, plus an amount equal to accrued dividends and declared but unpaid dividends (without compounding).
	Unless otherwise waived by the Required Holders, in no event shall any shares of Series A or Series C be redeemed prior to the redemption of all shares of Series D, whether or not a redemption request has been made by Requesting Holders.
	Pursuant to the Series A, Series C, and Series D redemption rights, the Company has accrued dividends of $4.0 million, $5.8 million and $1.9 million at December 31, 2005, respectively. Series B stockholders have no redemption rights; however, pursuant to Series B liquidation and conversion rights, the Company has accrued dividends of $1.0 million at December 31, 2005.

Preferred Stockholders are entitled to vote together with common stockholders as one class based on the number of common stock into which each share of Series A, Series B, Series C, and Series D preferred stock, respectively, is then convertible. Series D stockholders, voting as a separate class, shall have the exclusive right to elect one member of the board of directors. Series C stockholders, voting as a separate class, shall have the exclusive right to elect three members of the board of directors. Series A stockholders, voting as a separate class, shall have the exclusive right to elect two members of the board of directors.

	Preferred stockholders have the right, at any time, to convert any or all of their preferred stock into fully paid and nonassessable shares of common stock equal to the quotient of the respective original purchase price divided by the respective conversion price (at December 31, 2005, the conversion price equals $4.904, $6.13, $6.13, and $8.8272 for Series A, Series B, Series C, and Series D, respectively), as adjusted. For shares of Series B, the shares issuable upon conversion also includes accrued but unpaid dividends.
	Automatic conversion of the preferred stock into common stock occurs immediately prior to the closing of a firm commitment for an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, at a market capitalization of at least $300 million and cash proceeds to the Company of at least $50 million.

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	At December 31, 2005, the Company has 2,679,445, 815,660, 7,544,862 and 7,080,387 shares of common stock reserved for the conversion of Series A, Series B, Series C and Series D, respectively.

(8)	Common Stock

	Treasury Stock

(9)	Stock Options and Employee Benefits

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Non-vested shares outstanding at January 1, 2006			556,607
Restricted stock granted upon exercise of stock options			73,409
Shares vested upon release of restrictions			(46,863	)
Non-vested shares outstanding at March 31, 2006			583,153

							Weighted
							Average
			Number of				Exercise
			Shares				Price
Balance at inception				—			$	—
	Granted			207,763				0.480
	Exercised			(1,325	)			0.049
Balance — December 31, 2002				206,438				0.481
	Granted			145,519				0.490
	Exercised			(9,715	)			0.392
	Cancelled			(12,132	)			0.490
Balance — December 31, 2003				330,110				0.485
	Granted			991,761				0.613
	Exercised			(21,410	)			0.539
	Cancelled			(13,573	)			0.539
Balance — December 31, 2004				1,286,888				0.584
	Granted			569,541				0.794
	Exercised			(1,107,664	)			0.623
	Cancelled			(15,425	)			0.530
Balance — December 31, 2005				733,340				0.687
	Granted (unaudited)			1,090,605				3.546
	Exercised (unaudited)			(197,086	)			0.785
	Cancelled (unaudited)			(573	)			0.613
Balance — March 31, 2006 (unaudited)				1,626,286				2.594

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Options Exerciseable at:
December 31, 2002			5,599
December 31, 2003			65,744
December 31, 2004			333,748
December 31, 2005			132,649
March 31, 2006 (unaudited)			112,681

														Stock Options
		Stock Options Outstanding												Exercisable
						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
		Number of				Contractual				Exercise				Number of				Exercise
Exercise Price		Shares				Life (years)				Price				Shares				Price
$0.490			109,472				7.02			$	0.490				73,496			$	0.490
0.613			525,862				9.01				0.613				59,153				0.613
1.324			98,006				9.82				1.324				—				—
			733,340				8.45			$	0.690				132,649			$	0.545

														Stock Options
		Stock Options Outstanding												Exercisable
						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
		Number of				Contractual				Exercise				Number of				Exercise
Exercise Price		Shares				Life (years)				Price				Shares				Price
$0.490			54,867				6.81			$	0.490				26,489			$	0.490
0.613			439,880				8.82				0.613				64,271				0.613
1.324			40,910				9.51				1.324				—				—
3.188			896,910				9.81				3.188				21,920				3.188
5.198			193,719				9.94				5.198				—				—
			1,626,286				9.45				2.594				112,680				1,085

