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AsfiledwiththeSecuritiesandExchangeCommissiononOctober19,2004
RegistrationNo.333118620

SECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549

AMENDMENTNO.2
TO
FORMS1
REGISTRATIONSTATEMENT
UNDER
THESECURITIESACTOF1933

CorusPharma,Inc.
(ExactNameofRegistrantasSpecifiedinItsCharter)

Delaware
(Stateorotherjurisdictionof
incorporationororganization)

2834
(PrimaryStandardIndustrial
ClassificationCodeNumber)

912094307
(I.R.S.Employer
IdentificationNumber)

20251stAvenue,Suite800
Seattle,Washington98121
(206)7285090
(Address,includingzipcode,andtelephonenumber,includingareacode,ofregistrantsprincipalexecutiveoffices)

A.BRUCEMONTGOMERY,M.D.
PRESIDENTANDCHIEFEXECUTIVEOFFICER
20251STAVENUE,SUITE800
SEATTLE,WASHINGTON98121
(206)7285090

(Name,address,includingzipcode,andtelephonenumber,includingareacode,ofagentforservice)

Copiesto:
StephenM.Graham
AlanC.Smith
DennisE.Michaels
Orrick,Herrington&SutcliffeLLP
7192ndAvenue,Suite900
Seattle,Washington98104
(206)8394300

MarkB.Weeks
JohnW.Robertson
JeffryA.Shelby
HellerEhrmanWhite&McAuliffeLLP
7015thAvenue,Suite6100
Seattle,Washington98104
(206)4470900

Approximatedateofcommencementofproposedsaletothepublic:
AssoonaspracticableafterthisRegistrationStatementbecomeseffective.
IfanyofthesecuritiesbeingregisteredonthisFormaretobeofferedonadelayedorcontinuousbasispursuanttoRule
415undertheSecuritiesActof1933,checkthefollowingbox.
IfthisFormisfiledtoregisteradditionalsecuritiesforanofferingpursuanttoRule462(b)undertheSecuritiesAct,
pleasecheckthefollowingboxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistration
statementforthesameoffering.
IfthisFormisaposteffectiveamendmentfiledpursuanttoRule462(c)undertheSecuritiesAct,checkthefollowing
boxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.

IfthisFormisaposteffectiveamendmentfiledpursuanttoRule462(d)undertheSecuritiesAct,checkthefollowing

boxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.

IfdeliveryoftheprospectusisexpectedtobemadepursuanttoRule434,pleasecheckthefollowingbox.

TheregistrantherebyamendsthisRegistrationStatementonsuchdateordatesasmaybenecessarytodelayits
effectivedateuntiltheregistrantshallfileafurtheramendmentwhichspecificallystatesthatthisRegistrationStatementshall
thereafterbecomeeffectiveinaccordancewithSection8(a)oftheSecuritiesActof1933oruntilthisRegistrationStatement
shallbecomeeffectiveonsuchdateastheCommission,actingpursuanttosaidSection8(a),maydetermine.

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Theinformationinthispreliminaryprospectusisnotcompleteandmaybechanged.Wemaynotsellthesesecurities
untiltheregistrationstatementfiledwiththeSecuritiesandExchangeCommissioniseffective.Thispreliminary
prospectusisnotanoffertosellthesesecuritiesanditisnotsolicitinganoffertobuythesesecuritiesinanystatewhere
theofferorsaleisnotpermitted.

SubjecttoCompletion
PreliminaryProspectusdatedOctober19,2004

PROSPECTUS

Shares

CommonStock

ThisisCorusPharma,Inc.sinitialpublicoffering.CorusPharma,Inc.issellingalloftheshares.

Weexpectthepublicofferingpricetobebetween$and$pershare.Currently,nopublicmarketexistsfor
theshares.WehaveappliedtohaveourcommonstockquotedontheNASDAQNationalMarketunderthesymbolCSPH.

InvestinginourcommonstockinvolvesrisksthataredescribedintheRiskFactorssection
beginningonpage7ofthisprospectus.

PerShare

Total

Publicofferingprice

Underwritingdiscount

Proceeds,beforeexpenses,toCorusPharma,Inc.

Theunderwritersmayalsopurchaseuptoanadditionalsharesatthepublicofferingprice,lesstheunderwriting
discount,within30daysfromthedateofthisprospectustocoveroverallotments.

NeithertheSecuritiesandExchangeCommissionnoranystatesecuritiescommissionhasapprovedordisapprovedof
thesesecuritiesordeterminedifthisprospectusistruthfulorcomplete.Anyrepresentationtothecontraryisacriminaloffense.

Theshareswillbereadyfordeliveryonorabout,2004.

MerrillLynch&Co.

PacificGrowthEquities,LLC
SunTrustRobinsonHumphrey

JMPSecurities

Thedateofthisprospectusis,2004.

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TABLEOFCONTENTS

Page

ProspectusSummary
RiskFactors
SpecialNoteRegardingForwardLookingStatements
UseofProceeds
NoticestoInvestors
DividendPolicy
Capitalization
Dilution
SelectedConsolidatedFinancialData
ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations
Business
Management
CertainRelationshipsandRelatedPartyTransactions
PrincipalStockholders
DescriptionofCapitalStock
SharesEligibleforFutureSale
Underwriting
LegalMatters
Experts
WhereYouCanFindMoreInformation
IndextoConsolidatedFinancialStatements

1
7
25
26
26
26
27
28
30
31
39
63
75
79
84
88
90
93
93
93
F1

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PROSPECTUSSUMMARY

Thissummaryhighlightsselectedinformationcontainedelsewhereinthisprospectus.Thissummarydoesnotcontainall
oftheinformationthatyoushouldconsiderbeforeinvestinginourcommonstock.Youshouldreadtheentireprospectus
carefully,includingRiskFactorsandourconsolidatedfinancialstatementsandtherelatednotes,beforemakingan
investmentdecision.

CorusPharma,Inc.

Overview

Weareabiopharmaceuticalcompanyfocusedonthedevelopmentandcommercializationofnovelapplicationsand
formulationsofknowntherapeuticstotreatsevererespiratorydiseases.AccordingtotheAmericanLungAssociation,respiratory
diseasesarethethirdmostcommoncauseofdeathintheUnitedStates,responsibleforoneinsevendeaths.Ourgoalistoprovide
respiratorypatientsfacinglimitedtherapeuticoptionswithinnovativetreatmentsthatimprovetheirmedicalconditionand
enhancetheirqualityoflife.Wecurrentlyhavetwoproductcandidatesinlatestageclinicaldevelopmentandseveralproprietary
programsinpreclinicaldevelopment.Ourtwomostadvancedproductcandidatesfocusoncysticfibrosis,orCF,andsevere
persistentasthma,twoofthemostsevererespiratorydiseasesintheUnitedStates.

Ourmostadvancedproductcandidate,Corus1020,isdesignedtotreatrespiratoryinfectionssuchasPseudomonas
aeuroginosa,orP.aeruginosa,inCFpatientsusinganinhalableformofanantibioticcalledaztreonam.AccordingtotheCystic
FibrosisFoundation,orCFF,thereareapproximately30,000CFpatientsintheUnitedStatesand33,000CFpatientsthroughout
therestoftheworld.Approximately60%ofCFpatientsintheUnitedStatesareinfectedwithP.aeruginosa,thepredominant
bacteriainfectingthelungsofCFpatients.Despiteimprovementsintherapiesandenhancedunderstandingofthediseaseinthe
lasttenyears,thereisstillnocureforCFand,accordingtotheCFF,thecurrentmedianlifeexpectancyofaCFpatientis33.4
years.AccordingtotheCFF,morethan90%ofCFpatientsultimatelydiefromlungdestructionresultingfromtheinflammatory
responsetochroniclunginfections.

WebelievethatCorus1020wouldbeanattractivetherapyforthemanagementofrespiratoryinfectionsinCFpatients,
andmayoffersignificantadvantagesoverexistingtherapies.WehaverecentlycompletedaPhaseIIclinicaltrialofCorus1020
andexpecttocompletetheanalysisofthestudydatainlate2004.WeanticipatethecommencementofPhaseIIIclinicaltrialsin
early2005,andweexpecttocompletethesetrialsbytheendof2005.Weplantosubmitanewdrugapplication,orNDA,for
Corus1020in2006.Corus1020wasgrantedorphandrugstatusintheUnitedStatesinMarch2002andintheEuropeanUnion,
orEU,inJune2004.Generally,theU.S.FoodandDrugAdministration,orFDA,orforeignregulatoryagenciesmaygrantorphan
drugdesignationtodrugsintendedtotreatararediseaseorcondition.Ifapproved,orphandrugstatuswouldgiveCorus1020
marketexclusivityforthesamedrugforthesameuseforsevenyearsintheUnitedStatesandtenyearsintheEU.Wedonot
expecttoachievefinalapprovaloftheNDA,ifatall,untilatleast2007or,ifweareabletoobtainpriorityreviewfromtheFDA,
thesecondhalfof2006.

Oursecondproductcandidate,Corus1030,isinhaledlidocaineforthetreatmentofpatientssufferingfromthemost
severepersistentformsofasthma.Basedonourinternalmarketingresearch,weestimatethatoftheapproximately700,000
patientswhoareclassifiedbytheNationalInstitutesofHealthassufferingfromseverepersistentasthma,175,000dependonthe
useoforalcorticosteroids,suchasprednisone,tocontroltheirdisease.Despitetheefficacyoforalcorticosteroidsintreating
severepersistentasthma,whenusedchronically,theycanhaveseveresideeffects,includingosteoporosis,weightgain,adrenal
suppression,growthsuppression,dermalthinning,hypertension,diabetes,cataractsandmuscleweakness.Accordingtoa2003
studyinJournalof

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AllergyandClinicalImmunology,patientswithseverepersistentasthmaspend$12,813ayear,ornearlyfivetimesmore,indirect
andindirectcosts,thanthosewithmildpersistentasthmacaringfortheirdisease.

WebelievethatCorus1030wouldofferanattractivealternativetooralcorticosteroidsinthetreatmentofasthma,
enablingthereductionoforalcorticosteroidusebypatientswithseverepersistentasthmawhilemaintainingorimprovingtheir
lungfunction.WecurrentlyhaveanongoingPhaseIIclinicaltrialforCorus1030inpatientswithseverepersistentasthmawho
aredependentonthechronicuseoforalcorticosteroids.Wehavecompletedenrollmentinthistrialandexpectthedatatobe
availableinearly2005.WeanticipatethecommencementofpivotalPhaseIIIclinicaltrialsinlate2005,andweexpectto
completethesetrialsbyearly2007.WeplantosubmitanNDAforCorus1030in2007.

Inadditiontothedevelopmentactivitiesforourtwoleadproductcandidates,wecontinuetodevelopadditionalclinical
programsforavarietyofrespiratorydiseases.OurmostpromisingpreclinicalproductcandidateisCorus1040,anovelbroad
spectrumantibioticcombinationformulationforthetreatmentofrespiratoryinfections.WeexpecttocommencePhaseIclinical
testingforCorus1040by2006.

WehaveenteredintotwoagreementswithPARIGmbH,orPARI,underwhichPARIhasagreedtoprovideitsproprietary
eFlowinhalationdeviceforCorus1020andCorus1030.WebelievethePARIeFlowinhalationdevice,whenusedwithour
novelformulations,willprovideforfasterandmoreefficientdrugdelivery,resultingindecreaseddosingtimes.ThePARIeFlow
inhalationdevicereceived510(k)clearancefromtheFDAinMay2004asahandheldnebulizertobeusedwithmedicationsfor
whichadoctorhasprescribednebulization.

Weareledbyateamofexperiencedpharmaceuticalandbiotechnologyindustryexecutives.Theseindividualshave
playedkeyleadershiprolesinthesuccessfuldevelopment,approvalandcommercializationofmultipletherapeuticproducts,
includingthemostrecentlyapprovedproductforthetreatmentofrespiratoryinfectionsinCFpatients,TOBI,whichis
tobramycinsolutionforinhalation,marketedbyChironCorporation,aswellasseveralotherrespiratorytherapeutics.

Strategy

Thekeyelementsofourstrategyareasfollows:

Continuetoadvanceourleadproductcandidatesinclinicaltrials.Wewillcontinuetodevelopourleadproduct
candidates,Corus1020andCorus1030,withtheintentionofsubmittingNDAsin2006,forCorus1020,and2007,
forCorus1030.
Maximizecommercialpotentialofourtwoleadproductcandidates.Weplantobuildasalesorganizationinthe
UnitedStatestocommercializeCorus1020andCorus1030directlytopulmonologists.Webelievethatwecan
initiallydeveloptheCFmarketforCorus1020throughasalesforceof25salesrepresentatives.Later,inanticipation
ofthecommerciallaunchofCorus1030,weplantoexpandoursalesforcetoapproximately100sales
representativestocoverthemajorityofpulmonologiststreatingpatientswithseverepersistentasthma.Weintendto
developpartnershipswithmultinationalorregionalpharmaceuticalcompaniestocommercializeourproducts
outsidetheUnitedStates.
Continuetodevelopnewproductcandidatesforrespiratorydisease.Webelieveourexpertiseinrespiratory
diseasewillenableustoidentifyadditionalproductcandidates,suchasCorus1040,forwhichthereisstrong
existingpreclinicalorclinicaldatafromwhichwecancontinuetobuildarobustpipelineofproductcandidates.

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Developnewproductcandidateswithdefensibleintellectualpropertyandthepotentialformarketingexclusivity
.Wewillcontinuetobuildprotectionaroundourproductsbypursuingmethodofuse,formulationanddrug
deliverydevicepatentsorinlicensingcompositionofmatterorusepatents.Wewillalsocontinuetofileforpatent
protectionforthedruganddevicecombinationsandrelatednewchemicalentitiesthatwedevelop.Whereavailable,
wewillpursuedesignationssuchasorphandrugstatusinanefforttoobtainmarketingexclusivityforourproduct
candidates.

RisksAssociatedWithOurBusiness

Weareadevelopmentstagecompany.WearesubjecttonumerousrisksandobstaclesasdescribedintheRiskFactors
sectionofthisprospectusbeginningonpage7.Theserisksincludethefollowing:

Wehavealimitedoperatinghistory.Wehavenotgeneratedanycashfromoperationssinceinception.Todate,we
havederivednorevenuefromproductsalesorroyaltiesanddonotexpecttodosoforanumberofyears.
Wehaveincurredsignificantoperatinglossessincewebeganoperationsin2001,andwemayneverbecome
profitable.Ouroperatinglosseswillcontinuetoincreasesignificantlyoverthenextseveralyears.Inadditiontothe
netproceedsfromthisoffering,wewillneedtoraisesubstantialadditionalcapitaltofundouroperationsand
executeourstrategy.
Allofourproductsareindevelopmentandnonehavebeenapprovedforcommercialsale.Priortoanycommercial
sale,weneedtosuccessfullycompleteourclinicaltrialsandobtainregulatoryapprovals.Anydelaysorfailuresin
completingourclinicaltrialsorobtainingregulatoryapprovalswouldharmourbusinessandfutureprospects.
Oursuccessisheavilydependentonthesuccessfuldevelopmentandcommercializationofourleadproduct
candidate,Corus1020.

OurCorporateInformation

WewereincorporatedinDelawareonJanuary2,2001.Ourprincipalexecutiveofficesarelocatedat20251stAvenue,
Suite800,Seattle,Washington98121,andourtelephonenumberis(206)7285090.Youcanaccessourwebsiteat
www.coruspharma.com.Informationcontainedonourwebsiteisnotapartofthisprospectus.Referencesinthisprospectusto
we,our,usandCorusrefertoCorusPharma,Inc.andoursubsidiariesonaconsolidatedbasisunlessthecontextmeans
otherwise.

CorusPharmaisourtrademark.Eachoftheothertrademarks,tradenamesorservicemarksappearinginthisprospectus
belongtoitsrespectiveholder.

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TheOffering

CommonstockofferedbyCorus

shares

Sharestobeoutstandingafterthisoffering

shares

Riskfactors

SeeRiskFactorsandotherinformationincludedinthisprospectusfora
discussionoffactorsyoushouldconsidercarefullybeforedecidingtoinvestin
sharesofourcommonstock.

Useofproceeds

Weexpecttouseamajorityofthenetproceedsfromthisofferingtocontinueour
developmentandactivitiesinsupportofanticipatedcommercializationofourlead
productcandidates,Corus1020andCorus1030,aswellastofundcontinued
developmentofourotherresearchanddevelopmentactivitiesandforothergeneral
corporatepurposesandworkingcapital.Wemayalsouseaportionofthenet
proceedstoacquireadditionaltechnologiesorproductcandidates,butwecurrently
donothaveanyspecificacquisitionsplanned.

ProposedNASDAQNationalMarket
symbol

CSPH

Thenumberofsharesofourcommonstocktobeoutstandingafterthisofferingisbasedon122,188,301shares
outstandingasofJune30,2004.

Thenumberofsharesofcommonstocktobeoutstandingafterthisofferingdoesnottakeintoaccount:

6,089,350sharesofcommonstocksubjecttooutstandingoptionsatJune30,2004grantedunderour2001Stock
Planataweightedaverageexercisepriceof$0.33pershare

5,626,750sharesofcommonstockreservedforfutureissuanceunderour2001StockPlanandshares
reservedforfutureissuanceunderour2004StockIncentivePlan

82,325sharesofcommonstockissueduponexerciseofoptionsduringtheperiodJuly1,2004throughSeptember
30,2004

219,725sharesofcommonstockreservedforfutureissuancepursuanttoanoutstandingwarrantatanexerciseprice
of$1.64pershareand

211,207sharesofcommonstockissuedtoMontgomery&Co.,LLC,theplacementagentforourSeriesCPreferred
Stockfinancing,andthreeofitsprincipals.

Unlessotherwisenoted,theinformationinthisprospectusassumesthattheunderwritersdonotexercisetheir
overallotmentoptionandreflectstheautomaticconversionofalloutstandingsharesofourconvertiblepreferredstockintoan
aggregateof112,600,145sharesofcommonstockuponthecompletionofthisoffering.

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SummaryConsolidatedFinancialInformation

Thefollowingtablepresentsasummaryofourhistoricalconsolidatedfinancialinformation.Youshouldreadthis
informationtogetherwithourconsolidatedfinancialstatementsandtherelatednotes,theinformationunderSelected
ConsolidatedFinancialData,andManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations
includedelsewhereinthisprospectus.

Theproformanetlossattributabletocommonstockholderspershareinformationiscomputedusingtheweighted
averagenumberofcommonsharesoutstanding,aftergivingproformaeffecttotheautomaticconversionofalloutstandingshares
ofourconvertiblepreferredstockintosharesofourcommonstock,effectiveuponthecompletionofthisoffering,asifthe
conversionhadoccurredatthedateoftheoriginalissuance.Thisproformainformationdoesnotgiveeffecttotheissuanceof
commonstockuponexerciseofoutstandingstockoptionsoroutstandingwarrants.

Theproformabalancesheetinformationgiveseffecttotheautomaticconversionofalloutstandingsharesofour
convertiblepreferredstockintoanaggregateof112,600,145sharesofcommonstockuponthecompletionofthisoffering.The
proformaasadjustedbalancesheetinformationgivesfurthereffecttooursaleofsharesofcommonstockinthisofferingat
anassumedinitialpublicofferingpriceof$pershare,afterdeductingtheunderwritingdiscountandestimatedoffering
expensespayablebyus.

Periodfrom
January2,
2001(Dateof
Inception)to
December31,
2001

SixMonthsEnded
June30,

YearEndedDecember31,

2002

2003

2003

ConsolidatedStatementofOperationsData:
Operatingexpenses:
Researchanddevelopment
Generalandadministrative

1,171
1,613

Lossfromoperations
Interestincome

(2,784)
330

Netloss

(2,454)

Basicanddilutednetlosspershare

(0.80)

Sharesusedincomputationofbasicanddilutednet
losspershare

Proformabasicanddilutednetlosspershare

Sharesusedincomputationofproformanetlossper
share

8,890
2,878

(11,768)
176

(11,592)

(2.50)

3,062

(25,416)
298

(9,908)
127

(25,118)

$(9,781)

(3.58)

$ (1.54)

(1.30)

4,642

(unaudited)

$ 8,292
1,616

21,754
3,662

(inthousands,exceptpersharedata)

2004

7,008

(0.44)

56,717

6,371

$ 9,225
2,510
(11,735)

269
$(11,466)

8,790

(0.12)

92,148

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AsofJune30,2004

ProForma
AsAdjusted(1)

Actual

ConsolidatedBalanceSheetData:
Cashandcashequivalents
Shortterminvestments
Workingcapital
Totalassets
Convertiblepreferredstock
Totalstockholdersequity/(deficit)

$ 1,087
72,269
70,865
75,012
120,478
(48,922)

(unaudited,inthousands)

(1) IntheProFormaAsAdjustedcolumn,wehaveadjustedthebalancesheetdataasofJune30,2004,toreflectthe
conversionofconvertiblepreferredstockintocommonstockupontheclosingofthisofferingandtogiveeffecttoour
receiptoftheestimatednetproceedsof$millionfromthesaleofsharesofourcommonstockbyusunder
thisprospectusatanassumedinitialpublicofferingpriceof$pershareafterdeductingtheunderwritingdiscountand
estimatedofferingexpensespayablebyus.SeeUseofProceedsandCapitalization.

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RISKFACTORS

Thisofferinginvolvesahighdegreeofrisk.Youshouldconsidercarefullytherisksanduncertaintiesdescribedbelow
andtheotherinformationinthisprospectus,includingtheconsolidatedfinancialstatementsandtherelatednotesappearingat
theendofthisprospectus,beforedecidingtoinvestinsharesofourcommonstock.Ifanyofthefollowingrisksoruncertainties
actuallyoccurs,ourbusiness,prospects,financialconditionandoperatingresultswouldlikelysuffer,possiblymaterially.Inthat
event,themarketpriceofourcommonstockcoulddeclineandyoucouldloseallorpartofyourinvestment.

RisksRelatingtoOurBusiness

Weareatanearlystageofdevelopmentasacompany,weexpecttocontinuetoincursubstantiallosses,andwemay
beunabletoachieveprofitability.

Weareadevelopmentstagecompanywithlimitedoperatinghistory.Wehavenotgeneratedanycashfromoperations
sinceinception.AsofJune30,2004,wehadanaccumulateddeficitof$50.6million.Wehaveincurredsignificantoperating
lossessincewebeganoperationsin2001,includingnetlossesof$11.5millionforthesixmonthsendedJune30,2004,andwe
mayneverbecomeprofitable.Ouroperatinglosseshaveresultedprincipallyfromcostsincurredinourresearchanddevelopment
programsandfromourgeneralandadministrativeexpenses.Allofourproductsareindevelopmentandnonehavebeenapproved
forcommercialsale.Todate,wehavederivednorevenuefromproductsalesorroyaltiesanddonotexpecttodosoforanumber
ofyears.Ouroperatinglosseshaveincreasedsteadilyeachyearsinceinception.Theywillcontinuetoincreasesignificantlyinthe
nextseveralyearsasweexpandourresearchanddevelopmentactivities,conductpreclinicalstudiesandclinicaltrials,acquireor
licensetechnologiesorproducts,seekregulatoryapprovalsandengageincommercializationactivitiesinanticipationofU.S.
FoodandDrugAdministration,orFDA,approvalofourfirstproductcandidate,Corus1020,whichisaztreonamformulatedforthe
treatmentofrespiratoryinfectionsinpatientswithcysticfibrosis,orCF.Becauseofthenumerousrisksanduncertainties
associatedwithourproductdevelopmentefforts,weareunabletopredictwhenwemaybegintogeneraterevenueorwhenwemay
becomeprofitable,ifatall.Ifweareunabletoachieveandmaintainprofitability,themarketvalueofourcommonstockwill
likelydecline.

Oursuccessisheavilydependentonthesuccessfuldevelopmentandcommercializationofourleadproduct
candidate,Corus1020,and,ifweareunabletosuccessfullydevelopandcommercializeCorus1020,orexperiencesignificant
delaysindoingso,ourbusinesswillbeharmed.

Sinceinception,wehaveinvestedasignificantportionofourtimeandfinancialresourcesinthedevelopmentofour
leadproductcandidate,Corus1020.Weanticipatethatintheneartermourabilitytogeneraterevenuewilldependsolelyonthe
successfuldevelopmentandcommercializationofCorus1020,whichissubjecttosignificantuncertaintyandwilldependon
severalfactors,includingthefollowing:

demonstrationinclinicaltrialsthatCorus1020issafeandeffective
receiptofmarketingapprovalsfromtheFDAandsimilarforeignregulatoryagencies
acceptanceofCorus1020,includingitsdeliveryviathePARIGmbH,orPARI,eFlowinhalationdevice,whichis
thenebulizerusedinourclinicaltrialstodate,byphysicians,patientsandthirdpartypayors
manufactureofthePARIeFlowinhalationdeviceincompliancewithFDArequirements
supplyofthePARIeFlowinhalationdevicesufficienttomeetanticipatedfuturemarketdemandand
supplyoftheactivepharmaceuticalingredient,orAPI,forCorus1020anditsfinishedproductinqualityand
quantitysufficienttomeetanticipatedfuturemarketdemand.

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Ifweareunabletoachieveanyofthesefactors,orexperiencesignificantdelaysindoingso,wemaybeunableto
successfullydevelopandcommercializeCorus1020.

Wewillneedtoraisesubstantialadditionalcapitaltofundouroperations,andourfailuretoobtainfundingwhen
neededmayforceustodelay,reduceoreliminateoneormoreofourproductdevelopmentprograms.

Developingproductsandconductingclinicaltrialsforthetreatmentofsevererespiratorydiseasesrequiresubstantial
amountsofcapital.Sinceinception,wehaveraisednetproceedsof$121.6millionofcapitalthroughprivateequityfinancings.In
additiontotheproceedsfromthisoffering,wewillneedtoraisesubstantialadditionalcapitaltofundouroperationsandexecute
ourstrategy.Additionalfinancingmaybeunavailableinamountsorontermsacceptabletous,ifatall,particularlyifwe
experiencedelaysinourdevelopmentorcommercializationefforts,areinvolvedinmateriallitigationorexperienceother
businesssetbacksatthesametimeorpriortowhenwearetryingtoraisecapital.Ifweareunabletoobtainadditionalfundingina
timelymanner,wemayhavetosignificantlydelay,scalebackordiscontinuedevelopmentorcommercializationofoneormoreof
ourcurrentorfutureproductcandidates,whichmayimpactourabilitytoobtainFDAorforeignregulatoryapprovalsor
commercializecurrentorfutureproductcandidatesinatimelymanner.Wemayalsoberequiredtoseekpartnersforourproduct
candidatesorrelinquish,licenseorotherwisedisposeofrightstoourproductcandidatesifweareunabletoraiseadditional
capital.

AsofJune30,2004,wehadcash,cashequivalentsandshortterminvestmentsof$73.4millionandcurrentliabilitiesof
$3.0million.Weused$11.8millioninoperatingactivitiesforthesixmonthsendedJune30,2004,$22.7millioninoperating
activitiesfortheyearendedDecember31,2003,and$10.1millioninoperatingactivitiesfortheyearendedDecember31,2002.
Webelievethatthenetproceedsfromthisoffering,togetherwithourcash,cashequivalentsandshortterminvestments,willbe
sufficienttofundanticipatedlevelsofoperationsthroughatleastthenext24months.Changesinourbusinessmayoccurthat
would,however,consumeavailablecapitalresourcessoonerthanweexpect.Ourfuturefundingrequirementsandourabilityto
raiseadditionalcapitalwilldependonmanyfactors,including:

thesuccessrateofourproductdevelopmentefforts
thescope,progress,expansionandcostofourclinicaltrialsandresearchanddevelopmentactivities
thedevelopmentofoursalesandmarketingactivities
theemergenceofcompetingtechnologiesorotheradversemarketdevelopments
thecostsofmanufacturingproductsandpotentialproductcandidates
thecostofacquiringtherightstonewtechnologyorproductcandidates
changesinorterminationsofoursupply,developmentormanufacturingarrangements
thecostsofrecruitingandretainingourpersonnel
thecostsofproductliabilityclaims,intellectualpropertyinfringementormisappropriationclaimsorotherlitigation
thecostsofpreparing,filing,prosecutingandmaintainingpatentsandenforcingpatentclaimsandotherintellectual
propertyrightsand
changesinregulatorypoliciesorlaws.

Ifadequatefundsarenotavailabletous,wemayhavetoliquidatesomeorallofourassetsordelay,reducethescopeof,
oreliminateallorsomeportionofourresearchanddevelopmentprogramsorclinicaltrials.Wemayalsoberequiredtoseek
partnersforourproductcandidatesorrelinquish,licenseorotherwisedisposeofrightstoourproductcandidatesifweareunable
toraiseadditionalcapital.

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Futurefinancingsmayadverselyaffectourstockholdersorimposerestrictionsonourassetsoroperations,which
mayharmourbusiness.

Ifweraiseadditionalfundsbyissuingequitysecurities,furtherdilutiontostockholderswouldresultandnewinvestors
couldhaverightssuperiortotherightsofholdersofthesharesissuedinthisoffering.Ifweweretoissueequitysecuritieswith
rightssuperiortothoseofthesharesissuedinthisoffering,thepriceofourcommonstockmaydecline.Ifweraiseadditional
fundsthroughdebtfinancing,theapplicabledebtinstrumentsmayincludeprovisionsthatrestrictouroperationalflexibilityor
imposeliensorotherrestrictionsonourassets.Inaddition,thetermsoffuturefinancingsmayrestrictourabilitytoraise
additionalcapital,whichwoulddelayorpreventthefurtherdevelopmentorcommercializationofourproductcandidates.

Ifourpreclinicalstudiesorclinicaltrialsaredelayed,wemaybeunabletodevelopourproductcandidatesona
timelybasis,whichmayincreaseourdevelopmentcostsandwoulddelaythepotentialcommercializationof,andsubsequent
receiptofrevenuefrom,productsales,ifany.

Wecannotpredictwhetherwewillencounterproblemswithanyofourcompleted,ongoingorplannedpreclinical
studiesorclinicaltrialsthatwillcauseregulatoryagencies,institutionalreviewboardsorustodelay,suspendordelaythe
analysisofdatafromthosepreclinicalstudiesandclinicaltrials.Clinicaltrialscanbedelayedforavarietyofreasons,including:

theneedforunexpecteddiscussionswiththeFDAorcomparableforeignauthoritiesregardingthescopeordesignof
ourclinicaltrials

delaysortheinabilitytoobtainrequiredapprovalsfrominstitutionalreviewboardsorothergoverningentitiesat
clinicalsitesselectedforparticipationinourclinicaltrials

lowerthananticipatedretentionratesofpatientsinclinicaltrials

anunfavorableFDAinspectionorreviewofaclinicaltrialsiteorrecordsofanyclinicalorpreclinicalinvestigation
oranunfavorableFDAinspectionofoursuppliersofproductcandidatecomponentsordeliverydevicesor

changesindrugformulationsordevicecharacteristics.

theneedtorepeatclinicaltrialsasaresultofproblemssuchasinconclusiveornegativeresultsorpoorlyexecuted
testing

Iftheresultsofourclinicaltrialsarenotavailablewhenweexpectorifweencounteranydelayintheanalysisofdata
fromourpreclinicalstudiesandclinicaltrials,wemaybeunabletofileforregulatoryapprovalorconductadditionalclinical
trialsontheschedulewecurrentlyanticipate.Anydelaysincompletingourclinicaltrialsmayincreaseourdevelopmentcosts,
wouldslowdownourproductdevelopmentandapprovalprocess,woulddelayourreceiptofproductrevenueandwouldmakeit
difficulttoraiseadditionalcapital.

Ifweareunabletocompletepatientenrollmentforourclinicaltrialsonatimelybasis,thedevelopmentand
commercializationofourproductcandidateswillbedelayedand,asaresult,ourbusinessmaybeharmed.

Ifweareunabletoenrollpatientsinourclinicaltrialsinsufficientnumbersandonatimelybasis,completionofthese
trialsandapprovalofourproductcandidateswillbedelayed.Successfulandtimelyenrollmentwilldependonanumberof
factors,includingthesizeofthepatientpopulation,thedesignofthetrial,theproximityofpatientstoclinicalsites,the
availabilityofeffectivetreatmentsorotherinvestigationalagentsfortherelevantdiseaseandtheeligibilitycriteriaforthe
clinicaltrials.Forexample,therearealimitednumberofCFpatients,andtheirparticipationincompetingtrialsmaymakethem
ineligibletoparticipateinourclinicaltrials.Delaysinpatientenrollmentcanresultinincreasedcostsandlongerdevelopment
times.Inaddition,subjectsmaydropoutofourclinicaltrials,andtherebyimpairthevalidityorstatisticalsignificanceofthe
trials.

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WeexperienceddelaysinattainingfullenrollmentforourPhaseIIclinicaltrialforCorus1020becauseofrestrictive
entrycriteriaandothertrialscompetingforsimilarpatients.Inearly2005,weplantoinitiatePhaseIIIclinicaltrials,andsimilar
circumstancesorotherfactorscouldcausedelaysinourachievingfullenrollment.

ForCorus1030,weexpecttocompleteourPhaseIIclinicaltrialinthefourthquarterof2004andtobeginPhaseIII
clinicaltrialsinlate2005.ThePhaseIIIclinicaltrialsforCorus1030willrequiresubstantiallymorepatientsthanwereenrolledin
thePhaseIIclinicaltrial.WemaybeunabletoachievesufficientenrollmentforourplannedPhaseIIIclinicaltrialsinatimely
fashion,ifatall.

Wedependonthirdpartyinvestigatorsintheconductofourpreclinicalstudiesandclinicaltrialsandanyfailureof
thosepartiestofulfilltheirobligationscouldadverselyaffectourproductdevelopmentandcommercializationplans.

Werelyonacademicinstitutionstoconduct,andclinicalresearchorganizationstoconduct,superviseormonitor,some
orallaspectsofthepreclinicalstudiesandclinicaltrialsforourproductcandidates,andwedonotcontrolmanyaspectsoftheir
activities.Accordingly,wehavelesscontroloverthetimingandotheraspectsofthesepreclinicalstudiesandclinicaltrialsthanif
weconductedthementirelyonourown.Thirdpartyinvestigatorsmaynotcompleteactivitiesonschedule,ormaynotconduct
ourpreclinicalstudiesorclinicaltrialsinaccordancewithregulatoryrequirementsorourtrialdesign.Forexample,werelyon
InvereskResearchInternationalLimitedfortheconductofourPhaseIIclinicaltrialsforCorus1030andforotherservicesrelated
tothedevelopmentofourproductcandidates.Thefailureofthesethirdpartiestoperformtheirobligationscoulddelayorprevent
thedevelopment,approvalandcommercializationofCorus1020,Corus1030orfutureproductcandidates.

Wemayberequiredtosuspendordiscontinueclinicaltrialsduetounexpectedsideeffectsorothersafetyrisksthat
couldprecludeapprovalofourproducts.

Ourclinicaltrialsmaybesuspendedatanytimeforanumberofsafetyrelatedreasons.Forexample,wemayvoluntarily
suspendorterminateourclinicaltrialsifatanytimewebelievethatourproductcandidatespresentanunacceptablerisktothe
clinicaltrialpatients.Inaddition,institutionalreviewboardsorregulatoryagenciesmayorderthetemporaryorpermanent
discontinuationofourclinicaltrialsatanytimeiftheybelievethattheclinicaltrialsarenotbeingconductedinaccordancewith
applicableregulatoryrequirements,includingiftheypresentanunacceptablesafetyrisktopatients.

Administeringanyproductcandidatetohumansmayproduceundesirablesideeffects.Forexample,specificsideeffects
associatedwithaztreonam,theAPIinCorus1020,include,whenadministeredintravenouslyatdosageshigherthantherapeutic
levels,diarrhea,nausea,vomitingandrashreportedinapproximately1%to2%ofpatients.Specificsideeffectsassociatedwith
lidocaine,theAPIinCorus1030,include,whenadministeredintravenouslyatdosageshigherthantherapeuticlevels,central
nervoussystemdepressionandcardiacarrhythmia.EventhoughaztreonamandlidocainehavebeenapprovedbytheFDAfor
otherindicationsandroutesofadministration,ournovelformulationsandadministrationofthemthroughinhalationinour
productcandidatesmayresultinharmfuleffectsnotyetobservedinotherindicationsorroutesofadministration.Theseorother
sideeffectscouldinterrupt,delayorhaltclinicaltrialsofourproductcandidatesandcouldresultintheFDAorotherregulatory
agenciesdenyingfurtherdevelopmentorapprovalofourproductcandidatesforanyoralltargetedindications.

EventhoughwehavenotobservedsignificantharmfulsideeffectsinpriortestsofCorus1020orCorus1030,later
clinicaltrialsinalargerpatientpopulationcouldrevealsuchsideeffects.Wehavenotconductedstudiesonthelongtermeffects
associatedwiththeuseofourproductcandidates.Studiesoftheselongtermeffectsmayberequiredforregulatoryapprovaland
woulddelayourintroductionofCorus1020orCorus1030orcouldberequiredatanytimeafterregulatoryapprovalofeither
product.Anyadverseeffectsobservedafter

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marketingcouldresultinthewithdrawalofanyapprovedproductsfromthemarketplace.Absenceoflongtermdatamayalso
limittheapprovedusesofourproducts,ifany,toshorttermuse.Ultimately,someorallofourproductcandidatesmayprovetobe
unsafeforhumanuse.Evenifwebelieveourproductcandidatesaresafe,ourdataaresubjecttoreviewbytheFDA,whichmay
disagreewithourconclusionsandnotapproveourproducts.Moreover,webelieveCorus1020islikelytobeusedincombination
withcomplementarytreatments,includingTOBI,whichistobramycinsolutionforinhalation,marketedbyChironCorporation.
ThecombinationofthesetherapiescouldcauseharmfulsideeffectsthatcouldbeattributedtoCorus1020orcouldcausedrug
interactionsthatresultinadverseeffectscausedbyoneormoredrugs,includingourown.Undersuchcircumstances,theFDA
couldrequirestudiesofCorus1020incombinationwithsuchcomplementarytreatmentsorotherwiserequirerestrictivelabeling
thatwouldexcludeitsuseswithsuchothertreatments.Wecouldbesubjecttosignificantliabilityifanyvolunteerorpatient
suffers,orappearstosuffer,adversesideeffectsasaresultofparticipatinginourclinicaltrials.

Wemaybeunabletoobtainmarketingapprovalforanyoftheproductcandidatesresultingfromourdevelopment
efforts,includingCorus1020orCorus1030.

WeneedFDAapprovaltomarketourproductcandidatesintheUnitedStates.Wehavenotreceivedregulatoryapproval
tomarketeitherCorus1020orCorus1030inanyjurisdictionanddonotexpecttoreceivesuchapproval,ifatall,untilatleast
2007,inthecaseofCorus1020,andforseveralyears,inthecaseofCorus1030.Toobtainapproval,wemustdemonstratethe
safetyandefficacyofourproductcandidatesforspecificindicationsofusethroughpreclinicalstudiesandclinicaltrials.The
clinicaltrialandregulatoryapprovalprocessislengthy,expensiveanduncertainandwemaybeunabletoobtainapprovalfor
Corus1020orCorus1030,foruseincombinationwiththePARIeFlowinhalationdeviceoranotherinhalationdevice,orany
futureproductcandidate.

Onlytwoofourproductcandidates,Corus1020andCorus1030,haveadvancedtoclinicaltrialsandwemaybeunable
toadvanceadditionalproductcandidatesintoclinicaltrials.Evenifwedosuccessfullyenterintoclinicaltrialswithadditional
productcandidates,theresultsfrompreclinicaltestingofaproductcandidatemaynotpredicttheresultsthatwillbeobtainedin
clinicaltrials.Inaddition,therearepreclinicaltoxicologystudiestobecompletedforbothCorus1020andCorus1030thatcould
revealsafetyproblemsthatmaypreventapprovalandcommercializationofourproductcandidates.Inaddition,positiveresults
demonstratedinpreclinicalstudiesandclinicaltrialsthatwecompletemaynotbeindicativeofresultstobeobtainedinlater
clinicaltrials.Clinicaltrialsmaytakeseveralyearstocomplete,andfailurecanoccuratanystageoftesting.

Ultimately,suchclinicaltrialsmaynotprovethatourproductcandidatesaresafeandeffectivetotheextentnecessaryto
permitustoobtainmarketingapprovalsfromregulatoryagencies.Thehistoricalfailureratefornewdrug,biologicanddevice
candidatesishigh.Adverseorinconclusiveclinicaltrialresultsconcerninganyofourproductcandidatescouldrequireusto
conductadditionalclinicaltrials,couldresultinincreasedcostsandsignificantlydelaythefilingformarketingapprovalforsuch
productcandidateswiththeFDA,orcouldresultinafilingforamorenarrowlydefined,ordifferent,indicationorabandonmentof
developmenteffortsentirely.

Forexample,althoughweintendedtopursueapprovalofCorus1030onlyforthetreatmentofpatientswithsevere
persistentasthmawhoaredependentonoralcorticosteroids,atapreinvestigationalnewdrugapplicationmeetingwiththeFDA
inOctober2002,theFDAspecificallyaskedustoconductatrialinpatientswithmildtomoderatepersistentasthmawitha
baselinelungfunctionnearnormal,whohadnotbeentreatedwithsteroids.Inthismildtomoderatepersistentpopulation,there
wasnotasignificantimprovementofforcedexpiratoryvolumeofairfromthelungsduringthefirstsecondofexhalationaftera
deepbreath,theprimaryefficacyendpointofthistrial.Subsequentlyandconsistentwithouroriginalintent,webeganaPhaseII
clinicaltrialinpatientswithseverepersistentasthmawhoaredependentonthechronicuseoforalcorticosteroids.Ifweare
unabletoachievetheprimaryefficacyendpointinthisclinicaltrial,wemaybeforcedtorepeatthistrial,conductanalternative
trialorabandonthedevelopmentofCorus1030.

WehaveappliedforfasttrackdesignationfromtheFDAforCorus1020forthetreatmentoflunginfectionsinpatients
withCF.Thefasttrackdesignationisintendedtofacilitatethedevelopmentof,andto

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expeditethereviewof,newtherapiesintendedtotreatseriousorlifethreateningconditionsthatdemonstratethepotentialto
addressunmetmedicalneeds.EvenifweobtainfasttrackdesignationforCorus1020orotherproductcandidates,wemaynot
experiencefasterdevelopmentprocesses,reviewsorapprovalscomparedtoconventionalFDAprocedures.Afasttrack
designationmaybewithdrawnbytheFDA,forexample,ifitbelievesthatthedesignationisnolongersupportedbydatafromour
clinicaldevelopmentprogram.

TheFDAandotherregulatoryagenciesmayapplynewstandardsforsafety,manufacturing,packaginganddistribution
ofdrugsadministeredbyinhalation,includingCorus1020andCorus1030.Itmaybetimeconsumingorexpensiveforusorour
vendorstocomplywiththesenewstandards.TheFDAalsohassignificantdiscretionintheproductapprovalprocessandmay
disagreewithourinterpretationofdatasubmittedinourmarketingapplicationsorwithoursuppliersopinionsabouttheir
compliancewithapplicableregulatoryrequirements.Thiscouldresultindelaysinobtainingmarketingapprovalforanyofour
productcandidates,orpossiblyprecludeusfromobtainingsuchapproval.

OurproductcandidatesaresubjecttocombinationproductregulationandwerelyonPARIGmbHasoursingle
sourceofsupplyforthePARIeFlowinhalationdevice,availabilityofwhichiscriticaltothetimelydevelopmentand
commercializationofCorus1020andCorus1030.

WehaveintegratedthePARIeFlowinhalationdeviceintoourPhaseIIclinicaltrialsofCorus1020andCorus1030,
includingmodificationstooptimizeitforusewiththeseproductcandidates,andanticipateusingit,asmodified,forourplanned
PhaseIIIclinicaltrialsforthoseproductcandidates.TheplanneduseofourproductcandidatesinconjunctionwiththePARI
eFlowinhalationdeviceoranyothersuchdeviceinvolvesadrugdevicecombinationproduct,whichsubjectstheseproduct
candidatestocombinationproductregulation.Thismeans,forexample,thatswitchingtoanalternativedeliverysystemforCorus
1020orCorus1030priortothecommencementofourPhaseIIIclinicaltrialswouldlikelydelayourinitiationofPhaseIIIclinical
trials.SwitchingaftertheinitiationofPhaseIIIclinicaltrials,however,wouldlikelyrequireustoundertakeadditionalclinical
trials,whichwouldsignificantlydelaythedevelopmentandcommercializationofCorus1020andCorus1030.

PARIisthesinglesourceofsupplyforthePARIeFlowinhalationdeviceandPARIhaslimitedmanufacturingcapacity.
FuturesupplycommitmentsbyPARItousandothercustomerscouldstrainPARIsmanufacturingcapacity,possiblyresultingin
delaysorinterruptionsinoursupplyofthedeviceoradegradationinitsquality.Inaddition,supplycouldbeinterruptedasa
resultofanydisruptioninPARIsmanufacturingcapability.Qualityormanufacturingproblemscouldresultinregulatory
complianceinfractionsthatinvolve,forexample,productrecalls,orotherwisedisruptPARIsabilitytocontinuetosupplythe
eFlowinhalationdeviceforusewithourproductcandidates.AlthoughunderouragreementwithPARIwehavetherightto
manufacturethedevice,ortocausethedevicetobemanufacturedindependentlyofPARIundercertaincircumstances,thedevice
issophisticatedandtechnologicallycomplexandweorothersmaybeunwillingortechnicallyunabletoproduceitproperly.In
addition,itwouldtakesignificanttimeandresourcestodevelopsuchmanufacturingexpertise,includingobtainingnecessary
FDAapprovalofthemanufacturingsitechange,whichwoulddelayourproductdevelopmentandcommercializationefforts.

PARIisinvolvedin,andmaybesubjecttoadditional,intellectualpropertydisputesrelatedtothePARIeFlow
inhalationdevicethatmayrestrictourabilitytousethedevicewithCorus1020,Corus1030orourotherproductcandidates.In
April2003,PARIfiledsuitagainstAerogenInc.inGermanytoattempttoenforceaEuropeanpatentlicensedtoPARIbyThe
TechnologyPartnership,orTTP.InAugust2004,AerogensecuredarulingnullifyingallclaimsoftheTTPEuropeanpatent.We
believethatanappealisbeingpursued.InMarch2003,AerogenfiledsuitagainstPARIandTTPinU.S.federalcourtseekinga
declarationofinvalidityofaU.S.patentlicensedtoPARIbyTTP,andwhichwasallegedtobesubstantivelysimilartothe
EuropeanpatentinvolvedintheGermanlitigation.InMarch2004,thecasewasvoluntarilydismissedwithoutprejudiceby
Aerogen.TheresolutionofanysuchdisputeswithAerogenorwithotherdevelopersofnebulizerinhalationtechnologymay
preventPARIandusfrommanufacturingorusingthedevice

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andmayrequirePARIorustoenterintoneworadditionallicensingagreements,whichmaybeunavailable,ormaybeavailable
onlyontermsthatwouldmateriallyincreasethecostorrestricttheavailabilityofthedevicetousandthatwouldharmour
business.Basedonourcombinationproductcommercializationstrategy,weanticipatethatCorus1020andCorus1030willbe
initiallyapproved,ifatall,onlyforadministrationwiththePARIeFlowinhalationdevice.Aspartofacombinationproduct,any
failureofthedevicetobeavailabletousafterapprovalofeitherofourproductcandidateswouldlikelyrequirethatweconduct
newclinicaltrialsusingdifferentdevicestoadministerourproductcandidates,whichwouldrequireindependentdemonstrations
ofsafetyandefficacy.Newdeliverydevicesmayhaveanegativeeffectonourcostofgoodsandcoulddiminishthecompetitive
advantagesofCorus1020andCorus1030.