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										Estimated Fair
		Shares of Common								Value per share of
		Stock Underlying				Exercise Price Per				the Underlying
Grant Date		Option Grants				Share				Common Stock
March 9, 2005			243,680			$	0.613			$	0.613
May 26, 2005			74,920				0.613				0.613
June 10, 2005			103,996				0.613				0.613
August 18, 2005			36,832				1.324				0.932
September 8, 2005			46,900				1.324				0.932
November 30, 2005			46,900				1.324				1.324
December 8, 2005			16,313				1.324				1.324
Total 2005 Option Grants			569,541
January 19, 2006 (unaudited)			851,021				3.188				3.188
February 6, 2006 (unaudited)			45,866				3.188				3.188
March 8, 2006 (unaudited)			193,718				5.198				5.198
Total First Quarter 2006 Option Grants (unaudited)			1,090,605

	Stock-Based Compensation

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																		Three Months
																		Ended
		2003				2004				2005				Inception Period				March 31, 2006
																		(unaudited)
Risk-free interest rate			3.34 - 4.41%				4.22 - 4.82%				4.05%				3.34% - 5.33%				4.31%
Expected life (in years)			10				10				10				10				10
Expected volatility			100%				100%				100%				100%				100%
Expected dividend yield			—%				—%				—%				—%				—%

(10)	Income Taxes

				2004				2005
Deferred tax assets:
	Net operating loss carryforwards			$	13,723,000			$	25,961,000
	Research and experimental credits				547,000				1,443,000
	Depreciation and amortization				114,000				283,000
	Accrued expenses				105,000				534,000
		Total deferred tax assets			14,489,000				28,221,000
Valuation allowance					(14,489,000	)			(28,221,000	)
		Net deferred tax assets		$	—			$	—

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		December 31,
														Inception
		2003				2004				2005				Period
U.S. federal income tax benefit at statutory rates		$	(4,882,000	)		$	(6,739,000	)		$	(11,784,000	)		$	(24,892,000	)
State income tax benefit, net of federal benefit			(421,000	)			(557,000	)			(1,094,000	)			(2,224,000	)
Permanent differences			6,000				274,000				39,000				337,000
Research and experimentation credits			(55,000	)			(420,000	)			(905,000	)			(1,452,000	)
Other items			—				(43,000	)			12,000				10,000
Change in valuation allowance			5,352,000				7,485,000				13,732,000				28,221,000
		$	—			$	—			$	—			$	—

															Basic and Diluted
											Net Loss				Net Loss Attributable
											Attributable				to Common
											to Common				Stockholders
			Revenue				Net Loss				Stockholders				per Share
Year ended December 31, 2004:
	First quarter		$	209			$	(2,526	)		$	(2,892	)		$	(3.91	)
	Second quarter			208				(6,947	)			(7,778	)			(10.48	)
	Third quarter			209				(3,225	)			(4,337	)			(5.81	)
	Fourth quarter			208				(6,541	)			(7,792	)			(10.33	)
Year ended December 31, 2005:
	First quarter		$	267			$	(5,390	)		$	(6,681	)		$	(8.14	)
	Second quarter			—				(7,138	)			(8,429	)			(8.22	)
	Third quarter			174				(8,062	)			(10,021	)			(9.18	)
	Fourth quarter			—				(13,079	)			(15,729	)		$	(12.81	)

(12)	Subsequent Events

(a)	Agreement with Forest Laboratories Holdings Limited

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(b)	Amendment of Agreement with Daiichi Asubio Pharma Co. Ltd.

(c)	Increase to the Stock Option Pool

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Item 13.	Other Expenses of Issuance and Distribution.

			Amount to be
			Paid
SEC registration fee			$	10,700
NASD filing fee				10,500
Nasdaq National Market filing fee				100,000
Blue sky qualification fees and expenses				10,000
Printing and engraving expenses				250,000
Legal fees and expenses				700,000
Accounting fees and expenses				500,000
Transfer agent and registrar fees and expenses				10,000
Miscellaneous expenses				8,800
	Total		$	1,600,000

*	To be provided by amendment.

Item 14.	Indemnification of Directors and Officers.

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	•	transaction from which the director derives an improper personal benefit;
	•	act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	•	unlawful payment of dividends or redemption of shares; or
	•	breach of a director’s duty of loyalty to the corporation or its stockholders.