AlthoughouragreementswithPARIgiveustheexclusiverighttousethePARIeFlowinhalationdevicewithaztreonam,
theAPIinCorus1020,andlidocaine,theAPIinCorus1030,theydonotprohibitPARIfromenteringintosimilaragreementsto
supplyothercompanieswiththePARIeFlowinhalationdeviceforthedeliveryofotherdrugs,includingtreatmentsfordiseases
thatourproductcandidatesmaytarget.Asaresult,competitorscouldmarketotherdrugsfordeliverythroughthePARIeFlow
inhalationdeviceforthesameorsimilarindicationswehavetargeted,whichcouldharmoursalesofCorus1020andCorus1030.
Forexample,partofapetitiontotheFDAtoallowmarketingofagenericversionofTOBIseeksapprovalfortheuseofthePARI
eFlowinhalationdevicewithtobramycin.

OuragreementswithPARIimposevariouscommercialization,milestonepayment,royalty,insurance,indemnification
andotherobligationsonus.Ifwefailtocomplywithsomeoralloftheseobligations,PARImayhavetherighttoterminatethe
agreements,inwhicheventwemayberequiredtoundertakeadditionalclinicaltrialsforourproductswithanalternativedelivery
system.

WerelyonsinglesourcevendorsforthesupplyofcriticalcomponentsofCorus1020.

WerelyonEuticalsSpA,orEuticals,asoursinglesourceofsupplyforaztreonam,theAPIforCorus1020.Any
disruptioninthesupplyofaztreonamwoulddelaythedevelopmentandcommercializationofCorus1020.Euticalsmaybe
unabletosupplyaztreonamwithacceptablequality,quantityorcosttomeetourfuturedemands.Thenumberofsupplierswith
theexpertise,requiredregulatoryapprovalsandfacilitiestomanufactureaztreonamislimitedandestablishinganadditionalor
replacementsuppliercouldtakeasubstantialamountoftime.Ifwewererequiredtoswitchtoanewsupplier,thedevelopmentand
commercializationofCorus1020wouldbesignificantlydelayed.IfweobtainapprovalofCorus1020asanorphandrugandwe
cannotassuresufficientquantitiesofaztreonamduetosupplierproblems,anyorphandrugmarketexclusivityweobtainmaybe
lostbecause,undersuchcircumstances,theFDAcouldapproveanidenticalcompetitiveproduct.Additionally,oursuppliers,
suchasEuticals,willlikelybesubjecttopreapprovalinspectionbytheFDA,andanyfailureofoursupplierstoprove
compliancewiththeFDAscurrentgoodmanufacturingpractices,orcGMP,orqualitysystemregulation,orQSRrequirements,
coulddelayorpreventapprovalofourproductcandidates.

WehaveenteredintoalongtermsupplyagreementwithEuticalsforthesupplyofaztreonam.Althoughwebelieve
Euticalswillperformitsobligationsunderthisagreement,andthatsupplyunderthisagreementwillbesufficienttomeet
commercialrequirementsforourexpectedclinicalindications,therecanbenoguaranteethatEuticalswillbewillingorableto
perform,orthatsupplywillbeavailableinsufficientquantitywhenneeded.Inaddition,wecurrentlyhavenolongterm
agreementwithBenVenueLaboratories,themanufactureroftheCorus1020finishedproductforourPhaseIIclinicaltrial,forits
supplyforourplannedPhaseIIIclinicaltrialsoranticipatedcommerciallaunch.

Wehavenomanufacturingfacilitiesandifweorourthirdpartymanufacturersonwhomwerelyfailtocomplywith
FDAorforeignregulatoryagencyregulationsinconnectionwiththemanufactureandpackagingofourproducts,our
productdevelopmentandcommercializationeffortscouldbeharmed.

Wehavefewpersonnelwithexperiencein,andwedonotownfacilitiesfor,manufacturinganyproducts.Wewilldepend
onthirdpartiestomanufactureCorus1020,Corus1030andpotentiallyanyfuture

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productcandidatesthatwemaydevelop.Relianceonthirdpartymanufacturersentailsriskstowhichwewouldnotbesubjectif
wemanufacturedourproductsourselves,including:

relianceonthesethirdpartiesforregulatorycompliance
thepossiblebreachofanymanufacturingagreementbythesethirdpartiesand
thepossibilityofterminationornonrenewalofanyagreementbythesethirdparties,basedontheirownbusiness
priorities,atatimewhenitiscostlyorinconvenientforus.

Themanufactureandpackagingofpharmaceuticalproducts,suchasCorus1020,Corus1030andanyfutureproduct
candidatesforuseincombinationwithdevices,areregulatedbytheFDAandsimilarforeignregulatoryagenciesandmustbe
conductedinaccordancewiththeFDAscGMPorQSRrequirementsandcomparablerequirementsofforeignregulatoryagencies.
Failurebyusorourthirdpartymanufacturerstocomplywithapplicableregulations,requirementsorguidelinescouldresultin
sanctionsbeingimposedonus,includingfines,injunctions,civilpenalties,failureofregulatoryagenciestograntmarketing
approvalofourproducts,delays,suspensionorwithdrawalofapprovals,licenserevocation,seizuresorrecallsofourproducts,
operatingrestrictionsandcriminalprosecutions,anyofwhichcouldharmourbusiness.

ToobtainapprovalofourproductcandidatesbytheFDAorforeignregulatoryagencies,thirdpartiesonwhomwerely
mustcomplywiththeFDAscGMP,includingcompletingtestingonboththeAPIandthefinishedproduct.Thisincludestesting
ofstability,identificationofimpuritiesandtestingofotherproductspecificationsbyvalidatedtestmethods.Inaddition,our
supplierswillberequiredtoconsistentlyproducetheAPIandthefinishedproductincommercialquantitiesandofspecified
qualityonarepeatedbasis,anddocumenttheirabilitytodoso.Thisrequirementisreferredtoasprocessvalidation.Withrespect
toCorus1020,oursuppliers,includingEuticals,oursinglesourceofsupplyfortheAPIforCorus1020,havestarted,butnotyet
completed,thisprocessvalidationrequirement.Iftherequiredtestingorprocessvalidationisdelayedorproducesunfavorable
results,wemaybeunabletoinitiateourPhaseIIIclinicaltrialsofCorus1020inatimelyfashion,whichmaydelayorpreventthe
approvalofCorus1020.SimilarconsiderationsapplywithregardtothePARIeFlowinhalationdeviceanddeviceQSR
requirements.

Furthermore,changesinthemanufacturingprocessorprocedure,includingachangeinthelocationwherethedrugor
deviceproductismanufacturedorachangeofathirdpartymanufacturer,mayrequirepriorFDAreviewandapprovalin
accordancewiththeFDAscGMPorQSRrequirements.Therearecomparableforeignrequirements.Thisreviewmaybecostlyand
timeconsumingandcoulddelayorpreventthelaunchofaproduct.TheFDAorsimilarforeignregulatoryagenciesatanytime
mayalsoimplementnewstandards,orchangetheirinterpretationandenforcementofexistingstandardsformanufacture,
packagingortestingofproducts.Ifweareunabletocomply,wemaybesubjecttoregulatoryaction,civilactionsorpenalties.

Wewillneedtosuccessfullyrecruitsalesandmarketingpersonnelandbuildasalesandmarketinginfrastructureto
commercializeCorus1020andotherproductsthatwedevelop,acquireorlicense.

Wehavenosalesorganizationorexperienceasacompanysellingormarketingproductsandcurrentlyhaveno
distributioncapabilities.Aswebegintobuildoursalescapabilityinanticipationoftheapprovalandcommerciallaunchofour
products,wemaybeunabletosuccessfullyrecruitanadequatenumberofqualifiedsalesrepresentativesontermsfavorabletous,
ifatall.Ifwearenotsuccessfulinrecruitingsalespersonnelorinbuildingasalesandmarketinginfrastructure,wemaynotbe
abletocommercializeourproducts.Ifweelecttorelyonthirdpartiestosellormarketourproductcandidates,wemayreceiveless
revenuethanifwesoldourproductsdirectly.

IfthecommerciallaunchofanyofourproductsisdelayedasaresultofactionsoftheFDA,foreignregulatoryagencies
orforotherreasons,wemayestablishoursalesandmarketingcapabilitiestoosoon.Ifwe

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areunabletoretainorrecruitsalesandmarketingpersonnelortomaintainourdistributionormarketingrelationshipsuntilweare
abletocommerciallylaunchourproducts,ourinvestmentinoursalesandmarketinginfrastructuremaybelost.

Ourproductscouldbesubjecttorestrictionsorwithdrawalfromthemarketandwemaybesubjecttopenaltiesifwe
failtocomplywithregulatoryrequirements,orifweexperienceunanticipatedproblemswithourproducts,ifandwhenany
ofthemareapproved.

Anyproductforwhichweobtainmarketingapproval,togetherwiththemanufacturingprocesses,postapprovalclinical
data,andadvertisingandpromotionalactivitiesforsuchproduct,willbesubjecttocontinuedregulationbytheFDAandother
regulatoryagencies.Evenifregulatoryapprovalofaproductisgranted,theapprovalmaybesubjecttolimitationsonthe
indicatedusesforwhichtheproductmaybemarketedortotheconditionsofapproval,orcontainrequirementsforcostlypost
marketingtestingandsurveillancetomonitorthesafetyorefficacyoftheproduct.Laterdiscoveryofpreviouslyunknown
problemswithourproductsortheirmanufacture,orfailuretocomplywithregulatoryrequirements,mayresultin:

restrictionsonsuchproductsormanufacturingprocesses
withdrawaloftheproductsfromthemarket
voluntaryormandatoryrecalls
fines
suspensionofregulatoryapprovals
productseizuresor
injunctionsortheimpositionofcivilorcriminalpenalties.

Ifweareslowtoadapt,orunabletoadapt,tochangesinexistingregulatoryrequirementsoradoptionofnewregulatory
requirementsorpolicies,wemaylosemarketingapprovalforthemwhenandifanyofthemareapproved.

Failuretoobtainregulatoryapprovalsinforeignjurisdictionswouldpreventusfrommarketingourproducts
internationally.

WeintendtohaveourproductcandidatesmarketedoutsidetheUnitedStates.Inordertomarketourproductsinthe
EuropeanUnionandmanyothernonU.S.jurisdictions,wemustobtainseparateregulatoryapprovalsandcomplywithnumerous
andvaryingregulatoryrequirements.Wemaybeunabletofileforregulatoryapprovalsandmaynotreceivenecessaryapprovals
tocommercializeourproductsinanymarket.Theapprovalprocedurevariesamongcountriesandcaninvolveadditionaltesting
anddatareview.ThetimerequiredtoobtainapprovalmaydifferfromthatrequiredtoobtainFDAapproval.Theforeign
regulatoryapprovalprocessmayincludealloftherisksassociatedwithobtainingFDAapproval,includingapprovalofdelivery
devicesforourproductcandidates.Wemaynotobtainforeignregulatoryapprovalsonatimelybasis,ifatall.Approvalbythe
FDAdoesnotensureapprovalbyregulatoryagenciesinothercountries,andapprovalbyoneforeignregulatoryauthoritydoes
notensureapprovalbyregulatoryagenciesinotherforeigncountriesorbytheFDA.Thefailuretoobtaintheseapprovalscould
harmourbusiness.

Ourproductcandidatesmayneverachievemarketacceptanceevenifweobtainregulatoryapprovals.

EvenifwereceiveregulatoryapprovalsforthecommercialsaleofCorus1020,Corus1030orfutureproductcandidates,
thecommercialsuccessoftheseproductswilldependon,amongotherthings,theiracceptancebyphysicians,patients,thirdparty
payorsandothermembersofthemedicalcommunityasa

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therapeuticandcosteffectivealternativetocompetingproductsandtreatments.Ifourproductsfailtogainmarketacceptance,we
maybeunabletoearnsufficientrevenuetocontinueourbusiness.Marketacceptanceof,anddemandfor,anyproductthatwe
maydevelopandcommercializewilldependonmanyfactors,including:

ourabilitytoprovideacceptableevidenceofsafetyandefficacy
theprevalenceandseverityofadversesideeffects
theconvenienceandeaseofuse,includingthedeliverytimeweareabletoachievewiththePARIeFlowinhalation
deviceorotherapprovednebulizer,ifany
availability,relativecostandrelativeefficacyofalternativeandcompetingproductsandtreatments
theeffectivenessofourmarketinganddistributionstrategy
publicityconcerningourproductsorcompetingproductsandtreatmentsand
ourabilitytoobtainsufficientthirdpartyinsurancecoverageorreimbursement.

Ifourproductcandidatesdonotbecomewidelyacceptedbyphysicians,patients,thirdpartypayorsandothermembers
ofthemedicalcommunity,itisunlikelythatwewilleverbecomeprofitable.

Ifanydrugswedevelopbecomesubjecttounfavorablepricingregulations,thirdpartyreimbursementpracticesor
healthcarereforminitiatives,ourbusinesscouldbeharmed.

Ourabilitytocommercializeanyproductsprofitablywilldependinpartontheextenttowhichreimbursementforthese
productsandrelatedtreatmentswillbeavailablefromgovernmenthealthadministrationauthorities,privatehealthinsurers,or
privatepayors,andotherorganizationsintheUnitedStatesandinternationally.Evenifwesucceedinbringingoneormore
productstomarket,theseproductsmaynotbeconsideredcosteffective,andtheamountreimbursedforanyproductsmaybe
insufficienttoallowustosellourproductsprofitably.Becauseourproductsareintheearlystagesofdevelopment,weareunable
atthistimetodeterminetheircosteffectivenessandthelevelormethodofreimbursement.Theremaybesignificantdelaysin
obtainingcoveragefornewlyapproveddrugs,andcoveragemaybemorelimitedthanthepurposesforwhichthedrugisapproved
bytheFDAorforeignregulatoryagencies.Moreover,eligibilityforcoveragedoesnotmeanthatanydrugwillbereimbursedin
allcasesorataratethatcoversourcosts,includingresearch,development,manufacture,saleanddistribution.Increasingly,the
thirdpartypayorswhoreimbursepatients,suchasgovernmentandprivatepayors,arerequiringthatcompaniesprovidethemwith
predetermineddiscountsfromlistprices,andarechallengingthepriceschargedformedicalproducts.Ifthereimbursementweare
abletoobtainforanyproductwedevelopisinadequateinlightofourdevelopmentandothercosts,ourbusinesscouldbe
harmed.

Currently,Corus1020mustbeadministeredthroughaspecificelectronicnebulizer,thePARIeFlowinhalationdevice.
Somethirdpartypayorsrestrictcoverageofnonstandardnebulizers,suchasultrasonicorotherspecialtynebulizers,including
thePARIeFlowinhalationdevice,morestringentlythanforstandardnebulizers,andonlycoverspecialtynebulizersfor
administrationofcertainmedicationsforpatientsmeetingspecificcriteria.ClinicaldatademonstratingthatthePARIeFlow
inhalationdeviceisrequiredtoadministerCorus1020mayberequiredinordertoprovidecoverageforthedevice.Nebulizersare
generallycoveredunderaninsuranceplansdurablemedicalequipmentbenefit,whichmaybelimited.Patientsmayhavehigh
costsharingrequirements,andbesubjecttoannualmaximumsandhigherdeductiblesandcoinsuranceresponsibilitieswhen
comparedwithmedicalandpharmacybenefits.RestrictedorunfavorablecoverageofthePARIeFlowinhalationdevicebythird
partypayorswouldnegativelyimpactourabilitytogeneraterevenue.

Reimbursementratesmayvaryaccordingtotheuseofthedrugandtheclinicalsettinginwhichitisused,maybebased
onpaymentsallowedforlowercostdrugsthatarealreadyreimbursed,maybeincorporatedintoexistingpaymentsforother
servicesandmayreflectbudgetaryconstraintsorimperfectionsinMedicareorotherdata.Netpricesfordrugsmaybereducedby
mandatorydiscountsorrebatesrequiredbygovernment

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healthcareprogramsorprivatepayorsandbyanyfuturerelaxationoflawsthatpresentlyrestrictimportsofdrugsfromcountries
wheretheymaybesoldatpriceslowerthanintheUnitedStates.IntheUnitedStates,thirdpartypayorsoftenrelyuponMedicare
coveragepolicyandpaymentlimitationsinsettingtheirownreimbursementrates.

TherecentMedicareprescriptiondrugcoveragelegislationandfuturelegislativeorregulatoryreformofthe
healthcaresystemmayaffectourabilitytosellourproductsprofitably.

IntheUnitedStates,therehavebeenanumberoflegislativeandregulatoryproposals,atboththefederalandstate
governmentlevels,tochangethehealthcaresysteminwaysthatcouldaffectourabilitytosellourproductsprofitably.For
example,inDecember2003,PresidentGeorgeW.BushsignedintolawnewMedicareprescriptiondrugcoveragelegislation.The
CentersforMedicare&MedicaidServices,orCMS,theagencywithintheDepartmentofHealthandHumanServicesthat
administersMedicareandwouldberesponsibleforreimbursementofthecostofCorus1020andCorus1030,hasassertedthe
authorityofMedicarenottocoverparticulardrugsifitdeterminesthattheyarenotreasonableandnecessaryforMedicare
beneficiariesortocoverthematalesserrate,comparabletothatfordrugsalreadyreimbursedthatCMSconsiderstobe
therapeuticallycomparable.Furtherfederalandstateproposalsandhealthcarereformsarelikely.Ourbusinesscouldbeharmedby
theMedicareprescriptiondrugcoveragelegislation,bythepossibleeffectofthislegislationonamountsthatprivatepayorswill
payandbyotherhealthcarereformsthatmaybeenactedoradoptedinthefuture.

Wefacesubstantialcompetitionandourcompetitorsmaydiscover,developorcommercializeproductsfasteror
moresuccessfullythanus.

Thedevelopmentandcommercializationofnewdrugsishighlycompetitive.Wewillfacecompetitionwithrespectto
Corus1020,Corus1030andanyproductswemaydeveloporcommercializeinthefuturefrommajorpharmaceuticalcompanies,
specialtypharmaceuticalcompanies,compoundingpharmaciesandbiotechnologycompaniesworldwide.Ourcompetitorsmay
haveordevelopproducts,treatmentsorothernoveltechnologiesthataremoreeffective,saferorlesscostlythananythatweare
developing.Inaddition,significantunapproveduse,orofflabeluse,ofexistingdrugstotreatrespiratorydiseasestargetedbyour
productcandidatesorproductcompoundingofourproductcandidatesforwhichwedonothaveorareunabletoenforceour
methodofuseorformulationpatentscoulddiminishourpotentialsalesofthoseproductcandidates,ifapproved.

WeintendtofileSection505(b)(2)newdrugapplications,orNDAs,forCorus1020andCorus1030,whichcontainAPIs
previouslyapprovedbytheFDAinotherdrugproducts.Section505(b)(2)NDAsallowustoavoidrepeatingcertainsafetyand
efficacystudiesthatwouldotherwiseberequiredforapprovalofafullSection505(b)(1)NDA.However,Section505(b)(2)NDAs
maybechallengedbythesponsororsponsorsoftheSection505(b)(1)referencelisteddrugsforwhichwearerelyinguponthe
FDAspriorfindingsofsafetyandefficacy.ThisisparticularlytrueifwearerelyingupontheFDAsfindingsthatarebasedon
proprietarydataofthosesponsors.Ifsuchachallengeweresuccessful,wemayhavetoconductortootherwisesponsororobtaina
rightofreferencetoallofthepreclinicalandclinicalstudiesnecessarytoobtainapprovalofCorus1020orCorus1030,orother
productcandidates.

EvenifwefileSection505(b)(2)NDAs,wewillstillberequiredtoconductsafetyandefficacystudiesonthedeliveryof
ourproductcandidatesthroughinhalationdevices.InthecaseofCorus1030,webelieveourclinicalstudieswillbeessentialto
FDAapprovaland,ifapproved,wewillbeabletoobtainthreeyearsofmarketexclusivityforourCorus1030productcandidate.
Suchexclusivitywouldpreventtheapprovalofabbreviatednewdrugapplications,orANDAs,forgenericversionsandofSection
505(b)(2)NDAsforourchangeddrugs,butnotforNDAsthatcontainallofthesafetyandefficacydatarequiredforapproval.
SimilarexclusivityisnotavailableforCorus1020.

IfCorus1020receivesmarketingapproval,itwillcompeteagainstcurrentlyapprovedantimicrobialtherapiesforthe
treatmentofrespiratoryinfectionsinCFpatients.Weareawareofonlyoneinhaledantibiotic

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approvedintheUnitedStatesforthetreatmentofPseudomonaaeruginosainfectionsinCFpatients,whichisTOBI,marketedby
Chiron,whichacquiredtheproductwhenitacquiredPathoGenesisCorporationin2000.AlthoughinsevereCFpatients,we
expectCorus1020tobecomplementarytoTOBIbecauseTOBIisapprovedonlyforadministrationinalternating28daycycles,
weexpectCorus1020tocompetedirectlywithTOBIformildtomoderateCFpatients.

TOBIsorphandrugmarketexclusivitywillexpireonDecember22,2004.Asuitabilitypetitionhasbeensubmittedto
theFDAtoallowanANDAforagenericversionofTOBIusingthePARIeFlowinhalationdeviceratherthanthePARILCPLUS
reusablenebulizerandcertainotherdifferences.Chironhassubmittedoppositiontothispetition.IfanANDAispermittedand
approved,orifaSection505(b)(2)NDAissubmittedandapproved,foragenericversionofTOBIusingthePARIeFlow
inhalationdevicethatdoesnotcontainallofthesafetyandefficacystudiesrequiredfortheapprovalofTOBI,theavailabilityof
suchaversionofTOBI,ifapproved,maycompetemoreeffectivelywithCorus1020,ifapproved.

TherearealsoanumberofcompaniesworkingtodevelopnewdrugstotreatrespiratoryinfectionsinCFpatientsorCF
generally,includingChiron,PeninsulaPharmaceuticals,Inc.,DyaxCorp.,DebiopharmS.A.,TargetedGeneticsCorporation,
InspirePharmaceuticalsInc.andSucampoPharmaceuticalsInc.Inaddition,thereareanumberofothercompaniesthatare
developingantimicrobialproductcandidates,treatmentsandtechnologiesthatmayapplytoCF.

IfCorus1030receivesmarketingapproval,itwillcompeteagainstcurrentlyapprovedtherapiesforthetreatmentof
severepersistentasthma.Weareawareofonlyoneproductmarketedspecificallyasacorticosteroidsparingagentformoderate
persistentandseverepersistentasthma,Xolair(omalizumab,E25),marketedbyGenentech,Inc.intheUnitedStates.Wearealso
awareofanumberofcompaniesworkingtodevelopnewcorticosteroidalternativestotreatasthma,includingProteinDesignLabs
Inc.,EpigenesisPharmaceuticals,Inc.,RottaResearchLaboratorium,GlaxoSmithKlineplcandHoffmannLaRocheInc.

Manyofourcompetitorshavesubstantiallygreaterfinancial,manufacturing,marketing,productdevelopment,technical
andhumanresourcesthanwehave.Mergersandacquisitionsinthepharmaceuticalandbiotechnologyindustriesmayresultin
increasingconcentrationoftheseresourcesinourcompetitors.

Ifwefailtoobtainapprovalofoneofourproductcandidatesforanorphandrugindicationbeforeoneofour
competitorsdoes,wemaybepreventedfromsellingtheseproductsforaperiodoftime.

Ourleadproductcandidate,Corus1020,hasbeendesignatedasanorphandrugbytheFDAforthetreatmentof
respiratoryinfectionsinCFpatients.AproductthathasorphandrugstatusandisthefirsttoreceiveFDAapprovalforthe
designatedindicationisentitled,subjecttocertainlimitedexceptions,tomarketexclusivityforaparticularindicationinthe
UnitedStatesforsevenyears.ThismeansthattheFDAcannotapprovethesameproductforthesameuseforaperiodofseven
years.AdifferentproductmaystillbeapprovedbytheFDAforthesameorphanindicationordisease.Inaddition,ifother
inhalableaztreonamproductsareapprovedbytheFDAtotreatindicationsotherthanthosecoveredbyourorphandesignation,
physiciansmayelecttoprescribeacompetitorsversiontotreatindicationsforwhichourproducthasreceivedapproval,whichis
referredtoasofflabeluse.Whileacompanyisnotpermittedtopromoteofflabeluseofitsproduct,theFDAdoesnotregulatethe
practiceofmedicineandcannotpreventphysiciansfromprescribingproductsforofflabeluse.IfwearenotfirsttoreceiveFDA
approvalforourorphandrugindication,wewouldlikelybepreventedfromhavingourproductcandidateapprovedforthat
orphandrugindicationforsevenyears.Inaddition,evenifwearefirsttoobtainapprovalforourorphandrugindication,
cliniciansmaychoosetouseproductsthathavebeenapprovedforotherindications,ortheFDAmayapproveaclinicallysuperior
versionofourapprovedorphandesignateddrugforthatindication.

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Wemaybeunsuccessfulinoureffortstoexpandourportfolioofproductcandidatesthroughourinternalresearch
effortsoroureffortstoacquirenewproductcandidatesfromthirdparties.

Akeyelementofourstrategyistocommercializeaportfolioofnewdrugsfortreatmentofrespiratorydiseasesin
additiontoCorus1020andCorus1030.Weareseekingtodoso,inpart,throughourinternalresearchprogramsand,inpart,
throughlicensingnewproductcandidatesfromthirdparties.

Asignificantportionoftheresearchthatweareconductinginvolvesnewandunprovenapplicationsofnewandexisting
drugs.Researchprogramstoidentifynewdiseasetargetsandproductcandidatesrequiresubstantialtechnical,financialand
humanresourceswhetherornotweultimatelyidentifyanycandidates.Ourresearchmayfailtoyieldproductcandidatesfor
clinicaldevelopmentforvariousreasons,includingthepossibilitythatthepotentialproductcandidatesmay,onfurtherstudy,be
showntohaveharmfulsideeffectsorothercharacteristicsthatwouldindicatetheywerenotlikelytobeeffectivedrugs.

Wemayalsoattempttolicenseoracquiretherightstopotentialnewtechnologiesorproductcandidatesbyinlicensing
fromthirdparties,suchaswedidwithCorus1030.Wemaybeunabletofindsuitablecandidatesortoacquirerightstothemon
termsfavorabletous,ifatall.Thelicensingandacquisitionoftechnologiesorpharmaceuticalproductsisahighlycompetitive
area.Anumberofmoreestablishedcompaniesarealsopursuingstrategiestolicenseoracquireproductsforthetreatmentof
respiratorydiseases.Theseestablishedcompaniesmayhaveacompetitiveadvantageoverusduetotheirsize,cashresourcesand
greaterclinicaldevelopmentandcommercializationcapabilities.

Ifweareunabletoidentifyanddevelopadditionaltechnologiesorproductcandidatesthroughourinternalresearch
effortsorbyobtainingrightstonoveltechnologiesorproductcandidatesfromthirdparties,thegrowthofourbusinessmaybe
limited.

Ifwelosekeymanagementorscientificpersonnel,ourbusinesscouldsuffer.

Oursuccessdepends,toasignificantextent,ontheeffortsandabilitiesofA.BruceMontgomery,M.D.,ourPresidentand
ChiefExecutiveOfficer,andothermembersofourseniormanagementteamandourscientificpersonnel.Wedonothave
employmentagreementswithDr.Montgomeryoranyothermembersofourseniormanagement.Becausethepoolofemployees
withrelevantexperienceinpulmonologyandbiotechnologyissmall,replacinganyofourseniormanagementorscientific
personnelwouldlikelybecostlyandtimeconsuming.OtherthanDr.Montgomery,wedonotmaintainkeypersonlifeinsurance
onanyofourotherofficers,employeesorconsultants.ThelossofDr.Montgomeryoranyofourotherexecutiveofficerswould
resultinasignificantlossintheknowledgeandexperiencethatwe,asanorganization,possessandcouldcausesignificantdelays
in,orprevent,thedevelopmentandcommercializationofourproductcandidates.

Ifweareunabletohireandretainadditionalqualifiedscientificandothermanagementpersonnel,wemaybe
unabletoachieveourgoals.

Oursuccessandstrategywilldepend,inlargepart,onourabilitytoattractandretainadditionalqualifiedscientific,
commercial,administrativeandmanagementpersonnel.Thereisintensecompetitionfromnumerouspharmaceuticaland
biotechnologycompanies,universities,governmentalentitiesandotherresearchinstitutionsforhumanresources,including
management,inthetechnicalfieldsandgeographicregionsinwhichweoperate,andwemaybeunabletoattractandretain
qualifiedpersonnelnecessaryforthesuccessfuldevelopmentandcommercializationofourproductcandidates.Thefailureto
attractandretainpersonnelortodevelopsuchexpertisecouldsignificantlydelayorpreventtheresearch,developmentand
commercializationofourproductcandidates.

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Asweevolvefromacompanyprimarilyinvolvedindrugresearchanddevelopmentintoonethatisalsoinvolvedin
thecommercializationofdrugproducts,wemayhavedifficultymanagingourgrowthandexpandingouroperations
successfully.

Asthedevelopmentofourproductcandidatesadvances,wewillneedtoexpandourdevelopment,regulatory,
manufacturing,salesandmarketingcapabilitiesorcontractwithotherorganizationstoprovidethesecapabilitiesforus.Asour
operationsexpand,weexpectthatwewillneedtomanageadditionalrelationshipswithvarioussuppliersandotherorganizations.
Ourabilitytomanageouroperationsandgrowthrequiresustocontinuetoimproveouroperational,financialandmanagement
controls,reportingsystemsandprocedures.Thisgrowthcouldplaceastrainonouradministrativeandoperationalinfrastructure.
Wemaynotbeabletomakeimprovementstoourmanagementinformationandcontrolsystemsinanefficientortimelymanner
andmaydiscoverdeficienciesinexistingsystemsandcontrols.

Wemaybesubjecttopotentialproductliabilitysuitsandotherclaims,whichmayrequireustoengageinexpensive
andtimeconsuminglitigationorpaysubstantialdamagesandmayharmourreputationandreducethedemandforour
products.

Productliabilityrisksareinherentinthetesting,manufacturing,marketingandsaleofbiopharmaceuticalproducts.Our
riskofproductliabilitywillincreaseifweobtainapprovalforandcommercializeCorus1020,Corus1030oranyotherproduct
candidatethatwemaycommercialize.Productliabilityclaimscoulddelayorpreventcompletionofourotherdevelopment
programs,clinicalorotherwise.Ifwesucceedinmarketingproducts,suchclaimscouldresultinarecallofourproductsora
changeintheindicationsforwhichtheymaybeused.Anindividualmaybringaproductliabilityclaimagainstusifanyproduct
wedevelopcauses,ormerelyappearstohavecaused,aninjury.Regardlessofmeritoreventualoutcome,productliabilityorother
claimsmay,amongotherthings,resultin:

injurytoourreputationanddecreaseddemandforCorus1020,Corus1030orotherproductcandidatesthatwemay
commercialize
withdrawalofclinicaltrialvolunteersorpatients
distractionofourmanagementanddiversionofourresources
litigationcostsand
substantialmonetaryawardstoplaintiffs.

Wecurrentlyhaveproductliabilityinsurancethatcoversourclinicaltrialsuptoa$5millionaggregatelimit,andintend
toobtainadditionalproductliabilitycoverageinthefuture.Anyinsuranceweobtainmaynotprovidesufficientcoverageagainst
potentialliabilities.Furthermore,clinicaltrialandproductliabilityinsuranceisbecomingincreasinglyexpensive.Asaresult,we
maybeunabletoobtainsufficientinsuranceatareasonablecosttoprotectusagainstlossesthatcouldhaveamaterialadverse
effectonourbusiness.Theseliabilitiescouldpreventorinterferewithourproductdevelopmentandcommercializationefforts.

Weusehazardousmaterialsandmustcomplywithenvironmental,healthandsafetylawsandregulations,whichcan
beexpensiveandrestricthowwedobusiness.

Ourresearchanddevelopmentprocessesinvolvethecontrolleduse,handling,storageanddisposalofhazardous
materials,includingbiologicalhazardousmaterials.Wearesubjecttofederal,stateandlocalregulationsgoverningtheuse,
storage,handlinganddisposalofmaterialsandwasteproducts.Althoughwebelievethatoursafetyproceduresforhandlingand
disposingofthesehazardousmaterialscomplywiththestandardsprescribedbylawandregulation,wecannotcompletely
eliminatetheriskofaccidentalcontaminationorinjuryfromhazardousmaterials.Intheeventofanaccident,wecouldbeheld
liableforanydamagesthatresult,andanyliabilitycouldexceedthelimitsorfalloutsidethecoverageofourinsurance.In
addition,wemay

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beunabletoobtaininsuranceonacceptableterms,ifatall.Wecouldalsoincursignificantcoststocomplywithcurrentorfuture
environmentallawsandregulations.

RisksRelatingtoOurIntellectualProperty

Ifweareunabletoobtainandmaintainprotectionfortheintellectualpropertyincorporatedintoourproducts,our
businesswillbeharmed.

Oursuccesswilldependinlargepartonourabilityortheabilityofourlicensorstoobtainandmaintainprotectioninthe
UnitedStatesandothercountriesfortheintellectualpropertyincorporatedintoourproducts.Thepatentsituationinthefieldof
biotechnologyandpharmaceuticalsgenerallyishighlyuncertainandinvolvescomplexlegalandscientificquestions.Neitherwe
norourlicensorsmaybeabletoobtainadditionalissuedpatentsrelatingtoourtechnology.Evenifissued,patentsmaybe
challenged,narrowed,invalidatedorcircumvented,whichcouldlimitourabilitytostopcompetitorsfrommarketingsimilar
productsorlimitthelengthoftermofpatentprotectionwemayhaveforourproducts.Inaddition,ourpatentsandourlicensors
patentsalsomaynotaffordusprotectionagainstcompetitorswithsimilartechnology.Also,theavailabilityofAPIthatisnot
protectedbycompositionofmatterpatentsmayleadtothepossibilityofpharmacycompoundingofformulationsforaerosoluse.
Methodofuseandformulationpatentsmayprovideprotectionforourproductcandidateshowever,widespreadcompoundingby
pharmaciesmaymakeenforcementcostlyandtimeconsuming.

BecausepatentapplicationsintheUnitedStatesandmanyforeignjurisdictionsaretypicallynotpublisheduntil18
monthsafterfilingor,insomecases,notatall,andbecausepublicationsofdiscoveriesinthescientificliteratureoftenlagbehind
actualdiscoveries,neitherwenorourlicensorscanbecertainthatweortheywerethefirsttomaketheinventionsclaimedin
patentsorpendingpatentapplications,orthatweortheywerethefirsttofileforprotectionoftheinventionssetforthinthese
patentapplications.

Ifwefailtocomplywithourobligationsintheagreementsunderwhichwelicensedevelopmentor
commercializationrightstoproductsortechnologyfromthirdparties,wecouldloselicenserightsthatareimportanttoour
business.

Weareapartytothreetechnologylicensesthatareimportanttoourbusiness,andexpecttoenterintoadditionallicenses
inthefuture.WeholdlicensesfromPARIrelatingtoCorus1020andCorus1030andMayoFoundationforMedicalEducation
andResearchrelatingtoCorus1030.Theselicensesimposevariouscommercialization,milestonepayment,royalty,insurance,
indemnificationandotherobligationsonus.Ifwefailtocomplywiththeseobligations,thelicensormayhavetherightto
terminatethelicense,inwhicheventwewouldbeunabletomarketCorus1020orCorus1030.

Ifweareunabletoprotectourtradesecrets,wemaybeunabletoprotectourinterestsinproprietaryknowhowthat
isnotpatentableorforwhichwehaveelectednottoseekpatentprotection.

Oursuccessdependsinpartonourabilitytoprotecttradesecretsthatarenotpatentableorforwhichwehaveelectednot
toseekpatentprotection.Weseektoprotectthisinformationinpartbyenteringintoconfidentialityagreementswithemployees,
consultants,scientificadvisors,contractorsandotherthirdparties,andprotectivecontractualprovisionssuchasthosecontained
inlicenseagreementsandresearchagreements.Thesepartiesmaybreachtheseconfidentialityagreementsandotherprotective
contractswehaveenteredinto,andwemaynotbecomeawareof,orhaveadequateremediesintheeventof,anybreach.In
addition,otherpartiesmaydevelopsimilaroralternativetechnologiesorduplicateourtechnologiesthatarenotprotectedby
patents,orotherwiseobtainanduseinformationthatweregardasproprietary.Anyunauthorizeddisclosureofconfidentialdata
intothepublicdomainortothirdpartiescouldharmourcompetitiveposition.

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Litigationregardingintellectualpropertyrightsownedorusedbyusmaybecostlyandtimeconsuming.

Litigation,interferences,oppositionproceedingsandotheradministrativeproceedingsconcerningintellectualproperty
rightsinwhichwemaybecomeinvolvedmaycauseustoincursubstantialexpenseanddiverttheattentionofourtechnicaland
managementpersonnel.Thecomplexityoftheintellectualpropertyinvolvedandtheuncertaintyoflitigationincreasetheserisks.
Inaddition,manyofourcompetitorsarehighlylitigiousandthebiotechnologyindustryhastraditionallyexperienceda
significantamountofintellectualpropertylitigation,sometimesregardlessofthemeritsoftheclaims.Someofourcompetitors
maybeabletosustainthecostsofsuchproceedingsmoreeffectivelythanwecanbecauseoftheirsubstantiallygreaterfinancial
resources.Anadversedeterminationintheseproceedingsorlitigationcouldsubjectustosignificantliabilities,requireustostop
theinfringingactivity,allowourcompetitorstointroduceormarketcompetitiveproductswithoutobtainingalicensefromus,or
requireustoseeklicensesfromthirdpartiesthatmaynotbeavailableoncommerciallyreasonableterms,ifatall.Ifwecannot
obtainsuchlicenses,wemayberestrictedorpreventedfromdevelopingandcommercializingourproductcandidates.Ultimately,
wemaybeunabletosellsomeofourproductsormayhavetoceasecertainbusinessoperations,whichwouldhaveamaterial
adverseeffectonourrevenue.Evenifwearesuccessfulindefendingagainsttheseproceedingsorlitigation,theproceedingsor
litigationitselfcouldresultinsubstantialcostsorbedistractingtomanagement.

Manyofouremployeeswerepreviouslyemployedatuniversitiesorotherbiotechnologyorpharmaceuticalcompanies,
includingourcompetitorsorpotentialcompetitors.Wemaybesubjecttoclaimsthattheseemployeesorwehaveinadvertentlyor
otherwiseusedordisclosedintellectualproperty,tradesecretsorotherproprietaryinformationoftheirformeremployers.
Litigationmaybenecessarytodefendagainsttheseclaimsand,evenifwearesuccessfulindefendingourselves,couldresultin
substantialcostsorbedistractingtomanagement.Ifwefailindefendingsuchclaims,inadditiontopayingmonetarydamages,we
maylosevaluableintellectualpropertyrightsorpersonnel.Alossofkeypersonnelortheirworkproductcouldhamperorprevent
ourabilitytocommercializeaproductcandidate.

RisksRelatingtoThisOfferingandOwnershipofOurCommonStock

Ourcommonstockhasnotbeenpubliclytraded,anactivetradingmarketforourcommonstockmaynotdevelop,
andweexpectthatthepriceofourcommonstockmayfluctuatesubstantially.

Priortothisoffering,ourcommonstockhasnotbeentradedonapublicmarket.Wecannotpredictwhetheranactive
publictradingmarketforourcommonstockwilldevelopfollowingthisoffering,orwhethersuchamarketwillbesustained.We
willnegotiatewiththeunderwriterstodeterminethepriceofthesharesofcommonstocksoldinthisoffering,butthispricewill
notnecessarilyreflectthemarketpriceofthecommonstockfollowingthisoffering.Anumberoffactorswillinfluencethemarket
priceforthecommonstockfollowingthisoffering,including:

theresultsofongoingandfutureclinicaltrialsofourproductcandidates
theresultsofregulatoryreviewsrelatingtotheapprovalofourproductcandidates
theannouncementandintroductionofnewproductsorproductenhancementsbyusorourcompetitors
ourabilitytodevelopandmarketnewandenhancedproducts
quarterlyvariationsinourorourcompetitorsresultsofoperations
changesingovernmentalregulationsorinthestatusofourregulatoryapprovalsorapplications
thedevelopmentofourintellectualpropertyandanydisputesorlitigationrelatingtoourorourcompetitors
intellectualproperty

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productliabilityclaimsorotherlitigation

generalmarketconditionsandotherfactorsthatmaybeunrelatedtoouroperatingperformanceortheoperating
performanceofourcompetitors.

initiation,maintenanceorterminationofcoverageofourcompanyby,orchangesinestimatesorrecommendations
by,securitiesanalystsand

Futuresalesofourcommonstockmaycauseourstockpricetodecline.

Ourcurrentstockholdersholdasubstantialnumberofsharesofourcommonstockthattheywillbeabletosellinthe
publicmarketinthenearfuture.Significantportionsofthesesharesareheldbyasmallnumberofstockholders.Salesbyour
currentstockholdersofasubstantialnumberofsharesafterthisoffering,ortheexpectationthatsuchsalesmayoccur,could
significantlyreducethemarketpriceofourcommonstock.Moreover,afterthisoffering,theholdersofapproximately
112,600,145sharesofcommonstock,includingsharesissueduponconversionofourconvertiblepreferredstock,willhaverights,
subjecttosomeconditions,torequireustofileregistrationstatementstopermittheresaleoftheirsharesinthepublicmarketorto
includetheirsharesinregistrationstatementsthatwemayfileforourselvesorotherstockholders.Allofourdirectorsandofficers
haveenteredintolockupagreementsinconnectionwiththisoffering,andweareseekingsimilaragreementsfromallofour
stockholdersandoptionholders.AsofOctober18,2004,holdersof121,260,499shares,onanasconvertedbasis,ofour
outstandingcapitalstock,or99.0%,haveenteredintolockupagreementsinconnectionwiththisoffering.Unlessextendedin
accordancewiththeirterms,theseagreementsterminate180daysfromthedateofourpurchaseagreementwithMerrillLynch,
Pierce,Fenner&SmithIncorporated,orMerrillLynch.MerrillLynch,atitsdiscretion,canwaivetherestrictionsofthelockup
agreementatanearliertimewithoutpriornoticeorannouncementandallowourstockholderstoselltheirsharesofourcommon
stockinthepublicmarket.Iftherestrictionsofthelockupagreementarewaived,sharesofourcommonstockwillbeavailablefor
saleintothemarket,subjectonlytoapplicablesecuritiesrulesandregulations,whichmaycauseourstockpricetodecline.

Wealsointendtoregisterallcommonstockthatwemayissueunderourstockcompensationplans.Onceweregister
theseshares,theycanbefreelysoldinthepublicmarketuponissuance,subjecttorestrictionsunderthesecuritieslawsandthe
lockupagreementsdescribedabove.Ifanyofthesestockholderscausealargenumberofsecuritiestobesoldinthepublic
market,thesalecouldreducethetradingpriceofourcommonstock.Thesesalesalsocouldimpedeourabilitytoraisefuture
capital.

Purchasersinthisofferingwillexperienceimmediateandsubstantialdilution.

Weexpectthepriceofoursharesinthisofferingtobesubstantiallyhigherthantheproformanettangiblebookvalue
pershareofouroutstandingcommonstockafterthisoffering.Accordingly,investorspurchasingsharesofcommonstockinthis
offeringwillpayapricepersharesubstantiallyhigherthanthevalueofourassetslessliabilities.Assumingthesale
ofsharesofourcommonstockinthisofferingatanassumedinitialpublicofferingpriceof$pershare,theinvestorsin
thisofferingwillcontribute%ofthetotalgrossamountinvestedtodateinourcompany,butwillownonly%ofthe
sharesofcommonstockoutstanding.Theexerciseofoutstandingstockoptionsandwarrants,ortheissuanceofnewshares,will
furtherdilutenewinvestors.

Wehavebroaddiscretioninhowweusethenetproceedsofthisoffering,andwemaynotusetheseproceedsina
mannerdesiredbyourstockholders.

Ourmanagementwillhavebroaddiscretioninhowtousethenetproceedsofthisoffering.Wecurrentlyintendtousethe
netproceedsfromthisofferingtocontinueourdevelopmentandactivitiesinsupportofanticipatedcommercializationofourlead
productcandidates,Corus1020andCorus1030,aswellastofundcontinueddevelopmentofourotherresearchanddevelopment
activities,andforothergeneralcorporatepurposes

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andworkingcapital.Wemayalsouseaportionofthenetproceedstoacquireadditionaltechnologiesorproductcandidates,but
currentlywedonothaveanyspecificacquisitionsplanned.Untilweneedtousethenetproceedsofthisoffering,weintendto
investthenetproceedsininterestbearing,shortterm,investmentgradesecurities,certificatesofdepositorgovernmentsecurities,
buttheseinvestmentsmaynotproduceincomeormaylosevalue.

Ourprincipalstockholders,executiveofficersanddirectorsownasignificantpercentageofourstockand,asa
result,thetradingpriceforoursharesmaybedepressedandthesestockholderscantakeactionsthatmaybeadversetoyour
interests.

Ourexecutiveofficersanddirectors,andentitiesaffiliatedwithdirectors,willbeneficiallyownatotalofapproximately
%ofourcommonstockfollowingthisoffering.Thesestockholders,actingtogether,willhavetheabilitytodecideallmatters
requiringapprovalbyourstockholders,includingtheelectionandremovalofdirectors,andanyproposedmerger,consolidation
orsaleofallorsubstantiallyallofourassets.Inaddition,theycoulddictatethemanagementofourbusinessandaffairs.A
significantconcentrationofshareownershipcanadverselyaffectthetradingpriceofourcommonstockbecauseinvestorsoften
discountthevalueofstockincompaniesthathavecontrollingstockholders.Further,theconcentrationofownershipinour
companycoulddelay,deferorpreventamerger,consolidation,takeoverorotherbusinesscombinationthatcouldbefavorableto
you.

AntitakeoverprovisionsinourcharterdocumentsandunderDelawareandWashingtonlawcouldpreventa
potentialacquirerfrombuyingourstockandcouldpreventorfrustrateanyattemptbystockholderstochangethedirection
ofourbusinessorourmanagement.

Provisionsofourrestatedcertificateofincorporationandbylaws,aswellasprovisionsofDelawareandWashingtonlaw,
maymakeitmoredifficultforathirdpartytoacquireus,evenifdoingsowouldbebeneficialforourstockholders.Thiscould
preventorfrustrateanyattemptbystockholderstochangethedirectionofourbusinessorourmanagement,andcouldlimitthe
pricethatcertaininvestorsmightbewillingtopayinthefutureforourcommonstock.Forexample,certainprovisionsofour
restatedcertificateofincorporationorbylawsinclude:

allowingourboardofdirectorstoissuepreferredstockwithoutanyvoteorfurtheractionbythestockholders
prohibitingtherightofstockholderstoactwithoutameeting
prohibitingtherightofstockholderstocallaspecialmeeting
prohibitingcumulativevotingintheelectionofdirectors
specifyingrestrictiveproceduresfordirectornominationsbystockholders
specifyingthatdirectorsmayberemovedonlywithcauseand
specifyasupermajorityrequirementforstockholderstochangethenumberofdirectors.