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Exhibit Document		Number
Form of Underwriting Agreement			1.1
Form of Amended and Restated Certificate of Incorporation to be effective upon completion of this offering			3.4
Form of Amended and Restated Bylaws to be effective upon completion of this offering			3.6
Fourth Amended and Restated Stockholders Agreement, dated August 17, 2005, between the Registrant and certain of its stockholders, as amended March 7, 2006			4.5
Form of Indemnification Agreement for Directors			10.1
Form of Indemnification Agreement for Officers			10.2

Item 15.	Recent Sales of Unregistered Securities.

	(1)	On February 1, 2003, we issued and sold 17,373 shares of common stock to one investor for consideration of $8,520.
	(2)	On February 20, 2002, we issued and sold an aggregate of 13,000,000 shares of Series A Convertible Redeemable Preferred Stock to a total of five institutional and accredited investors for aggregate consideration of $13,000,000. Upon completion of this offering, these shares will convert into 2,650,895 shares of common stock.
	(3)	On July 31, 2002, we issued and sold warrants to purchase an aggregate of 140,000 shares of Series A Convertible Redeemable Preferred Stock (which will convert into 28,547 shares of common stock upon the closing of this offering) at an exercise price of $4.904 per share to two lenders in connection with credit facilities entered into by the registrant. The warrants are currently exercisable in whole or in part and shall terminate on the later of the tenth anniversary of the issue date or five years after the closing of this offering.
	(4)	On June 4, 2003, we issued and sold an aggregate of 4,000,000 shares of Series B Convertible Preferred Stock to an institutional and accredited investor for consideration of $5,000,000. Upon completion of this offering, these shares will convert into 815,660 shares of common stock.
	(5)	On December 19, 2003, January 20, 2004, February 19, 2004, March 26, 2004, March 29, 2004, April 13, 2004 and April 14, 2004 we issued and sold convertible promissory notes in the aggregate principal amount of $7,000,000 to a total of four institutional and accredited investors. The principal outstanding under the notes was converted into 5,600,000 shares of Series C Convertible Redeemable Preferred Stock and were issued and sold as described in paragraph 11 below.
	(6)	On December 19, 2003, January 20, 2004 and February 19, 2004, in connection with the issuance of convertible promissory notes described in paragraph 9 above, we issued and sold warrants to purchase an aggregate of 200,004 shares of preferred stock to a total of four institutional and accredited investors. In February 2006, certain of the warrants were exercised in full and 80,001 shares of Series C Convertible Redeemable Preferred Stock were issued and sold as described in paragraph 11 below. The remaining warrants to purchase up to an aggregate of

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		120,003 shares of preferred stock (which will convert into 24,465 shares of common stock upon the closing of this offering) at an exercise price of $6.13 per share are currently exercisable in whole or in part and shall terminate on the later of the tenth anniversary after the issue date or five years after the closing of this offering.

	(7)	On April 28, 2004, August 12, 2004, September 14, 2004, November 12, 2004 and February 13, 2006, we issued and sold an aggregate of 36,880,001 shares of Series C Convertible Redeemable Preferred Stock to a total of nine institutional and accredited investors for aggregate consideration of $46,100,001.25. Upon completion of this offering, these shares will convert into 7,520,387 shares of common stock.
	(8)	On August 17, 2005 and August 24, 2005, we issued and sold an aggregate of 34,722,222 shares of Series D Convertible Redeemable Preferred Stock to a total of seventeen institutional and accredited investors for aggregate consideration of $62,499,999.60. Upon completion of this offering, these shares will convert into 7,080,380 shares of common stock.
	(9)	Since our inception through April 1, 2006, we have granted options under our 2006 Equity Incentive Plan, which is a restatement of our Amended and Restated 2001 Long-Term Incentive Plan, to purchase 2,963,486 shares of common stock (net of expirations and cancellations) to employees, directors and consultants, having exercise prices ranging from $0.05 to $5.20 per share. Of these, options to purchase 1,337,200 shares of common stock have been exercised for aggregate consideration of $847,255, at exercise prices ranging from $0.05 to $1.32 per share.

Item 16.	Exhibits and Financial Statement Schedules.

	(a) Exhibits.