WearesubjecttocertainprovisionsofDelawareandWashingtonlawthatcouldalsodelayormakemoredifficulta
merger,tenderofferorproxycontestinvolvingus.Inparticular,Section203oftheDelawareGeneralCorporationLawprohibitsa
Delawarecorporationfromengagingincertainbusinesscombinationswithanyinterestedstockholderforaperiodofthreeyears,
unlessspecificconditionsaremet.Similarly,Chapter23B.19oftheWashingtonBusinessCorporationActprohibitscorporations
basedinWashingtonfromengagingincertainbusinesscombinationswithanyinterestedstockholderforaperiodoffiveyears
unlessspecificconditionsaremet.

Inaddition,certainprovisionsofDelawareandWashingtonlawcouldhavetheeffectofdelaying,deferringor
preventingachangeincontrolofCorus,including,withoutlimitation,discouragingaproxycontestormakingmoredifficultthe
acquisitionofasubstantialblockofourcommonstock.Theprovisionscouldalsolimitthepricethatinvestorsmightbewilling
topayinthefutureforsharesofourcommonstock.

24

TableofContents

SPECIALNOTEREGARDINGFORWARDLOOKINGSTATEMENTS

Thisprospectuscontainsforwardlookingstatements,whichprovideourcurrentexpectationsorforecastsoffuture
events.Forwardlookingstatementsinclude,withoutlimitation:

informationconcerningpossibleorassumedfutureresultsofoperations,trendsinfinancialresultsandbusiness
plans

statementsaboutthelevelofourcostsandoperatingexpenses

statementsabouttheindicationsforwhichourproductcandidateswillbeused

statementsaboutourexpectationsforregulatoryapprovalofanyofourproductcandidates
statementsaboutourproductdevelopmentactivitiesandschedules
statementsaboutoursuppliersabilitiestoperformtheirsupplyobligations
statementsaboutourpotentialorprospectsforfutureproductsales
statementsaboutourfuturecapitalrequirementsandthesufficiencyofourcash,cashequivalents,investmentsand
othersourcesoffundstomeettheserequirements
statementsaboutourabilitytoprotectourintellectualpropertyandoperateourbusinesswithoutinfringingonthe
intellectualpropertyrightsofothers,includingstatementsaboutthecostsinvolvedinenforcingordefendingpatent
claims
otherstatementsaboutourplans,objectives,expectationsandintentionsand
otherstatementsthatarenothistoricalfacts.

Wordssuchasbelieves,anticipates,expectsandintendsmayidentifyforwardlookingstatements,butthe
absenceofthesewordsdoesnotnecessarilymeanthatastatementisnotforwardlooking.Forwardlookingstatementsaresubject
toknownandunknownrisksanduncertaintiesandarebasedonpotentiallyinaccurateassumptionsthatcouldcauseactualresults
todiffermateriallyfromthoseexpectedorimpliedbytheforwardlookingstatements.Ouractualresultscoulddiffermaterially
fromthoseanticipatedintheforwardlookingstatementsformanyreasons,includingthefactorsdescribedintheRiskFactors
sectionofthisprospectus.Otherfactorsbesidesthosedescribedinthisprospectuscouldalsoaffectactualresults.Youshould
carefullyconsiderthefactorsdescribedinthesectionentitledRiskFactorsinevaluatingourforwardlookingstatements.

Theseforwardlookingstatementsspeakonlyasofthedateofthisprospectus.Weundertakenoobligationtopublicly
reviseanyforwardlookingstatementtoreflectcircumstancesoreventsafterthedateofthisprospectusortoreflecttheoccurrence
ofunanticipatedevents.

25

TableofContents

USEOFPROCEEDS

Weestimatethatthenetproceedsfromoursaleofsharesofcommonstockinthisofferingwillbeapproximately
$million,orapproximately$millioniftheunderwritersexercisetheiroverallotmentoptioninfull.Thisestimateisbased
onanassumedinitialpublicofferingpriceof$pershare,lesstheunderwritingdiscountandestimatedofferingexpenses
payablebyus.

Theprincipalpurposesofthisofferingaretoobtainadditionalcapital,tocreateapublicmarketforourcommonstock
andtofacilitateourfutureaccesstopublicequitymarkets.

Weexpecttouseamajorityofthenetproceedsfromthisofferingtocontinueourdevelopmentandactivitiesinsupport
ofanticipatedcommercializationofourleadproductcandidates,Corus1020andCorus1030,aswellastofundcontinued
developmentofourotherresearchanddevelopmentactivitiesandforothergeneralcorporatepurposesandworkingcapital.Due
totheuncertaintiesinherentintheproductdevelopmentprocess,itisdifficulttoestimatetheexactamountsofthenetproceedsof
thisofferingthatmaybeusedforthefurtherdevelopmentofCorus1020,Corus1030orourotherresearchanddevelopment
activities.Wemayalsouseaportionofthenetproceedstoacquireadditionaltechnologiesorproductcandidates,butwe
currentlydonothaveanyspecificacquisitionsplanned.Ourboardofdirectorsretainsbroaddiscretioninhowthenetproceedsof
thisofferingmaybeused.Untilweneedtousethenetproceedsofthisoffering,weintendtoinvestthenetproceedsininterest
bearing,shortterm,investmentgradesecurities,certificatesofdepositorgovernmentsecurities.

NOTICESTOINVESTORS

Youshouldrelyonlyontheinformationcontainedinthisprospectus.Wehavenot,andtheunderwritershavenot,
authorizedanyonetoprovideyouwithinformationdifferentfromthatcontainedinthisprospectus.Weareofferingtosellshares
ofcommonstockandseekingofferstobuysharesofcommonstockonlyinjurisdictionswhereoffersandsalesarepermitted.The
informationcontainedinthisprospectusisaccurateonlyasofthedateonthefrontcoverofthisprospectus,regardlessofthetime
ofdeliveryofthisprospectusoranysaleofthecommonstock.

ForinvestorsoutsidetheUnitedStates:Neitherwenoranyoftheunderwritershavedoneanythingthatwouldpermit
thisofferingorpossessionordistributionofthisprospectusinanyjurisdictionwhereactionforthatpurposeisrequired,otherthan
intheUnitedStates.Youarerequiredtoinformyourselvesaboutandtoobserveanyrestrictionsrelatingtothisofferingandthe
distributionofthisprospectus.

DIVIDENDPOLICY

Wehaveneverdeclaredorpaidcashdividendsonourcapitalstock.Wecurrentlyintendtoretainallavailablefundsand
anyfutureearningsforuseintheoperationofourbusinessanddonotanticipatepayinganycashdividendsintheforeseeable
future.

26

TableofContents

CAPITALIZATION

ThefollowingtablesetsforthourcapitalizationatJune30,2004.Ourcapitalizationispresented

onanactualbasis
onaproformabasistoreflecttheconversionofalloutstandingsharesofourconvertiblepreferredstockintoshares
ofourcommonstockuponthecompletionofthisofferingand
onaproformaasadjustedbasistogiveeffecttothereceiptoftheestimatednetproceedsfromthesaleof
sharesofcommonstockofferedbyusinthisofferingatanassumedinitialpublicofferingpriceof$pershare,
afterdeductingtheunderwritingdiscountandestimatedofferingexpenses.

Thenumberofsharesofcommonstocklistedinthefollowingtableexcludesthefollowing:

6,089,350sharesofcommonstocksubjecttooutstandingoptionsonJune30,2004grantedunderour2001Stock
Planataweightedaverageexercisepriceof$0.33pershare

5,626,750sharesofcommonstockreservedforfutureissuanceunderour2001StockPlanandsharesreserved
forissuanceunderour2004StockIncentivePlan

82,325sharesofcommonstockissueduponexerciseofoptionsduringtheperiodJuly1,2004through
September30,2004

219,725sharesofcommonstockreservedforfutureissuancepursuanttoanoutstandingwarrantatanexerciseprice
of$1.64pershareand

211,207sharesofcommonstockissuedtoMontgomery&Co.,theplacementagentforourSeriesCPreferredStock
financing,andthreeofitsprincipals.

Youshouldreadthistabletogetherwithourconsolidatedfinancialstatementsandtherelatednotesappearingattheend
ofthisprospectusandtheManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationssectionof
thisprospectus.

June30,2004

Actual

Otherliabilities

Convertiblepreferredstock:

SeriesA:8,468,757sharesdesignated,issuedandoutstandingasofJune30,
2004nosharesoutstandingproformaliquidationpreferenceof$18,500
asofJune30,2004

SeriesB:41,113,949sharesdesignated,issuedandoutstandingasofJune
30,2004nosharesoutstandingproformaliquidationpreferenceof
$40,000asofJune30,2004

SeriesC:56,896,552sharesdesignated56,038,635sharesissuedand
outstandingasofJune30,2004nosharesoutstandingproforma
liquidationpreferenceof$65,005asofJune30,2004

(unaudited,dollarsinthousands)

503

17,383

39,646

63,449

122,224

(46)

Totalconvertiblepreferredstock
Stockholdersequity/(deficit):
Preferredstock,$0.001parvalue:106,479,258sharesauthorizedand
designatednosharesdesignated,issuedoroutstandingproforma
Commonstockandadditionalpaidincapital,$0.001parvalue:
150,000,000sharesauthorized9,588,156sharesissuedandoutstanding
asofJune30,2004,and122,188,301sharesissuedandoutstandingpro
forma

120,478

1,746
(46)
8

503

Deferredstockbasedcompensation
Accumulatedothercomprehensiveincome

ProForma
AsAdjusted

ProForma

Deficitaccumulatedduringthedevelopmentstage

(50,630)

(50,630)

Totalstockholdersequity/(deficit)

(48,922)

71,556

Totalcapitalization

$ 72,059

$ 72,059

27

TableofContents

DILUTION

Ifyouinvestinourcommonstockinthisoffering,yourownershipinterestwillbedilutedtotheextentofthedifference
betweentheinitialpublicofferingpricepershareandtheproformanettangiblebookvaluepershares.Ouractualnettangible
bookvalueasofJune30,2004wasapproximately$(48.9)millionorapproximately$(5.10)pershare.Nettangiblebookvalueper
sharerepresentsourtotaltangibleassetslesstotalliabilitiesdividedbythetotalnumberofsharesofcommonstockoutstanding
onthatdate.OurproformanettangiblebookvalueasofJune30,2004wasapproximately$71.6million,orapproximately$0.59
pershare.Proformanettangiblebookvaluepersharerepresentstheamountofourtotaltangibleassetsreducedbytheamountof
ourtotalliabilitiesanddividedbythetotalnumberofsharesofcommonstockoutstandingincludingtheautomaticconversionof
alloutstandingsharesofourconvertiblepreferredstockintosharesofcommonstockuponcompletionofthisoffering.Dilutionin
proformanettangiblebookvaluepersharerepresentsthedifferencebetweentheamountpersharepaidbypurchasersofcommon
stockimmediatelyafterthecompletionofthisofferingandtheproformanettangiblebookvaluepershareofcommonstock
immediatelyafterthecompletionofthisoffering.Aftergivingeffecttothesaleofsharesofcommonstockinthisoffering
byusatanassumedinitialpublicofferingpriceof$pershare,andafterdeductingtheunderwritingdiscountandestimated
offeringexpensespayablebyus,ourproformanettangiblebookvalueasofJune30,2004wouldhavebeenapproximately
$million,or$pershareofcommonstock.Thisrepresentsanimmediateincreaseinproformanettangiblebookvalue
of$persharetoexistingstockholdersandanimmediatedilutionof$persharetonewinvestorsofcommonstock.
Thefollowingtableillustratesthisdilutiononapersharebasis.

Assumedinitialpublicofferingpricepershare
NettangiblebookvaluepershareasofJune30,2004
Increaseattributabletotheconversionofconvertiblepreferredstock

$(5.10)
5.69

0.59

ProformaasadjustednettangiblebookvaluepershareasofJune30,2004before
receiptofnetproceedsfromissuanceofsharesinthisoffering
Proformaincreasepershareattributabletothisoffering

Proformaasadjustednettangiblebookvaluepershareafterthisoffering

Proformadilutionpersharetonewinvestors

Iftheunderwritersexercisetheiroverallotmentoptioninfull,theproformanettangiblebookvalueasofJune30,2004
wouldhavebeen$pershare,representinganimmediateincreasetoexistingstockholdersof$pershareandan
immediatedilutionof$persharetonewinvestors.

Thefollowingtablesummarizes,aftergivingeffecttothisoffering,basedonanassumedinitialpublicofferingpriceof
$pershare,asofJune30,2004,thedifferencesbetweentheexistingstockholdersandnewinvestorswithrespecttothe
numberofsharesofcommonstockpurchasedfromus,thetotalconsiderationpaidtousandtheaveragepricepersharepaid.

SharesPurchased


Percent

Existingstockholders
Newinvestors
Total

Number

28

TotalConsideration


Percent

Amount

AveragePrice
PerShare

100.0%

100.0%

TableofContents

TheforegoingdiscussionandtablesarebaseduponthenumberofsharesissuedandoutstandingonJune30,2004,
assumestheautomaticconversionofallsharesofourconvertiblepreferredstockandexcludes:

6,089,350sharesofcommonstocksubjecttooutstandingoptionsonJune30,2004grantedunderour2001Stock
Planataweightedaverageexercisepriceof$0.33pershare

5,626,750sharesofcommonstockreservedforfutureissuanceunderour2001StockPlanandsharesreserved
forfutureissuanceunderour2004StockIncentivePlan

82,325sharesofcommonstockissueduponexerciseofoptionsduringtheperiodJuly1,2004through
September30,2004

219,725sharesofcommonstockreservedforfutureissuancepursuanttoanoutstandingwarrantatanexerciseprice
of$1.64pershareand

211,207sharesofcommonstockissuedtoMontgomery&Co.,theplacementagentforourSeriesCPreferredStock
financing,andthreeofitsprincipals.

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TableofContents

SELECTEDCONSOLIDATEDFINANCIALDATA

Youshouldreadthefollowingselectedfinancialinformationtogetherwithourconsolidatedfinancialstatementsandthe
relatednotesappearingattheendofthisprospectusandtheManagementsDiscussionandAnalysisofFinancialConditionand
ResultsofOperationssectionofthisprospectus.Wehavederivedthestatementofoperationsinformationfortheperiodfrom
inceptiontoDecember31,2001,andfortheyearsendedDecember31,2002and2003,andthebalancesheetinformationasof
December31,2002and2003fromourauditedconsolidatedfinancialstatementswhichareincludedinthisprospectus.Wehave
derivedthestatementofoperationsinformationforeachofthesixmonthsendedJune30,2003and2004,andthebalancesheet
informationasofJune30,2004,fromourunauditedconsolidatedfinancialstatements,whichareincludedinthisprospectus.The
balancesheetinformationasofDecember31,2001hasbeenderivedfromourauditedconsolidatedfinancialstatements,which
arenotincludedinthisprospectus.Ourunauditedconsolidatedfinancialstatementsinclude,intheopinionofourmanagement,
alladjustments,consistingofonlynormalrecurringadjustments,necessaryforafairpresentationofthosestatements.Our
historicalresultsforanypriororinterimperiodarenotnecessarilyindicativeofresultstobeexpectedforafullfiscalyearorfor
anyfutureperiod.Theproformanetlosspershareinformationiscomputedusingtheweightedaveragenumberofcommonshares
outstanding,aftergivingproformaeffecttotheautomaticconversionofalloutstandingsharesofourconvertiblepreferredstock
intosharesofourcommonstockeffectiveuponthecompletionofthisoffering,asiftheconversionhadoccurredatthedateofthe
originalissuance.

Periodfrom
January2,
2001(Dateof
Inception)to
December31,
2001

SixMonthsEnded
June30,

YearEndedDecember31,

2002

2003

2003

ConsolidatedStatementofOperationsData:

Operatingexpenses:
Researchanddevelopment
Generalandadministrative

1,171
1,613

(2,784)
330

(11,768)

176

(25,416)

298

(9,908)
127

(2,454)

$ (11,592)

$ (25,118)

$(9,781)

(0.80)

Lossfromoperations
Interestincome

Netloss

Basicanddilutednetlosspershare

Sharesusedincomputationofbasicanddilutednetloss
pershare

(inthousands,exceptpersharedata)

2004

8,890
2,878

(2.50)

3,062

4,642

Sharesusedincomputationofproformanetlossper
share

$ 8,292
1,616

$ (1.54)

7,008

6,371

(0.44)

56,717

AsofDecember31,

ConsolidatedBalanceSheetData:
Cashandcashequivalents
Shortterminvestments
Workingcapital

$15,800


15,081

2001

2002

2003

(inthousands)

$ 5,342


3,583

(unaudited)

(3.58)

Proformabasicanddilutednetlosspershare

$ 21,754

3,662

$ 9,225
2,510
(11,735)

269
$(11,466)
$

(1.30)

8,790

(0.12)

92,148

Asof
June30,
2004

(unaudited)

$ 2,934
18,596
18,269

$ 1,087
72,269
70,865

Totalassets
Convertiblepreferredstock
Totalstockholdersequity/(deficit)

30

16,232
17,383
(1,909)

6,183
17,383
(13,106)

22,927
57,029
(37,660)

75,012
120,478
(48,922)

TableofContents

MANAGEMENTSDISCUSSIONANDANALYSISOFFINANCIALCONDITION
ANDRESULTSOFOPERATIONS

Youshouldreadthefollowingdiscussionandanalysisofourfinancialconditionandresultsofoperationstogether
withourconsolidatedfinancialstatementsandtherelatednotesappearingattheendofthisprospectus.Someoftheinformation
containedinthisdiscussionandanalysisorsetforthelsewhereinthisprospectus,includinginformationwithrespecttoour
plansandstrategyforourbusinessandrelatedfinancing,includesforwardlookingstatementsthatinvolverisksand
uncertainties.YoushouldreviewtheRiskFactorssectionofthisprospectusforadiscussionofimportantfactorsthatcould
causeactualresultstodiffermateriallyfromtheresultsdescribedinorimpliedbytheforwardlookingstatementscontainedin
thefollowingdiscussionandanalysis.

Overview

Weareabiopharmaceuticalcompanyfocusedonthedevelopmentandcommercializationofnovelapplicationsand
formulationsofknowntherapeuticstotreatsevererespiratorydiseases.Ourgoalistoproviderespiratorypatientsfacinglimited
therapeuticoptionswithinnovativetreatmentsthatimprovetheirmedicalconditionandenhancetheirqualityoflife.We
currentlyhavetwoproductcandidatesinlatestageclinicaldevelopmentandseveralproprietaryprogramsinpreclinical
development.Ourtwomostadvancedproductcandidatesfocusoncysticfibrosis,orCF,andseverepersistentasthma,twoofthe
mostsevererespiratorydiseasesintheUnitedStates.

WecommencedoperationsinJanuary2001.Weareadevelopmentstagecompanyandhavenotyetgeneratedany
revenue.Sinceinception,wehavedevotedsubstantiallyallofoureffortstothediscovery,inlicensinganddevelopmentofour
twoleadproductcandidates,Corus1020andCorus1030.Ifourdevelopmenteffortsresultinclinicalsuccess,regulatory
approvalsandcommercialization,weexpecttogeneraterevenuefromsalesofourproducts.Inaddition,intheeventweout
licenseanyofourproductswewouldexpecttogenerateroyaltyrevenueonsalesoflicensedproducts.However,evenifclinical
trialsshowourproductcandidatestobesafeandeffectiveintreatingtheirtargetindications,wedonotexpecttobeabletorecord
commercialsales,orgenerateroyaltyrevenuefromanyoutlicensing,ofourproductcandidates,ifatall,untilatleast2007.

Wehaveincurredlosseseachyearsinceinceptionandhadanaccumulateddeficitof$50.6millionasofJune30,2004.
Weincurrednetlossesof$11.5millionforthesixmonthsendedJune30,2004and$25.1millionin2003.Weexpecttoincur
significantandgrowinglossesfortheforeseeablefuture.Althoughthesizeandtimingofourfutureoperatinglossesaresubjectto
significantuncertainty,weexpectourlossestocontinuetoincreaseoverthenextseveralyearsaswecontinueourdevelopment
programsandprepareforpotentialcommerciallaunchofCorus1020andCorus1030,ourmostadvancedproductcandidates.We
willneedtogeneratesignificantrevenuetoachieveandmaintainprofitability.

Allofourexpenditurestodatehavebeenforresearchanddevelopmentandgeneralandadministrativeactivities.
Researchanddevelopmentexpensesconsistprimarilyofcostsforpersonnel,includingsalariesandbenefits,facilities,clinical
studiesperformedbythirdparties,materialsandsuppliestosupportourclinicalprograms,contractedresearchandmanufacturing,
consultingandotherexpensesincurredtosustainouroverallresearchanddevelopmentprograms.Weexpenseourresearchand
developmentcostsastheyareincurred.Licenseandmilestonepaymentsduepriortoregulatoryapprovaltomarketourproducts
arealsochargedtoresearchanddevelopment.FrominceptionthroughJune30,2004,weincurredexpensesof$41.0millionfor
researchanddevelopmentactivities,ofwhichapproximately$18.9millionrepresentscostsforthedevelopmentofCorus1020
and$17.4millionrepresentscostsfortheinlicensinganddevelopmentofCorus1030.Theremaining$4.7millionof
expendituresweremadeinsupportofourresearchefforts.Weexpecttoincursignificantadditionalresearchanddevelopment
expensesforeachofourproductcandidatespriortoanypotentialapprovalandsubsequentcommerciallaunch.

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Ourgeneralandadministrativeexpensesconsistofcostsincurredbyourgeneraladministration,finance,business
developmentandmarketingdepartments.Thesecostsarecomposedprimarilyofexpensesrelateddirectlytoourpersonnel,aswell
asexternalcostsassociatedwithserviceproviderssuchaslawyers,accountantsandinsurers.FrominceptionthroughJune30,
2004,wehavespentanaggregateof$10.7millionongeneralandadministrativeexpenses.Weanticipatethatgeneraland
administrativeexpenseswillincreasefortheforeseeablefutureasweexpandouroperatingactivitiesandasaresultofcosts
associatedwithbecomingapubliclytradedcompany.

Todate,ourmarketingexpenseshavenotbeensignificantandwehavenotincurredanysalesexpenses.However,we
expecttoincursignificantsalesandmarketingexpensesinfutureperiodsasweexpandourmarketingeffortsandbuildoursales
forceinanticipationofthecommercializationofCorus1020,Corus1030andotherproductcandidates.

CriticalAccountingPolicies

Ourmanagementsdiscussionandanalysisofourfinancialconditionandresultsofoperationsarebasedonour
consolidatedfinancialstatements,whichhavebeenpreparedinaccordancewithaccountingprinciplesgenerallyacceptedinthe
UnitedStates.Thepreparationofthesefinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereported
amountsofassetsandliabilitiesandthedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements,as
wellasthereportedrevenueandexpensesduringthereportingperiods.Webaseourestimatesonhistoricalexperienceandon
variousotherfactorsthatwebelievearereasonableunderthecircumstances,theresultsofwhichformthebasisformaking
judgmentsaboutthecarryingvalueofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmay
differfromtheseestimatesunderdifferentassumptionsorconditions.

AlthoughoursignificantaccountingpoliciesaremorefullydescribedinNote1toourconsolidatedfinancialstatements
appearingattheendofthisprospectus,webelievethatthefollowingaccountingpolicyrelatingtostockbasedcompensation
chargesismostcriticaltoaidyouinfullyunderstandingandevaluatingourreportedfinancialresults.