Exhibit
Number				Description of Document
	1.	1		Form of Underwriting Agreement.
	3.	1†		Restated Certificate of Incorporation, dated August 17, 2005, currently in effect.
	3.	2†		Certificate of Amendment of Restated Certificate of Incorporation, dated March 8, 2006, currently in effect.
	3.	3		Certificate of Amendment of Restated Certificate of Incorporation, dated June 26, 2006, currently in effect.
	3.	4†		Form of Amended and Restated Certificate of Incorporation to be effective upon completion of this offering.
	3.	5†		Amended and Restated Bylaws, currently in effect.
	3.	6†		Form of Amended and Restated Bylaws to be effective upon completion of this offering.
	4.	1		Reference is made to exhibits 3.1 through 3.6.

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Exhibit
Number				Description of Document
	4.	2		Specimen Common Stock Certificate.
	4.	3†		Form of Warrant to purchase shares of Series A Convertible Preferred Stock (together with schedule prepared in accordance with Instruction 2 to Item 601 of Regulation S-K).
	4.	4†		Form of Warrant to purchase shares of Series C Preferred Stock (together with schedule prepared in accordance with Instruction 2 to Item 601 of Regulation S-K).
	4.	5†		Fourth Amended and Restated Stockholders Agreement, dated August 17, 2005, between the Registrant and certain of its stockholders, as amended March 7, 2006.
	5.	1		Opinion of Cooley Godward LLP.
	10.	1+†		Form of Indemnification Agreement for Directors.
	10.	2+†		Form of Indemnification Agreement for Executive Officers.
	10.	3+		2006 Equity Incentive Plan.
	10.	4+†		Form of Option Grant Notice and Form of Option Agreement under 2006 Equity Incentive Plan.
	10.	5+		2006 Employee Stock Purchase Plan.
	10.	6+†		Form of Offering Document under 2006 Employee Stock Purchase Plan.
	10.	7+†		Employment Agreement, dated April 3, 2006, between the Registrant and Kenneth J. Collins.
	10.	8+†		Employment Agreement, dated April 3, 2006, between the Registrant and Nebojsa Janjic, Ph.D.
	10.	9+†		Employment Agreement, dated April 3, 2006, between the Registrant and Peter Letendre, Pharm.D.
	10.	10+†		Employment Agreement, dated April 3, 2006, between the Registrant and Roger M. Echols, M.D.
	10.	11+†		Employment Agreement, dated April 3, 2006, between the Registrant and Mark Smith.
	10.	12+†		Employment Agreement, dated April 3, 2006, between the Registrant and Donald Morrissey.
	10.	13+		Summary of Director Compensation Program
	10.	14*		License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	14.1*		Amendment, dated April 5, 2005, to License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	14.2*		Second Amendment, dated February 10, 2006, to License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	14.3*†		Third Amendment, dated May 9, 2006, to License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	15*		Supply Agreement, dated December 20, 2004, among the Registrant, Daiichi Suntory Pharma Co., Ltd. and Nippon Soda Co., Ltd.
	10.	16†		Lease agreement, dated March 22, 2005, by and between the Registrant and Crown Milford LLC.
	10.	17†		Lease agreement, dated October 25, 2005, by and between the Registrant and Triumph 1450 LLC.
	10.	18*		Collaboration and Commercialization Agreement, dated February 10, 2006, between the Registrant and Forest Laboratories Holdings Limited.
	16.	1†		Letter from PricewaterhouseCoopers LLP, dated April 4, 2006.
	23.	1		Consent of KPMG LLP.
	23.	2		Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
	24.	1†		Power of Attorney.

†		Previously filed.
+		Indicates management contract or compensatory plan.
*		Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
**		To be filed by amendment.

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	(b) Financial Statement Schedules.

Item 17.	Undertakings.

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	REPLIDYNE, INC.