WehaveelectedtofollowAccountingPrinciplesBoard,orAPB,OpinionNo.25,AccountingforStockIssuedto
Employees,orAPBNo.25,andrelatedinterpretations,inaccountingforemployeestockoptions,ratherthanthealternativefair
valueaccountingallowedbyStatementofFinancialAccountingStandards,orSFAS,No.123,AccountingforStockBased
Compensation,orSFASNo.123.UnderAPBNo.25,compensationexpenserelatedtoemployeestockoptiongrantsis
recognizedusingtheintrinsicvaluemethod.Accordingly,wedonotrecognizecompensationexpenseforstockoptionsgranted
toemployeeswithanexercisepriceequaltoorinexcessofthefairmarketvalueofthestockoptionatthedateofgrant.

WerecognizecompensationexpenseforoptionsgrantedtononemployeesinaccordancewiththeprovisionsofSFAS
No.123andEmergingIssuesTaskForceIssue9618,AccountingforEquityInstrumentsthatareIssuedtoOtherThanEmployees
forAcquiring,orinConjunctionwithSelling,Goods,orServices,whichrequiresvaluingthestockoptionsusinganoption
pricingmodelandremeasuringsuchstockoptionstothecurrentfairmarketvalueuntiltheperformancedatehasbeenreached.

Werecordeddeferredstockbasedcompensationrelatedtograntsofstockoptionsandsalesofrestrictedstockto
employeesanddirectorsof$298,000andrelatedamortizationof$39,000during2001andof$60,000andamortizationof
$161,000during2002.Werecordedamortizationof$89,000relatedtostockbasedcompensationduring2003andamortization
of$23,000duringthesixmonthsendedJune30,2004.Weexpecttoamortize$46,000ofdeferredstockbasedcompensationwith
respecttostockoptionsgrantedthroughJune30,2004infutureperiods,including$23,000intheremainderof2004,and
$23,000during2005.

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TableofContents

RecentAccountingPronouncements

InMay2003,theFinancialAccountingStandardsBoardissuedSFASNo.150,AccountingforCertainFinancial
InstrumentswithCharacteristicsofBothLiabilitiesandEquity.SFASNo.150establishesstandardsforhowacompanyclassifies
andmeasurescertainfinancialinstrumentswithcharacteristicsofbothliabilitiesandequity.Itrequiresthatanissuerclassify
certainfinancialinstrumentsasaliability,orasanassetinsomecircumstances.SFASNo.150iseffectiveforfinancialinstruments
enteredintoormodifiedafterMay31,2003,andotherwiseiseffectiveatthebeginningofthefirstinterimperiodbeginningafter
June15,2003.TheadoptionofSFASNo.150didnothaveanimpactonourconsolidatedfinancialstatements.

ResultsofOperations

SixMonthsEndedJune30,2004andJune30,2003

ResearchandDevelopmentExpenses.Ourresearchanddevelopmentexpensesincreasedapproximately11%,from
$8.3millioninthefirstsixmonthsof2003to$9.2millioninthefirstsixmonthsof2004.Thisincreaseresultedprimarilyfroman
increaseof$1.5millioninresearchanddevelopmentexpensesrelatedtotheCorus1020programandadecreaseof$523,000in
researchanddevelopmentexpensesrelatedtotheCorus1030program.Therewerenomaterialchangesinresearchexpenses
relatingtonewprograms.

ResearchanddevelopmentexpensesforCorus1020increasedfrom$3.2millionforthesixmonthsendedJune30,2003
to$4.7millionforthesixmonthsendedJune30,2004.The$1.5millionincreaseresultedprimarilyfrom:

anincreaseof$800,000relatedtoourPhaseIIclinicaltrial
anincreaseof$771,000insalaryandpersonnelrelatedcostsresultingprimarilyfromanincreaseinheadcountfrom
17atJune30,2003to36atJune30,2004and
anincreaseof$316,000inoperatingandotherrelatedexpenses.

Thisincreasewaspartiallyoffsetbyadecreaseof$493,000inmanufacturingcostsrelatedtoadeclineinformulation
developmentwork.

ResearchanddevelopmentexpensesforCorus1030decreasedfrom$4.1millionforthesixmonthsendedJune30,2003
to$3.6millionforthesixmonthsendedJune30,2004.The$523,000decreaseresultedprimarilyfrom:

adecreaseof$1.0millionrelatedtoadeclineinpurchasesofdrugmaterialandotherproductsthatoccurredduring
2003and

adecreaseof$386,000inexpensesrelatedtopreclinicalstudies.
Thisdecreasewaspartiallyoffsetby:

anincreaseof$592,000insalaryandpersonnelrelatedcostsresultingprimarilyfromanincreaseinheadcountfrom
16atJune30,2003to22atJune30,2004and

anincreaseof$271,000relatedtoourPhaseIIclinicaltrial.

Weanticipatethatresearchanddevelopmentexpenseswillcontinuetoincreaseaswecontinuetopursueclinical
developmentofCorus1020andCorus1030andinitiateotherresearchprograms.

GeneralandAdministrativeExpenses.Generalandadministrativeexpensesincreasedapproximately55%from$1.6
millioninthefirstsixmonthsof2003to$2.5millioninthefirstsixmonthsof2004.The

33

TableofContents

increaseresultedprimarilyfromanincreaseinsalaryandpersonnelrelatedexpensesof$470,000,dueprimarilytoanincreasein
generalandadministrativeemployeesfrom12atJune30,2003to18atJune30,2004,anincreaseinmarketingdevelopment
costsof$229,000andanincreaseinoperatingandotherexpenses.Weanticipatethatgeneralandadministrativeexpenseswill
continuetoincreaseasweexpandourbusinessandincuradditionalexpensesassociatedwithbeingapubliclytradedcompany.

InterestIncome.Interestincomeincreasedfrom$127,000inthefirstsixmonthsof2003to$269,000inthefirstsix
monthsof2004.Thisincreaseresultedfromahigherlevelofcashandmarketablesecuritiesavailableforinvestment,duetothe
receiptofnetproceedsfromtheinitialclosingofourSeriesCPreferredStockofferingduringApril2004.

YearsEndedDecember31,2003and2002

ResearchandDevelopmentExpenses.Ourresearchanddevelopmentexpensesincreasedapproximately145%,from
$8.9millionin2002to$21.8millionin2003.Thisincreaseresultedprimarilyfromanincreaseof$6.6millioninresearchand
developmentexpensesrelatedtotheCorus1020programandanincreaseof$5.6millioninresearchanddevelopmentexpenses
relatedtotheCorus1030program.Therealsowasa$703,000increaseinotherresearchexpensesrelatingtootherresearch
programs.

ResearchanddevelopmentexpensesforCorus1020increasedfrom$3.6millionin2002to$10.2millionin2003.The
$6.6millionincreaseresultedprimarilyfrom:

anincreaseof$1.8millionrelatedtoourPhaseIbclinicaltrial
anincreaseof$1.5millioninsalaryandpersonnelrelatedcostsresultingprimarilyfromanincreaseinheadcount
from10atDecember31,2002to28atDecember31,2003

anincreaseof$1.3millionrelatedtoincreasedexpendituresondevelopmentofdrugformulationanddrugdelivery
technology

anincreaseof$936,000inexpensesforpreclinicalstudies
anincreaseof$447,000inconsultingandprofessionalfeesrelatedtoclinicaltrialsand
anincreaseof$509,000intravelrelated,operatingandothercosts.

ResearchanddevelopmentexpensesforCorus1030increasedfrom$4.1millionin2002to$9.7millionin2003.The
$5.6millionincreaseresultedprimarilyfrom:

anincreaseof$2.7millionrelatedtoourPhaseIIclinicaltrials
anincreaseof$1.6millioninexpensesforpreclinicalstudiesand
anincreaseof$1.1millioninsalaryandpersonnelrelatedcostsresultingprimarilyfromanincreaseinheadcount
from11atDecember31,2002to21atDecember31,2003.

The$703,000increaseinresearchanddevelopmentexpensesrelatedtootherresearchprogramsresultedprimarilyfrom:

anincreaseof$879,000relatedtotheestablishmentanddevelopmentofourresearchdepartment,includingcostsof
professionalservicefees,outsidelaboratorytestingandsuppliesand

anincreaseof$446,000insalaryandpersonnelrelatedcosts.
Thisincreasewaspartiallyoffsetbyadecreaseof$605,000asaresultoftheterminationofaresearchprogram.

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GeneralandAdministrativeExpenses.Generalandadministrativeexpensesincreasedapproximately27%from$2.9
millionin2002to$3.7millionin2003.Theincreasewasdueinparttoanincreaseinthenumberofgeneralandadministrative
employeesfrom12atDecember31,2002to15atDecember31,2003,andresultingincreasedsalaryandpersonnelrelated
expensesof$304,000.Inaddition,in2003therewereincreasesinrentexpense,legalfeesandtravelrelatedexpenses.

InterestIncome.Interestincomeincreasedfrom$176,000in2002to$298,000in2003.Thisincreaseresultedfroma
higherlevelofcashandmarketablesecuritiesavailableforinvestmentduetothereceiptofnetproceedsfromthesaleofourSeries
BPreferredStockinFebruaryandMarch2003.

YearEndedDecember31,2002andPeriodFromJanuary2,2001(DateofInception)ThroughDecember31,2001

ResearchandDevelopmentExpenses.Ourresearchanddevelopmentexpensesincreasedapproximately659%,from
$1.2millionin2001to$8.9millionin2002.Thisincreaseresultedprimarilyfromanincreaseof$3.4millioninresearchand
developmentexpensesrelatedtotheCorus1020programandanincreaseof$4.1millioninresearchanddevelopmentexpenses
relatedtotheCorus1030program.Therealsowasa$295,000increaseinotherresearchexpensesrelatingtootherresearch
programs.

ResearchanddevelopmentexpensesforCorus1020increasedfrom$314,000in2001to$3.7millionin2002.The$3.4
millionincreaseresultedprimarilyfrom:

anincreaseof$1.7millioninmilestonepaymentsrelatedtoformulationdevelopment
anincreaseof$823,000inexpensesforpreclinicalstudiesand
anincreaseof$518,000insalaryandpersonnelrelatedcostsresultingprimarilyfromanincreaseinheadcountfrom
3atJanuary2,2001to10atDecember31,2002.

ResearchanddevelopmentexpensesforCorus1030increasedfrom$28,000in2001to$4.1millionin2002.The$4.1
millionincreaseresultedprimarilyfrom:

anincreaseof$1.5millionininlicensingexpensesrelatedtotheacquisitionofcertainlicenses
anincreaseof$900,000informulationdevelopmentexpenses
anincreaseof$658,000insalaryandpersonnelrelatedcostsresultingprimarilyfromthecommencementofthe
Corus1030program
anincreaseof$455,000inPhaseIclinicaltrialcostsand
anincreaseof$288,000inexpensesforpreclinicalstudies.

Theincreaseinresearchanddevelopmentexpensesrelatedtoresearchforotherresearchprogramsresultedprimarily
fromanincreaseinsalaryandpersonnelrelatedexpenses.

GeneralandAdministrativeExpenses.Generalandadministrativeexpensesincreasedapproximately78%from$1.6
millionin2001to$2.9millionin2002.Theincreaseresultedprimarilyfroma$896,000increaseinsalaryandpersonnel
expensesrelatedtotheadditionofsixpersonnelandincreasesinlegalfeesandothergeneralexpenses.

InterestIncome.Interestincomedecreasedfrom$330,000in2001to$176,000in2002asaresultofalowerlevelof
cashandmarketablesecuritiesavailableforinvestmentduring2002comparedto2001.

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LiquidityandCapitalResources

SourcesofLiquidity

Sinceinception,wehavefinancedouroperationsthroughprivateplacementsofourcapitalstock,andthereceiptof
interestincome.ThroughJune30,2004,wehavereceivednetproceedsof$121.6millionfromtheissuanceofsharesofcommon
stockandpreferredstock.Thetablebelowsummarizesourinitialissuancesofpreferredstock:

Series

A
B
C

Numberof
Shares

Date

May2001
March2003
June2004

Gross
Proceeds

8,468,757
41,113,949
56,038,635

$18.5million
$40.0million
$65.0million

AsofJune30,2004,wehad$73.4millionincash,cashequivalentsandshortterminvestments.Alsoasofthatdate,we
hadpledged$200,000ofrestrictedcashascollateralforlettersofcreditforoneofourleasedfacilities.Webelievethatour
availablecash,cashequivalentsandshortterminvestments,togetherwiththeproceedsofthisoffering,willbesufficienttofund
anticipatedlevelsofoperationsthroughatleastthenext24months.Wehadnomaterialcapitalexpendituresduring2003orthe
sixmonthsendedJune30,2004,andexpecttohavenomaterialcapitalexpendituresduringtheremainderof2004.

IncomeTaxes

AsofDecember31,2003,wehadnetoperatinglosscarryforwardsforfederalincometaxesofapproximately$38.4
millionandresearchanddevelopmenttaxcreditsofapproximately$985,000.Ourutilizationofthenetoperatinglossandtax
creditcarryforwardsmaybesubjecttoannuallimitationspursuanttoSection382oftheInternalRevenueCodeasaresultof
changesinourownershipstructure.Theannuallimitationsmayresultintheexpirationofnetoperatinglossesandcreditspriorto
utilization.AsofDecember31,2003,wehaddeferredtaxassetsprimarilyrepresentingthebenefitofnetoperatingloss
carryforwardsfortaxpurposes.Wedidnotrecordabenefitforthedeferredtaxassetbecauserealizationofthebenefitwas
uncertainand,accordingly,avaluationallowanceisprovidedtooffsetthedeferredtaxasset.

CashFlows

ForthesixmonthsendedJune30,2004,weusednetcashof$11.8millioninoperatingactivities.Thisconsisted
primarilyofanetlossfortheperiodof$11.5million.Weusednetcashof$54.0millionforinvestingactivitiesforthesixmonths
endedJune30,2004,whichconsistedprimarilyofnetpurchasesofshortterminvestmentsof$53.7million.Wereceivednetcash
of$64.0millionfromfinancingactivitiesduringthesixmonthsendedJune30,2004,principallyrelatingtotheissuanceofSeries
CPreferredStockfornetproceeds,afterofferingcosts,of$63.4million.

FortheyearendedDecember31,2003,ouroperatingactivitiesusednetcashof$22.7million.Thisconsistedprimarily
ofanetlossfortheperiodof$25.1million,offsetprimarilybyanincreaseinaccountspayableandaccruedexpensesof$1.8
million.Weusednetcashof$19.6millionforinvestingactivitiesfortheyearendedDecember31,2003,whichconsisted
primarilyofnetpurchasesofshortterminvestments.Wereceived$39.9millionfromfinancingactivitiesduringtheyearended
December31,2003,principallyrelatingtotheissuanceofourSeriesBPreferredStockfornetproceeds,afterofferingcosts,of
$39.7million.

FundingRequirements

Weexpecttodevotesubstantialresourcestocontinueourresearchanddevelopmenteffortsandtoestablishoursalesand
marketingprogramsassociatedwiththeanticipatedcommercializationandlaunchof

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Corus1020,Corus1030andanyotherproductcandidates.Ourfuturefundingrequirementsandourabilitytoraiseadditional
capitalwilldependonmanyfactors,including:

thesuccessrateofourproductdevelopmentefforts
thescope,progress,expansionandcostofourclinicaltrialsandresearchanddevelopmentactivities
thedevelopmentofoursalesandmarketingactivities
theemergenceofcompetingtechnologiesorotheradversemarketdevelopments
thecostsofmanufacturingproductsandpotentialproductcandidates
thecostofacquiringtherightstonewtechnologyorproductcandidates
changesinorterminationsofoursupply,developmentormanufacturingarrangements
thecostsofrecruitingandretainingourpersonnel
thecostsofproductliabilityclaims,intellectualpropertyinfringementormisappropriationclaimsorotherlitigation
thecostsofpreparing,filing,prosecutingandmaintainingpatentsandenforcingpatentclaimsandotherintellectual
propertyrightsand
changesinregulatorypoliciesorlaws.

Ifourexistingresourcesareinsufficienttosatisfyourliquidityrequirements,wemayneedtoraiseadditionalexternal
fundsthroughthesaleofadditionalequityordebtsecurities.Additionalfinancingmaybeunavailableinamountsoronterms
acceptabletous,ifatall.Ifweareunabletotimelyobtainadditionalfunding,wemayneverconductorcompleteadditional
clinicaltrialsrequiredtodemonstratethesafetyandefficacyofourcurrentorfutureproductcandidates,andwemayneverobtain
U.S.FoodandDrugAdministration,orFDA,orforeignregulatoryapprovalorcommercializeanyofourcurrentorfutureproduct
candidates.

Ifweraiseadditionalfundsbyissuingequitysecurities,furtherdilutiontostockholderswouldresultandnewinvestors
couldhaverightssuperiortoholdersofthesharesissuedinthisoffering.Ifweraiseadditionalfundsthroughdebtfinancing,the
applicabledebtinstrumentsmayincludeprovisionsthatrestrictouroperationalflexibilityorimposeliensorotherrestrictionson
ourassets.Ifadequatefundsarenotavailabletous,wemayhavetoliquidatesomeorallofourassetsordelay,reducethescope
of,oreliminateallorsomeportionofourresearchanddevelopmentprogramsorclinicaltrials.Wemayalsoberequiredtoseek
partnersforourproductcandidatesorrelinquish,licenseorotherwisedisposeofrightstoourproductcandidatesifweareunable
toraiseadditionalcapital.

ContractualObligations

Ourmajoroutstandingcontractualobligationsrelatetoourfacilitiesleasesandobligationsunderanumberofour
licenseagreementstopaymilestonepaymentsandroyaltiestotheotherpartiestotheseagreements.Wehavesummarizedinthe
tablebelowourfixedcontractualcashobligationsasofJune30,2004.

PaymentsDuebyPeriod(inthousands)

ContractualObligations

Remainder
of2004

Total

Facilityleases
Contractualpurchaseobligations

$6,550
528

$7,078

Total

December31,
2005and
2006

468
528

996

1,983

1,983

37

December31,
2007and
2008

2,255

2,255

December31,
2009

1,160

1,160

Thereafter

684

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InconnectionwiththeCorus1020program,wehaveenteredintocontractswithPARIGmbH,orPARI,andCystic
FibrosisFoundationTherapeutics,Inc.thatobligateustomakepaymentsthatcouldaggregateupto$8.0millionuponachieving
specifieddevelopmentandregulatorymilestones,andtopayroyaltiestoPARIonnetsalesofCorus1020ifandwhenitreceives
marketingapprovalbytheFDA.InconnectionwiththeCorus1030program,wehaveenteredintosimilarmilestonebased
contractswithPARI,MayoFoundationforMedicalEducationandResearch,orMayoClinic,andBioGeneticVentures,Inc.that
obligateustomakepaymentsthatcouldaggregateupto$7.0million,andtopayroyaltiestoPARIandMayoCliniconnetsales
ofCorus1030ifandwhenitreceivesmarketingapprovalbytheFDA.Ourcontractualobligationsaredescribedmorefullyin
Note11ofourconsolidatedfinancialstatements.Theeventsthattriggerthemilestonepaymentsincludecertainproduct
developmentevents,filingofanewdrugapplicationwiththeFDA,makingsimilarfilingswithforeignregulatoryagencies,
receivingmarketingapprovalbytheFDAorsimilarforeignregulatoryagenciesandthefirstcommercialsaleinvariouscountries.
Thesecontingentmilestoneandroyaltypaymentobligationsarenotincludedintheabovetableduetotiminguncertainties.

InconnectionwiththeCorus1030program,wehaveenteredintoanagreementwithPARIforthedevelopmentofan
inhalerfordeliveryofCorus1030.Underthetermsoftheagreement,weareobligatedtopurchaseaminimumnumberofinhalers
eachyearforfiveyearsbeginningthefirstyearaftercommercialization.Ifwedonotmeettheminimumpurchaserequirements,we
areobligatedtopayPARIforanyunorderedinhalersuptoamaximumof$1.5millioninthefirstyear,$2.0millioninthesecond
yearand$2.5millionineachofyearsthreethroughfive.

InconnectionwiththedrugmanufacturingsupplyrequirementsofourCorus1020program,wehaveenteredintoalong
termsupplyagreementwithEuticalsSpAforthesupplyoftheaztreonamactivepharmaceuticalingredient.Underthetermsofthis
agreement,weareobligatedtoprovideEuticalswithafivequarterforwardlookingforecastthatisupdatedquarterly.Basedon
theforecastsweprovide,wewillhaveminimumpurchaseobligationsthatarefixedintheearlyportionsoftheforecast,becoming
moreflexibleinthelaterquarters.AsofJune30,2004,wehadanobligationtomakecashpaymentstoEuticalsinthethird
quarterof2004of$528,000.Atthatdate,wehadnofurtherfinancialobligationstoEuticalsunderthisagreement.

QuantitativeandQualitativeDisclosuresAboutMarketRisk

Ourexposuretomarketriskisconfinedtoourcash,cashequivalentsandmarketablesecurities.Weinvestinhigh
qualityfinancialinstruments,primarilymoneymarketfunds,federalagencynotes,assetbackedsecurities,corporatedebt
securitiesandU.S.treasurynotes,withtheeffectivedurationoftheportfoliolessthanninemonthsandnosecuritywithan
effectivedurationinexcessoftwoyears,whichwebelievearesubjecttolimitedcreditrisk.Wecurrentlydonothedgeinterest
rateexposure.Duetotheshorttermnatureofourinvestments,wedonotbelievethatwehaveanymaterialexposuretointerest
rateriskarisingfromourinvestments.

MostofourtransactionsareconductedinU.S.dollars,althoughwedoconductsomepreclinicalstudiesandclinical
trials,andhavesomemanufacturingagreementswithvendors,locatedoutsidetheUnitedStates.Transactionsundercertainof
theseagreementsareconductedinU.S.dollars,subjecttoadjustmentbasedonsignificantfluctuationsincurrencyexchangerates.
Transactionsundercertainotheroftheseagreementsareconductedinthelocalforeigncurrency.Wedonotbelievethata10%
changeinapplicableexchangerateswouldhaveamaterialimpactonourresultsofoperationsorcashflows.

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BUSINESS

Overview

Weareabiopharmaceuticalcompanyfocusedonthedevelopmentandcommercializationofnovelapplicationsand
formulationsofknowntherapeuticstotreatsevererespiratorydiseases.AccordingtotheAmericanLungAssociation,respiratory
diseasesarethethirdmostcommoncauseofdeathintheUnitedStates,responsibleforoneinsevendeaths.Ourgoalistoprovide
respiratorypatientsfacinglimitedtherapeuticoptionswithinnovativetreatmentsthatimprovetheirmedicalconditionand
enhancetheirqualityoflife.Wecurrentlyhavetwoproductcandidatesinlatestageclinicaldevelopmentandseveralproprietary
programsinpreclinicaldevelopment.Ourtwomostadvancedproductcandidatesfocusoncysticfibrosis,orCF,andsevere
persistentasthma,twoofthemostsevererespiratorydiseasesintheUnitedStates.

Ourmostadvancedproductcandidate,Corus1020,isdesignedtotreatrespiratoryinfectionssuchasPseudomonas
aeuroginosa,orP.aeruginosa,inCFpatientsusinganinhalableformofanantibioticcalledaztreonam.Aztreonamiscurrently
approvedforsystemicuseinavarietyofrespiratoryandnonrespiratoryinfectionsandisadministeredintravenously.According
totheCysticFibrosisFoundation,orCFF,thereareapproximately30,000CFpatientsintheUnitedStatesand33,000CFpatients
throughouttherestoftheworld.Approximately60%ofCFpatientsintheUnitedStatesareinfectedwithP.aeruginosa,the
predominantbacteriainfectingthelungsofCFpatients.Despiteimprovementsintherapiesandenhancedunderstandingofthe
diseaseinthelasttenyears,thereisstillnocureforCFand,accordingtotheCFF,thecurrentmedianlifeexpectancyofaCF
patientis33.4years.AccordingtotheCFF,morethan90%ofCFpatientsultimatelydiefromlungdestructionresultingfromthe
inflammatoryresponsetochroniclunginfections.

WebelievethatCorus1020wouldbeanattractivetherapyforthemanagementofrespiratoryinfectionsinCFpatients,
andmayoffersignificantadvantagesoverexistingtherapies.WehaverecentlycompletedaPhaseIIclinicaltrialofCorus1020
andexpecttocompletetheanalysisofthestudydatainlate2004.WeanticipatethecommencementofPhaseIIIclinicaltrialsin
early2005,andweexpecttocompletethesetrialsbytheendof2005.Weplantosubmitanewdrugapplication,orNDA,for
Corus1020in2006.Corus1020wasgrantedorphandrugstatusintheUnitedStatesinMarch2002andintheEuropeanUnion,
orEU,inJune2004.Generally,theU.S.FoodandDrugAdministration,orFDA,orforeignregulatoryagenciesmaygrantorphan
drugdesignationtodrugsintendedtotreatararediseaseorcondition.Ifapproved,orphandrugstatuswouldgiveCorus1020
marketexclusivityforthesamedrugforthesameuseforsevenyearsintheUnitedStatesandtenyearsintheEU.Accordingtothe
CFF,nearly77%ofthe30,000CFpatientsintheUnitedStatesaretreatedinapproximately115accreditedCFcenters.We
estimatethattherearemorethan700pulmonologistspracticingintheseCFcenters.Asaresultofthismarketconcentration,we
believethatwecaninitiallydeveloptheCFmarketforCorus1020throughasalesforceof25salesrepresentativesand,later,
expandtocoverotherpulmonologistswiththemostactivepracticesoutsidetheCFcenters.

Oursecondproductcandidate,Corus1030,isinhaledlidocaineforthetreatmentofpatientssufferingfromthemost
severepersistentformsofasthma.Basedonourinternalmarketingresearch,weestimatethatoftheapproximately700,000
patientswhoareclassifiedbytheNationalInstitutesofHealth,orNIH,assufferingfromseverepersistentasthma,175,000depend
ontheuseoforalcorticosteroids,suchasprednisone,tocontroltheirdisease.Despitetheefficacyoforalcorticosteroidsin
treatingseverepersistentasthma,whenusedchronically,theycanhaveseveresideeffects,includingosteoporosis,weightgain,
adrenalsuppression,growthsuppression,dermalthinning,hypertension,diabetes,cataractsandmuscleweakness.Accordingtoa
2003studyinJournalofAllergyandClinicalImmunology,patientswithseverepersistentasthmaspend$12,813ayear,ornearly
fivetimesmore,indirectandindirectcosts,thanthosewithmildpersistentasthmacaringfortheirdisease.

WebelievethatCorus1030wouldofferanattractivealternativetooralcorticosteroidsinthetreatmentofasthma,
enablingthereductionoforalcorticosteroidusebypatientswithseverepersistentasthmawhile

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maintainingorimprovingtheirlungfunction.WecurrentlyhaveanongoingPhaseIIclinicaltrialforCorus1030inpatientswith
severepersistentasthmawhoaredependentonthechronicuseoforalcorticosteroids.Wehavecompletedenrollmentinthistrial
andexpectthedatatobeavailableinearly2005.WeanticipatethecommencementofpivotalPhaseIIIclinicaltrialsinlate2005,
andweexpecttocompletethesetrialsbyearly2007.WeplantosubmitanNDAforCorus1030in2007.AswithCF,
pulmonologistsaretheprimaryphysicianswhotreatmostofthepatientswithseverepersistentasthma.UponcompletionofPhase
IIIclinicaltrialsforCorus1030,weanticipateexpandingoursalesforcetoapproximately100salesrepresentativesinorderto
coverthemajorityofpulmonologiststreatingpatientswithseverepersistentasthma.

Inadditiontothedevelopmentactivitiesforourtwoleadproductcandidates,wecontinuetodevelopadditionalclinical
programsforavarietyofrespiratorydiseases.OurmostpromisingpreclinicalproductcandidateisCorus1040,anovelbroad
spectrumantibioticcombinationformulationforthetreatmentofrespiratoryinfections.WeexpecttocommencePhaseIclinical
testingforCorus1040by2006.

Accordingtothe2001studyissuedbytheTuftsCenterfortheStudyofDrugDevelopment,traditionalnewchemical
entity,orNCE,developmentactivitiesresultinadevelopmentsuccessrateoflessthan20%,developmentcostsofapproximately
$800millionandatimetomarketofapproximately10yearsto15years.Ourresearcheffortisfocusedondevelopingnew
deliverymethods,indicationsandcombinationsforexistingcompoundswhereproofofconcepthasbeenshowninrespiratory
diseases,withagoalofimprovingtheirtherapeuticeffect.Webelievethat,ascomparedtoanNCEdrugdevelopmentstrategy,our
approachnotonlyincreasesthelikelihoodofsuccessfuldevelopmentwhiledecreasingcosts,butitalsopotentiallyallowsusto
redeploythesecompoundsintothemarketplacemorequickly.

WehaveenteredintotwoagreementswithPARIGmbH,orPARI,underwhichPARIhasagreedtoprovideitsproprietary
eFlowinhalationdeviceforCorus1020andCorus1030.WebelievethePARIeFlowinhalationdevice,whenusedwithour
novelformulations,willprovideforfasterandmoreefficientdrugdelivery,resultingindecreaseddosingtimes.ThePARIeFlow
inhalationdevicereceived510(k)clearancefromtheFDAinMay2004asahandheldnebulizertobeusedwithmedicationsfor
whichadoctorhasprescribednebulization,whichwouldallowustouseitforCorus1020andCorus1030.

Weareledbyateamofexperiencedpharmaceuticalandbiotechnologyindustryexecutives.Theseindividualshave
playedkeyleadershiprolesinthesuccessfuldevelopment,approvalandcommercializationofmultipletherapeuticproducts,
includingthemostrecentlyapprovedproductforthetreatmentofrespiratoryinfectionsinCFpatients,TOBI,whichis
tobramycinsolutionforinhalation,marketedbyChironCorporation,aswellasseveralotherrespiratorytherapeutics.Our
managementteamprovidesuswithasignificantcomplementofcapabilitiesinthediscovery,developmentandcommercialization
ofnoveltherapeutics.

Strategy

Ourgoalistoproviderespiratorypatientsfacinglimitedtherapeuticoptionswithinnovativetreatmentsthatimprove
theirmedicalconditionandenhancetheirqualityoflife.Byleveragingourscientific,clinical,regulatoryandcommercialization
experience,weintendtobecomealeaderinbringingtomarketnovelformulationsandapplicationsofknowntherapeuticstotreat
severerespiratorydiseases.Thekeyelementsofourstrategyareasfollows:

Continuetoadvanceourleadproductcandidatesinclinicaltrials.Wehavetwoleadproductcandidates,Corus
1020andCorus1030,inlatestagePhaseIIclinicaltrials:
WehaverecentlycompletedaPhaseIIclinicaltrialforCorus1020inCFpatientswithrespiratory
infections,expectresultsinlate2004,anticipatebeginningPhaseIIIclinicaltrialsforCorus1020inearly
2005,andplantosubmitanNDAforCorus1020in2006.Wedonotexpecttoachievefinalapprovalofthe
NDA,ifatall,untilatleast2007,or,ifweareabletoobtainpriorityreviewfromtheFDA,thesecondhalfof
2006.

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WearecurrentlyconductingaPhaseIIclinicaltrialforCorus1030inpatientswithseverepersistentasthma
whoaredependentonthechronicuseoforalcorticosteroids,expecttobeginPhaseIIIclinicaltrialsfor
Corus1030inlate2005andplantosubmitanNDAforCorus1030in2007.

Maximizecommercialpotentialofourtwoleadproductcandidates.WeownworldwidemarketingrightstoCorus
1020andCorus1030.WeplantobuildasalesorganizationintheUnitedStatestocommercializeCorus1020and
Corus1030directlytopulmonologists.WebelievethatwecaninitiallydeveloptheCFmarketforCorus1020
throughasalesforceof25salesrepresentativesand,later,expandtocoverotherpulmonologistswiththemostactive
practicesoutsidetheCFcenters.Later,inanticipationofthecommerciallaunchofCorus1030,weplantoexpand
oursalesforcetoapproximately100salesrepresentativestocoverthemajorityofpulmonologiststreatingpatients
withseverepersistentasthma.Weintendtodeveloppartnershipswithmultinationalorregionalpharmaceutical
companiestocommercializeourproductsoutsidetheUnitedStates.
Continuetodevelopnewproductcandidatesforrespiratorydisease.Webelieveourexpertiseinrespiratory
diseasewillenableustoidentifyadditionalproductcandidates,suchasCorus1040,forwhichthereisstrong
existingpreclinicalorclinicaldatafromwhichwecancontinuetobuildarobustpipelineofproductcandidates.We
intendtocontinueworkingcloselywiththeFDAaswepursuedevelopmentprogramsdesignedtoberapidly
executedwithclearlydefinedandreadilyobtainableendpointsforbothproofofconceptPhaseIIandapproval
directedPhaseIIIclinicaltrials.
Developnewproductcandidateswithdefensibleintellectualpropertyandthepotentialformarketingexclusivity
.Intellectualpropertyprotectionandmarketingexclusivityareimportantfactorsweconsiderinevaluating
potentialnewproductcandidates.Wewillcontinuetobuildprotectionaroundourproductsbypursuingmethodof
use,formulationanddrugdeliverydevicepatentsorinlicensingcompositionofmatterorusepatents.Weholdand
willcontinuetofilepatentapplicationsrelatingtoourclinicalandpreclinicalproductcandidatesforvarious
indications.Wewillalsocontinuetofileforpatentprotectionforthedruganddevicecombinationsandrelated
NCEsthatwedevelop.Whereavailable,wewillpursuedesignationssuchasorphandrugstatusinanefforttoobtain
marketingexclusivityforourproductcandidates.

Background

TheRespiratorySystem

Therespiratorysystemisresponsibleforoxygenexchangebetweentheenvironmentandthebody.Therespiratory
systemworkstogetherwiththecirculatorysystemtodelivernecessaryoxygentocellsandtoremovecarbondioxide,preventing
itslethalbuildupinbodytissues.Iftherespiratorysystemsfunctionisinterrupted,serious,irreversibledamagetotissuesoccurs
afterafewminutes,followedbythefailureofallbodysystemsand,ultimately,death.

Oxygenininhaledairmovesfromthelungsthroughbloodvesselstotheheart,whichthenpumpstheoxygenrichblood
toallpartsofthebody.Oxygenthenmovesfromthebloodstreamintocellswhereitisusedincellularrespiration,whichproduces
carbondioxideasabyproduct.Carbondioxidemovesfromthecellstothebloodstreamandiscarriedbackthroughtheheartto
thelungs,whereitisexhaled.

Therespiratorysystemincorporatesthenose,pharynx,orthroat,larynx,orvoicebox,tracheaandthelungs.Thetrachea
splitsintotwomainbranchescalledthebronchi,whichenterthelungsandfurthersplitintotinybranchescalledbronchioles.
Eachlungistwotothreelitersinsizeandtakesupmostoftheareawithintheribcage.

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Thenose,pharynx,larynx,trachea,bronchiandbronchiolesconductairtoandfromthelungs.Thetrachea,bronchiand
thefirstfewbronchiolesarelinedwithmucousmembranesandciliatedcellsthattrapandmovemucusupwardtothethroatwhere
itiseliminatedfromthebodybycoughingorswallowing.Ciliaarethetinyhairsthatlineandsweepthebronchialtubescleanof
bacterialorviralinvaders,andremoveexcesssecretionssuchasmucus.

Thebronchiolesdividemanymoretimesinthelungstocreateatreewithmanysmallerandsmallerbranches,someno
largerthan0.5mmindiameter.Thesebranchesfinallydeadendintotinyairsacscalledalveoli,whicharearrangedingrapelike
clusterssurroundedbyadensenetoftiny,thinwalledcapillaries.Alveolideliveroxygentoandremovecarbondioxidefromthe
circulatorysystem.Interspersedamongthealveoliarenumerousmacrophages,orlargewhitebloodcells,servingasalastlineof
defense,whichpatrolthealveoliandremoveforeignsubstancesthathavenotbeenfilteredoutearlier.

RespiratoryDisease

Therespiratorysystemcanbecompromisedbymanydifferentdiseasesaffectingitsvariouscomponentsand
functionality.Intotal,thereareover50identifieddiseasesoftherespiratorytract,allwithmanydifferentcausesandrequiring
manydifferenttherapies.Respiratoryinfectionanddiseasesoftheairways,theairsacsandotherconditionscancausesignificant
illnessandultimatelydeath.AccordingtotheAmericanLungAssociation,respiratorydiseasesarethethirdmostcommoncause
ofdeathintheUnitedStates,andareresponsibleforoneinsevendeaths.Therearemorethan35millionAmericanslivingwith
chronicrespiratorydiseasesasdiverseasCF,asthma,latenttuberculosisandchronicobstructivepulmonarydisease,orCOPD,
whichincludesemphysemaandchronicbronchitis.

Respiratorytractinfectionsrangefromupperviralinfections,suchasthecommoncold,thatrunalimitedcourse,to
severebacterial,fungalorviralinfectionsthatcandestroymuchofthelungtissueandcanbelifethreatening.Diseasesofthe
airways,suchasCF,asthmaandCOPD,canleadtoprogressiveobstructionoftheairwaysanddecreasedairflowtothealveoli,
thusinhibitingexchangeofoxygenandcarbondioxide.Physicallimitationassociatedwithrespiratoryinfectionscanbeminor
andtransientor,becauseofpersistentinflammationasseeninseverepersistentasthma,CForCOPD,canresultinprogressiveloss
oflungfunction,leadingtodisabilityordeath.

CysticFibrosis

AccordingtotheCFF,thereareapproximately30,000CFpatientsintheUnitedStatesand33,000CFpatients
throughouttherestoftheworld.CFisthemostcommongeneticdefectinCaucasiansandiscausedbyadefectiverecessivegene
thatispassedfrombothcarrierparentstoachild.Amongotherthings,thedefectivegenecausesthebodytosecreteabnormal
amountsofviscousmucusintothelungsandthepancreas.Thesesecretionscauseinflammationandscarringinthelungs,which
leadstolifethreateninglunginfectionsina

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majorityofpatients.Theseinfectionsresultindestructionoflungtissue,whichinturnslowlysuffocatesthepatient.Thereis
currentlynocureforCFand,accordingtotheCFF,thecurrentmedianlifeexpectancyofaCFpatientis33.4years.

RespiratoryinfectionsresultingfromCFarecommonbecausethickmucusblockstheairwaysandinhibitstherespiratory
systemsabilitytoremovewasteandpathogensfromthelungs.ThiscreatesanidealbreedinggroundforchronicbacterialikeP.
aeruginosa,whichcancauseanintenseinflammatoryresponsethatdamagesairways,leadingtoaprogressivereductioninlung
functionandimpairedgasexchange.P.aeruginosaisthepredominantbacteriainfectingCFpatientslungs.Accordingtothe
CFF,approximately60%ofCFpatientsintheUnitedStatesareinfectedwithP.aeruginosaandmorethan90%ofCFpatients
ultimatelydiefromlungdestructionresultingfromtheinflammatoryresponsetochroniclunginfections.Similarnumbershave
beenreportedforEuropeancountries.

P.aeruginosaisanenvironmentallyacquiredbacteriathathasaremarkablecapacitytocausediseaseinsusceptible
hostssuchasCFpatients.P.aeruginosaiscapableofutilizingawiderangeoforganiccompoundsasfoodsources,givingitan
exceptionalabilitytocolonizeecologicalnicheswherenutrientsarelimited.P.aeruginosacanproduceanumberoftoxic
proteinsthatnotonlycauseextensivetissuedamage,butalsointerferewiththehumanimmunesystemsdefensemechanisms.
Theseproteinsrangefrompotenttoxinsthatenterandkillhostcellsatornearthesiteofinfectiontodegradativeenzymesthat
permanentlydisruptthecellmembranesandconnectivetissuesinvariousorgans.P.aeruginosaisalsoresistanttomany
antibiotics.

CurrentTherapiesandTheirLimitations

CFpatientsrequiremultiplepharmaceuticalandphysicaltherapiesrangingfrominhaled,intravenousandoral
antibioticstodigestiveenzymes,tomucolytics,bronchodilatorsandphysiotherapies,suchaschestorbackclappingtohelp
loosenmucusfromthelungsorposturaldrainagetohelpdrainmucusfromthelungs.Becausethereisnocure,existingtherapies
arefocusedonextendingthelivesandimprovingthequalityoflifeofCFpatients.

AntibiotictherapyisofferedtoCFpatientstocontrolsymptomsoflunginfectionandslowlungdestruction.Although
antibioticscandecreasethebacterialdensityinthelungsofCFpatientsand,therefore,reducelunginflammation,thebacteriaare
nevercompletelyeradicatedfromtheairwaysandthelungs.P.aeruginosainfectionsinCFpatientsaretopical,orsurface,
infectionsoftheairwaysandthelungs.Oralandintravenousantibioticsactsystemicallythroughtheentirebloodstream,rather
thantopicallyaswithinhaledantibioticsand,asaresult,agreaterdoseofmedicationisrequiredwithoralorintravenous
administrationtoachievethesameconcentrationofmedicationatthesiteofinfection.Ascomparedtooralorintravenous
administration,inhalationdeliversmoremedicationwithlesssystemicexposureandprovidesgreaterlungaccess.Asaresult,
inhaledantibioticsarecurrentlythebestavailablealternativeforantibiotictherapyinCFpatients.

WeareawareofonlyoneinhaledantibioticapprovedintheUnitedStatesforthetreatmentofP.aeruginosainfections
inCFpatients,whichisTOBI.TOBIwasdevelopedinthe1990sbyscientistsatPathoGenesisCorporation,includingA.Bruce
MontgomeryM.D.,ourPresidentandChiefExecutiveOfficer,andseveralothermembersofourmanagementteam.PathoGenesis
wassubsequentlyacquiredbyChironin2000.AccordingtoChiron,in2003,worldwidesalesofTOBIwere$172million.In
severalEuropeancountries,colistin,agenericantibiotic,isapprovedasaninhalationantibioticforthetreatmentofinfectionsin
CFpatients.In2003,ProfileTherapeuticsplc,oneofthelargestsuppliersofcolistin,reportedsalesofinhaledcolistinof
approximately$18million.

TheadministrationofTOBIinCFpatientshasledtodramaticimprovementsinlungfunction,significantdecreasesin
theneedforhospitalizationandalongtermameliorationoftherateofdeclineoflungfunction.AccordingtotheCFF,medianlife
expectancyforCFpatientsintheUnitedStateshasincreasedfrom

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31.0yearsin1997,theyearinwhichTOBIwasintroduced,to33.4yearsin2001.Aswithanyantibiotic,however,continuoususe
ofTOBIresultsintheemergenceofresistantstrainsofP.aeruginosa.Therefore,toreducetheemergenceofresistance,TOBIis
approvedonlyforadministrationinalternating28daycycles,wherepatientsspend28daysontherapyandthen28daysoff.
AccordingtoastudybyBonnieRamsey,etal.appearingintheJanuary1999issueofTheNewEnglandJournalofMedicine,
severepatientstypicallyexperiencesignificantdiseaseprogressionduringtheofftherapycycle,oftenrevertingbacktonear
baseline,pretreatmentlungfunction.

Accordingly,althoughTOBIhasbeensuccessfulinslowinglungdestructionresultingfromrespiratoryinfectionsinCF
patients,thetherapyhassignificantdrawbacks:

theintermittenttherapyregimenrequiresa28daydrugholidaythatsomepatientscannottolerateand,forsome,
resultsinadeclineinlungfunction

tobramycin,theactivepharmaceuticalingredient,orAPI,inTOBI,isassociatedwithcumulativedosetoxicities
leadingtonephrotoxicities,orlossofrenalfunction,andototoxicities,orhearingloss

TOBItherapyusuallytakesapproximately20minutespersession,withastandardregimenoftwosessionsperday
and

TOBIhasabittertastethatispoorlytoleratedbypatients,especiallyadolescents,oftenresultinginpoorpatient
compliance.

Becauseofthesedrawbacks,webelievethereisaclear,unmetneedforanewclassofinhaledantibioticsforthe
treatmentofCFthatcanberapidlyandconvenientlydelivered.

TheCorusSolution:Corus1020AztreonamFormulatedforInhalationfortheTreatmentofLungInfectionsin
CFPatients

Corus1020,whichisaztreonamformulatedforinhalationforthetreatmentoflunginfectionsinCFpatients,isourmost
advancedproductcandidate.Corus1020isaninhaledantibioticwithabroadspectrumofactivityagainsttheGramnegative
bacteriathatcauselunginfections,includingP.aeruginosa,inCFpatients.Manyantibioticsareonlyeffectiveagainsteither
GrampositiveorGramnegativebacteria,aclassificationgiventobacteriabasedonthepermeabilityofitscellwalltoastain
commonlyusedtoidentifyunknownbacteria.Wehavedevelopedaztreonamintoaproprietaryformulationdesignedtobeeasily
usedbythepatientandwelltoleratedbythelungs.TheAPI,aztreonam,wasintroducedinthe1980s.Thedrugiscurrently
approvedbytheFDAforintravenoususeonlyandisformulatedwithasaltnotamenabletoinhalation.

BecauseTOBIisapprovedonlyforadministrationinalternating28daycycles,Corus1020wouldprovidea
complementarytreatmentduringasevereCFpatients28daydrugholidayfromTOBI.Becauseweareawareofnoinhaled
antibioticapprovedintheUnitedStatesforthetreatmentofP.aeruginosainfectionsinCFpatientsotherthanTOBI,webelieve
Corus1020wouldprovideaneededadditionalinhaledantibiotictreatmentforsevereCFpatients.

PulmonologistsareconstrainedintheirchoiceoftreatmentforP.aeruginosainfectionsinmildtomoderateCFpatients
becauseofthelimitedantibioticoptionsavailabletocombatP.aeruginosainfectionsandtheriskofinducingantibiotic
resistanceasaresultoffrequentuse.WebelieveCorus1020wouldprovideaneededadditionalalternativetoexistingoral,
intravenousandinhaledantibiotictreatmentsforP.aeruginosainfectionsinmildtomoderateCFpatients.

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WebelievethatCorus1020wouldbeanattractivetherapyforthemanagementofrespiratoryinfectionsinCFpatients,
andmayoffersignificantadvantagesoverexistingtherapiesbecauseofthefollowingcharacteristics:

Corus1020hasbeenspecificallyformulatedforinhalationinamannerdesignedtobeeasilyusedbythepatientand
welltoleratedbythelungs
aztreonam,theAPIinCorus1020,hasnoknowncumulativedosetoxicities
Corus1020hasinvitroactivityagainstpathogensfoundinCFpatientswithnocrossresistancetotobramycin

Corus1020isdeliveredthroughPARIseFlowinhalationdevice,anelectronicnebulizersystemdesignedtobefast,
portableandeasytouse,resultinginexpecteddeliverytimesofeitherlessthantwominutesorlessthanfive
minutes,dependingonthedoseselectedand

Corus1020isformulatedinaneasilytolerated,nonbittertastingflavor.