	By:	/s/ Kenneth Collins

	Kenneth Collins
	President and Chief Executive Officer

Signature				Title		Date
/s/ Kenneth J. Collins   Kenneth J. Collins				President, Chief Executive Officer and Member of the Board of Directors (Principal Executive Officer)		June 26, 2006
*   Mark L. Smith				Chief Financial Officer, Treasurer, (Principal Financial and Accounting Officer)		June 26, 2006
*   Kirk K. Calhoun				Member of the Board of Directors		June 26, 2006
*   Ralph E. Christoffersen, Ph.D.				Member of the Board of Directors		June 26, 2006
*     Geoffrey Duyk, MD, Ph.D.				Member of the Board of Directors		June 26, 2006
*   Christopher D. Earl, Ph.D.				Member of the Board of Directors		June 26, 2006
*   Augustine Lawlor				Member of the Board of Directors		June 26, 2006
*   Daniel J. Mitchell				Member of the Board of Directors		June 26, 2006
*   Henry Wendt				Member of the Board of Directors		June 26, 2006
*By:		/s/ Kenneth J. Collins     Kenneth J. Collins Attorney-in-Fact

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Exhibit
Number				Description of Document
	1.	1		Form of Underwriting Agreement.
	3.	1†		Restated Certificate of Incorporation, dated August 17, 2005, currently in effect.
	3.	2†		Certificate of Amendment of Restated Certificate of Incorporation, dated March 8, 2006, currently in effect.
	3.	3		Certificate of Amendment of Restated Certificate of Incorporation, dated June 26, 2006, currently in effect.
	3.	4†		Form of Amended and Restated Certificate of Incorporation to be effective upon completion of this offering.
	3.	5†		Amended and Restated Bylaws, currently in effect.
	3.	6†		Form of Amended and Restated Bylaws to be effective upon completion of this offering.
	4.	1		Reference is made to exhibits 3.1 through 3.6.
	4.	2		Specimen Common Stock Certificate.
	4.	3†		Form of Warrant to purchase shares of Series A Convertible Preferred Stock (together with schedule prepared in accordance with Instruction 2 to Item 601 of Regulation S-K).
	4.	4†		Form of Warrant to purchase shares of Series C Preferred Stock (together with schedule prepared in accordance with Instruction 2 to Item 601 of Regulation S-K).
	4.	5†		Fourth Amended and Restated Stockholders Agreement, dated August 17, 2005, between the Registrant and certain of its stockholders, as amended March 7, 2006.
	5.	1		Opinion of Cooley Godward LLP.
	10.	1+†		Form of Indemnification Agreement for Directors.
	10.	2+†		Form of Indemnification Agreement for Executive Officers.
	10.	3+		2006 Equity Incentive Plan.
	10.	4+†		Form of Option Grant Notice and Form of Option Agreement under 2006 Equity Incentive Plan.
	10.	5+		2006 Employee Stock Purchase Plan.
	10.	6+†		Form of Offering Document under 2006 Employee Stock Purchase Plan.
	10.	7+†		Employment Agreement, dated April 3, 2006, between the Registrant and Kenneth J. Collins.
	10.	8+†		Employment Agreement, dated April 3, 2006, between the Registrant and Nebojsa Janjic, Ph.D.
	10.	9+†		Employment Agreement, dated April 3, 2006, between the Registrant and Peter Letendre, Pharm.D.
	10.	10+†		Employment Agreement, dated April 3, 2006, between the Registrant and Roger M. Echols, M.D.
	10.	11+†		Employment Agreement, dated April 3, 2006, between the Registrant and Mark Smith.
	10.	12+†		Employment Agreement, dated April 3, 2006, between the Registrant and Donald Morrissey.
	10.	13+		Summary of Director Compensation Program
	10.	14*		License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	14.1*		Amendment, dated April 5, 2005, to License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	14.2*		Second Amendment, dated February 10, 2006, to License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	14.3*†		Third Amendment, dated May 9, 2006, to License Agreement, dated March 15, 2004, between the Registrant and Daiichi Suntory Pharma Co., Ltd.
	10.	15*		Supply Agreement, dated December 20, 2004, among the Registrant, Daiichi Suntory Pharma Co., Ltd. and Nippon Soda Co., Ltd.
	10.	16†		Lease agreement, dated March 22, 2005, by and between the Registrant and Crown Milford LLC.

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Table of Contents

Exhibit
Number				Description of Document
	10.	17†		Lease agreement, dated October 25, 2005, by and between the Registrant and Triumph 1450 LLC.
	10.	18*		Collaboration and Commercialization Agreement, dated February 10, 2006, between the Registrant and Forest Laboratories Holdings Limited.
	16.	1†		Letter from PricewaterhouseCoopers LLP, dated April 4, 2006.
	23.	1		Consent of KPMG LLP.
	23.	2		Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
	24.	1†		Power of Attorney.

†		Previously filed.
+		Indicates management contract or compensatory plan.
*		Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
**		To be filed by amendment.