Althoughallantibioticshavethepotentialtoinduceresistance,Corus1020initiallywouldenjoyanadvantageover
TOBIagainstTOBIresistantstrainsofP.aeruginosa.Becausetheriskofinducingresistancethroughhighuseofonlyone
antibioticwouldbereduced,webelievethecommerciallaunchandacceptanceofCorus1020wouldresultinincreasedand
earlieruseofbothTOBIandCorus1020tocombatrespiratoryinfectionsinCFpatients.Overyears,thisresistanceadvantagemay
disappear.

InFebruary2002,weenteredintoanagreementwithPARItoexclusivelyaccessPARIseFlowinhalationtechnologyto
deliverCorus1020.ThePARIeFlowinhalationdeviceisacompacthandheld,singlepatient,multiuse,portablenebulizerthatis
electricallypoweredandelectromechanicallycontrolled.TheefficiencyofthePARIeFlowinhalationdeviceallowsittobe
poweredbyfourAAbatteries.OneoftheprimaryadvantagesofthePARIeFlowinhalationdeviceisthatitproducesanaerosol
thatiswellsuitedforlowerairwaydrugdepositionandissignificantlymoreefficientthantraditionalnebulizers.AlthoughPARI
isfreetoutilizethesystemwithothercompanies,includingpotentialcompetitors,wehavetheexclusiverighttousetheeFlow
systemwithaztreonam.ThePARIeFlowinhalationdevicereceivedFDA510(k)clearanceinMay2004asahandheldnebulizerto
beusedwithmedicationsforwhichadoctorhasprescribednebulization.Ifforanyreasonweneedtoqualifyanewdelivery
devicesupplier,therecouldbeanegativeimpactonourcostofgoods,ourabilitytodevelopandcommercializeCorus1020ona
timelybasisandthecompetitiveadvantagesofCorus1020.

Corus1020ProgramHistoryandStatus

AztreonamisawellknownGramnegativeantibioticthatiseffectiveinkillingP.aeruginosa.Wechoseaztreonamas
theleadcandidateforourinhaledantibioticprogrambecauseofitsactivityagainstP.aeruginosaandotherpathogensassociated
withCF,anditsfavorablesafetyprofileasanintravenousantibiotic.Ascomparedtopenicillinclassandbetalactamantibiotics,
aztreonamhasamuchlowerrateoflifethreateningallergicreactions.Inducingallergicresponseinthelungscausesacute
bronchospasm,orasuddeninvoluntarycontractionofthesmoothmusclessurroundingthebronchialtubes,andcanbedangerous
becausemosttherapyisdoneathomewithoutmedicalsupervision.Asevereallergicreactionbythelungstoaninhaled
medicationcouldleadtoseriousandpotentiallylifethreateningconsequences.

In2002and2003,wecompletedpreclinicaltoxicologyandPhaseIaandIbclinicalstudies,whichindicatedthatCorus
1020iswelltoleratedinanimals,healthyvolunteersandCFpatients.InMarch2002,weobtainedfromtheFDAorphandrug
statusforCorus1020intheUnitedStates.InJune2004,weobtainedorphandrugstatusintheEU.Orphandrugstatusinboththe
UnitedStatesandtheEUmaygiveusextendedmarketingexclusivityrightsiftheproductisapproved.InApril2003,wefiledan
investigationalnewdrugapplication,orIND,withtheFDA,andshortlythereafterbeganourPhaseIbstudyinCFpatients.This
U.S.multicenter,doseescalationstudyevaluatedthesafetyandtolerabilityofCorus1020in35adultandadolescentpatients.

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InOctober2003,followingsuccessfulsafetyresultsinourPhaseIbtrial,weinitiatedaPhaseIIdoubleblind,placebo
controlled,doserangingefficacystudywith105patientsin20U.S.centers.ThisPhaseIIstudyiscomplete,andweexpectto
completetheanalysisofthestudydatainlate2004.TheprimaryefficacyendpointsforthePhaseIItrialareimprovedlung
functionanddecreasedbacterialloadinthesputum,whichismucusandothermatterthatisbroughtupfromthelungsby
coughing,thesameendpointsthatservedasthebasisforTOBIsFDAapproval.Preliminaryanalysisofthestudydataindicated
thatatbothdoselevelsstudied,75mgand225mg,Corus1020wasgenerallywelltoleratedinCFpatientsandshowedagreater
than97%reductionfrombaselineintheamountofP.aeruginosaasmeasuredbysputumdensity.Inpatientswithabnormallung
functionatbaseline,therewasoverallsignificantimprovementoverthewholestudyinlungfunction.Theimprovementinthe
75mgdosegroupaveraged9%improvementinlungfunctionfrombaseline,whichwasmoreconsistentthanthatseeninpatients
treatedwiththe225mgdose.

InSeptember2003,weenteredintoanagreementwithCysticFibrosisFoundationTherapeutics,Inc.,orCFFT,under
whichwereceived$1.0millionuponachievementofcertainmilestonesinourCorus1020program.Underthetermsofthis
agreement,weareobligatedtorepaythisamounttoCFFTuponeitherreceivingFDAmarketingapprovalofCorus1020orour
failuretosubmitanNDAorobtainmarketingapprovalfromtheFDAbyJuly2007,andtopaytoCFFTanadditional$2.0million
ifwereceiveFDAmarketingapprovalofCorus1020priortoFebruary3,2009,oranadditional$3.0millionifwereceiveFDA
marketingapprovalsubsequenttoFebruary3,2009.

WeexpecttocommencetwoPhaseIIIclinicaltrials,onepivotalandonesupportive,inearly2005,andweexpectto
completethesetrialsbytheendof2005.ThepivotalPhaseIIIclinicaltrialwillhaveendpointssimilartothePhaseIItrial,but
withtheadditionofnewendpointsforpatientqualityoflife,andmeasurementsofallendpointsto56daysposttreatment.The
supportivePhaseIIIclinicaltrialisbeingconductedprimarilytofurtherevaluatesafety.Wewillberequiredtocommencea
carcinogenicitystudyofCorus1020beforefilingtheNDA,withapostapprovalcompletioncommitment.Weplantosubmitan
NDAforCorus1020in2006.WebelievethatCorus1020maybeeligibleforpriorityreviewbytheFDA.Wedonotexpectto
achievefinalapprovaloftheNDA,ifatall,untilatleast2007or,ifweareabletoobtainpriorityreviewfromtheFDA,thesecond
halfof2006.

Corus1020CommercializationStrategy

ThetreatmentofCFpatientsintheUnitedStatesishighlycentralized.AccordingtotheCFF,nearly77%ofthe30,000
CFpatientsintheUnitedStatesaretreatedinapproximately115accreditedCFcenters.Weestimatethattherearemorethan700
pulmonologistspracticingintheseCFcenters.Asaresultofthismarketconcentration,webelievethatwecaninitiallydevelop
theCFmarketforCorus1020throughasalesforceof25salesrepresentativesand,later,expandtocoverotherpulmonologists
withthemostactivepracticesoutsidetheCFcenters.

Corus1020IntellectualPropertyandOrphanDrugStatus

Wehavepatentapplicationspendingonaerosolizedaztreonamforourdrugformulation,ourmethodofusefortreatment
withCorus1020andourmanufacturingmethod.WealsoholdanissuedU.S.patentonthetreatmentofpulmonaryinfections
causedbycertainGramnegativebacteriawithaninhalabledrypowderformulationofaztreonamorapharmaceutically
acceptablesaltofaztreonam.Weintendtofilepatentapplicationsinallsignificantmarketsinternationallyandexpecttofile
subsequentpatentapplicationsonourdruganddeliverydevicecombinationandformulationasourprogramcontinuesto
develop.Finally,duetothereceiptoforphandrugstatusforCorus1020,weexpecttohavemarketingexclusivityfortheCF
respiratoryinfectionindicationintheUnitedStatesforsevenyearsfromthedateofapprovalandintheEUfortenyears.

Corus1020Manufacturing

Wehaveenteredintoasupplyagreementwithacontractmanufacturerforthesupplyofouraztreonam,theAPIforCorus
1020.Webelieveavailablesuppliesunderthisagreementwillbesufficienttomeetcommercialrequirementsforourexpected
clinicalindications.Wealsointendtoidentifyandcontractwithathirdpartycontractmanufacturertoperformthecompounding,
finishprocessingandpackagingofCorus1020.

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Asthma

Asthmaisachronicdiseaseoftheairwaysthatischaracterizedbybronchoconstriction,inflammationandmucus
secretioninthelungs.Patientswithasthmasufferfromincreasedsensitivityoftheairwaysfromavarietyofexternalstimulisuch
asmold,dust,pollen,viralinfectionsandothersthatcausetheonsetofanasthmaattack.

AsthmahasbeenclassifiedbytheNIHintofourdistinctdiseasecategoriesbasedonincreasingseverityofsymptoms:
mildintermittentasthma,mildpersistentasthma,moderatepersistentasthmaandseverepersistentasthma.Basedonourinternal
marketingresearch,weestimatethatoftheapproximately700,000patientswhoareclassifiedbytheNIHassufferingfromsevere
persistentasthma,175,000dependontheuseoforalcorticosteroids,suchasprednisone,tocontroltheirdisease.Accordingtoa
2003studyinJournalofAllergyandClinicalImmunology,patientswithseverepersistentasthmaspend$12,813ayear,ornearly
fivetimesmore,indirectandindirectcoststhanthosewithmildpersistentasthmacaringfortheirdisease.

CurrentTherapiesandTheirLimitations

Patientswithseverepersistentasthmasufferfromsymptomscontinuously.Themosteffectiveantiinflammatoryasthma
medicationsareaclassofmedicationscalledcorticosteroids.Corticosteroidscanbeadministeredsystemicallyorbyinhalation.
Shorttermsystemiccorticosteroidsareproperlyadministeredinburststomanageinadequatelycontrolledasthma.Despitethe
efficacyoforalcorticosteroidsintreatingseverepersistentasthma,whenusedchronically,theycanhaveseveresideeffects,
includingosteoporosis,weightgain,adrenalsuppression,growthsuppression,dermalthinning,hypertension,diabetes,cataracts
andmuscleweakness.Althoughinhaledcorticosteroidsaresafer,theyprovidealesspotentantiinflammatoryeffectand,ifgiven
athighdoses,causegrowthstuntingandosteoporosis.Thereareotherasthmaantiinflammatoryagents,suchasSingulair,an
oralleukotrieneantagonist,buttheyarenotaspotentascorticosteroidsandarenotapprovedforthetreatmentofseverepersistent
asthma.

CurrentlytheonlyproductmarketedspecificallyasacorticosteroidsparingagentforseverepersistentasthmaisXolair
,whichisomalizumab,E25,arecombinanthumanizedmonoclonalantiIgEantibodymarketedbyGenentech,Inc.intheUnited
States.XolairhasbeenapprovedintheUnitedStatesforthetreatmentofmoderatetoseverepersistentasthmatriggeredby
allergiesinpatientswhoareolderthan12yearsofage.Inthefirsthalfof2004,GenentechreportedsalesofXolairof$73.7
millionintheUnitedStates.Xolair,however,wasspecificallynotapprovedforuseinoralcorticosteroiddependentpatientswith
asthma.Moreover,Xolairmustbeadministeredviasubcutaneousinjections.

Duetotheadverseeffectsofchronicsystemicexposuretocorticosteroidsandthelimitationsanddrawbacksofother
availabletherapies,webelievethereisanunmetneedforasafe,potentdrugthatwillenablethereductionofcorticosteroiddoses
inasthmapatients.

TheCorusSolution:Corus1030InhaledLidocainefortheTreatmentofSeverePersistentAsthma

Corus1030,inhaledlidocaineforthetreatmentofseverepersistentasthma,isourproprietaryprogramassessinginhaled
lidocaineforuseinpatientswithasthma.WelicensedtheunderlyingpatentportfolioforthisprogramfromMayoFoundationfor
MedicalEducationandResearch,orMayoClinic,inJanuary2002.WecurrentlyhaveoneongoingPhaseIIclinicaltrialin
patientswithseverepersistentasthmawhoaredependentonthechronicuseoforalcorticosteroids,andhaverecentlycompleteda
PhaseIIclinicaltrialinpatientswithmildtomoderatepersistentasthma.

Weareworkingtodevelopasafeandeffectiveformulationoflidocainesuitableforadministrationviaamodernaerosol
device.WebelievethatCorus1030wouldofferanattractivealternativetooralcorticosteroidsin

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thetreatmentofasthma,enablingthereductionofcorticosteroidusebyasthmapatientswhileimprovingtheirlungfunction.

Corus1030ProgramHistoryandStatus

LidocainehasbeenusedintheUnitedStatesforover50yearsasalocalanesthetic,andisgivenintravenouslyasa
treatmentforcardiacarrhythmias.Dosesusedforinhalationresultin10to50foldlowerbloodconcentrationsthanthose
resultingfromdosesusedforcardiacarrhythmias.Althoughthemechanismofactionhasnotbeenfullydetermined,theinhalation
oflidocaineinappropriateconcentrationcausesapoptosis,orprogrammedcelldeath,ofinflammatorycellsintheairwaysof
patientswithasthma.Theseinflammatorycells,includingeosinophils,atypeofwhitebloodcell,arethemajoreffectorof
inflammationinasthmaandarepresentinhighnumbersintheairwaymucosaofpatientswithasthma.Afterinhalation,dilution
occursinthebloodstream,resultinginextremelylowsystemiclevelsoflidocaine.This,incombinationwithourpreclinicaland
clinicalstudies,leadsustobelievethatinhaledlidocaineissafe.

PriortoourlicensingoftheunderlyingpatentportfolioforthelidocaineprograminJanuary2002,MayoClinichad
investigatedtheuseoflidocaineforthetreatmentofasthmaunderaMayoClinicIND.MayoCliniccompletedthreePhaseII
trials,twoofwhichwereopenlabeltrialsandoneofwhichwasadoubleblindplacebocontrolledtrial.Anopenlabeltrialisa
clinicaltrialinwhichallparticipantsareawarethatsubjectsarereceivingunblindedtrialtreatmentratherthanplacebo.After
completionofthesePhaseIItrials,MayoClinicinvestigatorscompletedalongtermtrialwheredatawascollectedonpatients
usinginhaledlidocaineforuptofouryears.

Thefirsttwoopenlabeltrialsinpatientswithseverepersistentasthmawhoaredependentonoralcorticosteroids
consistedofonetrialof20adultsandonetrialofsixpediatricpatients.Inthesetrials,inhalationtherapywithlidocaineledtoa
markeddeclineincorticosteroiduseofatleast80%onaverage.Intheadulttrial,14patientswereweanedfromtheir
corticosteroidscompletelyandanotherthreehadan80%reductionintheiroralcorticosteroidusage.Inthepediatrictrial,fiveof
thesixpatientswerecompletelyweanedfromoralcorticosteroids.MayoClinicsthirdPhaseIIclinicaltrialwasadoubleblind,
placebocontrolledtrialof50patientsbeingweanedfrominhaledcorticosteroidsduringthetrialperiod.Asthmaworsenedinthe
placebogroup,whileasthmaimprovedintheinhaledlidocainetreatmentgroupaslungfunctionimproved,eventhoughinhaled
corticosteroidswereweaned.Thedifferenceinasthmasymptomsasmeasuredbyforcedexpirationvolumeofairfromthelungs
duringthefirstsecondofexhalationafteradeepbreath,orFEV1,wasstatisticallysignificant(p<0.001)betweentheplaceboand
lidocainegroups.Inaddition,membersofthelidocainegroupexperiencedsignificantdecreasesinnighttimeawakenings,
bronchodilatoruseandbloodeosinophilcounts.

Finally,MayoClinicusedinhaledlidocaineforoneyeartofouryearsin49patientsinalongterm,openlabeltrial.All
patientstoleratedthetherapyoverthelongterm,exceptfortwopatientswhodiscontinuedthetherapyduetosideeffectsofraspy
throatandupsetstomach.Variousdosageregimensweretried,andallappearedeffective,includingtheuseoftwiceaday
lidocaineinhalation.Inaddition,therewasasignificantreductioninhospitalizationforthosepatientstreatedmorethanoneyear,
ascomparedtobaselinepriortotheuseoflidocaine.

Althoughweintendedtopursueaclinicaltrialdesignedforpatientswithseverepersistentasthmawhoaredependenton
oralcorticosteroids,atapreINDmeetingwiththeFDAinOctober2002,theFDAspecificallyaskedustoconductatrialin
patientswithmildtomoderatepersistentasthmawhohadnotbeentreatedwithcorticosteroids.Thisrequestwastoestablishthe
safetyof12weeklidocaineaerosoladministration.Sinceoralcorticosteroidweaningcanleadtoadverseeventssuchassevere
moodchangesandincreasedsusceptibilitytosevereinfections,thistrialwasrequiredpriortoanoralcorticosteroidweaningtrial.
Bytestinglidocaineinasteroidnavepopulation,safetycanbeassessedwithoutthecomplicatingfactoroforalcorticosteroid
weaning.

InFebruary2003,wefiledanINDforCorus1030.AsaresultofconversationswiththeFDA,wecompleteda16week,
154patientplacebocontrolled,doserangingPhaseIIclinicaltrialof1%and4%lidocaine

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administeredtwicedailyfor12weeksusingthePARIeFlowinhalationdevice.Thisstudyshowedthatthelidocainearmswereas
safeasplacebo.Althoughmouthorthroatnumbingwasreportedinallthreearmsofthestudyandwassignificantlyhigherinthe
lidocainegroups,60%ofthe1%groupand69%ofthe4%groupreportednosensationofnumbingandallcasesweretransient
anddidnotleadtoaspirationoranydifficultyswallowing.Inthismildpersistentpopulationwithbaselinelungfunctionnear
normal,therewasnotasignificantimprovementofFEV1,theprimaryefficacyendpointofthistrial.However,eveningpeakflows,
adailymeasureoflungfunction,improvedsignificantlyinthelidocainegroups.Inaddition,significantimprovementsinthe
lidocainegroupsintolerancetosmoke,airpollutionanddustwerealsoseen.

Thesafetyresultsfromthemildtomoderatepersistentasthmatrialenabledustobegina24weekPhaseIIclinicaltrialof
4%lidocainecomparedtoplaceboinpatientswithseverepersistentasthmawhoaredependentonthechronicuseoforal
corticosteroidsforatleastsixmonthsatadoseofgreaterthanorequalto5mgofprednisoneaday.Wearecurrentlyconducting
thisEuropeanstudythroughInvereskResearchInternationalLimited,whichhascompletedenrollmentofover100patientsandis
expectedtobecompletedinlate2004,withresultsexpectedtobeavailableinearly2005.Theprimaryendpointisa50%
decreaseoforalcorticosteroiddosewhilemaintainingorimprovingclinicalstability.Thedesignofthistrialisbasedonprevious
weaningstudies,includingthatusedforXolair,inanefforttoensureasafescheduleofweaningintheplacebopatients.The
purposeofthisstudyistoconfirmthesafetyoflidocaineinmoreseverepatients,aswellastoconfirmtheweaningresultsseenin
theMayoClinicstudies.

Inparallelwithourclinicalprogram,weareconductingaseriesofsixtoninemonthpreclinicalaerosoltoxicology
studiesinbothdogsandrodents.ThesestudiesarerequiredtobecompletedpriortostartofthePhaseIIIclinicaltrials.We
anticipatethecommencementofpivotalPhaseIIIclinicaltrialsinlate2005,andweexpecttocompletethesetrialsbyearly2007.
WeplantosubmitanNDAforCorus1030in2007.

Corus1030CommercializationStrategy

AswithCF,pulmonologistsaretheprimaryphysicianswhotreatmostofthepatientswithseverepersistentasthma.Upon
completionofPhaseIIIclinicaltrialsforCorus1030,weanticipateexpandingoursalesforcetoapproximately100sales
representativesinordertocoverthemajorityofpulmonologiststreatingpatientswithseverepersistentasthma.

ThroughourpartnershipwithPARI,wealsohaveaccesstoPARIseFlowinhalationdeviceforourlidocaineprogram.
WiththePARIeFlowinhalationdevice,wehopetoachievedeliverytimeofapproximatelytwominutesversussevenminutes
withtraditionaljetnebulizersthatwereusedintheMayoClinicstudies.Moreimportantly,thePARIeFlowinhalationdevicehas
asmallerparticlesizerangethantraditionaljetnebulizers,andisdesignedtodecreasedepositionofthedruginthebackofthe
throat.Asmallerparticlesizedecreasesdepositioninthebackofthethroatbecausesmaller,lighterparticlesremainsuspendedin
inhaledairlongerandarebetterabletobecarrieddeeperintothelungsthroughthemanybendsandbranchesintheairways.Asa
result,weexpectoursolutionwillminimizeor,insomepatients,eliminatetransientpharyngealanesthesiaormildthroat
numbness,thecurrentmajoradverseeffectofinhaledlidocainewhengivenwithastandardnebulizer.Ifweneedtoqualifyanew
deliverydevicesupplier,therecouldbeanegativeimpactonourcostofgoods,ourabilitytodevelopandcommercializeCorus
1030onatimelybasis,andthecompetitiveadvantagesofCorus1030.

Corus1030IntellectualProperty

Althoughlidocaineisnotaproprietarymolecule,wearebuildingadditionalintellectualpropertyaroundthelidocaine
moleculeandlidocaineanalogswithanumberofnewinventionsandpatentapplicationfilings,includingmechanismofaction
discoveries,lidocaineprodrugs,oraninactiveformofadrugthatisactivatedbymetabolicprocessesinthebodythatconvertitto
apharmaceuticallyactiveform,novelcompoundsandcombinationdrugsthataremorepotentthanthelidocainemolecule.We
currentlyhavelicenserightstofourU.S.

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patentscoveringthemethodfortreatmentofbronchialasthmabyadministrationoftopicalanesthetics,andeosinophilassociated
pathologiesbyadministrationoftopicalanesthetics,glucocorticoidsandotheragents.

Corus1030Manufacturing

TheAPIsupplyforCorus1030isreadilyavailablefromanumberofcommercialFDAregisteredsuppliersatcompetitive
costandpharmaceuticalquality.ThepackagingforCorus1030canbeperformedatmultipleU.S.andforeignbasedcontract
serviceoperations.WehaveoneU.S.basedandoneEuropeanbasedcontractortopackageCorus1030forourclinicaltrials.We
areworkingtosecurealongtermproductionsupplysourcefortheformulationandfinishingofCorus1030.

ProductPipeline

Inadditiontothedevelopmentactivitiesforourleadproductcandidatesandprograms,wearefocusedondeveloping
additionalclinicalprogramsandenhancingourintellectualpropertyportfolio.Accordingtothe2001studyissuedbytheTufts
CenterfortheStudyofDrugDevelopment,traditionalNCEdevelopmentactivitiesresultinadevelopmentsuccessrateofless
than20%,developmentcostsofapproximately$800millionandatimetomarketofapproximately10yearsto15years.Our
researcheffortisfocusedondevelopingnewdeliverymethods,indicationsandcombinationsforexistingcompoundswhere
proofofconcepthasbeenshowninrespiratorydiseases,withagoalofimprovingtheirtherapeuticeffect.Webelievethat,as
comparedtoanNCEdrugdevelopmentstrategy,ourapproachnotonlyincreasesthelikelihoodofsuccessfuldevelopmentwhile
decreasingcosts,butitalsopotentiallyallowsustoredeploythesecompoundsintothemarketplacemorequickly.Ourresearch
programsaredirectedtowardthedevelopmentofthreenovelproductconceptsintendedtosupportourCFandasthmaprograms.

Corus1040NebulizedBroadSpectrumAntibioticforRespiratoryInfections

Webelievethatrespiratoryinfectionssuchasbronchiectasis,bacterialexacerbationsofchronicbronchitisandlung
infectionsassociatedwithCFcanbetreatedwithaerosolizedantibiotics.Researchformulationstudiesareunderwaytodetermine
thepotentialofbroadspectrumantibioticseitheraloneorincombinationwithasecondantibiotictotreatbothGrampositiveand
Gramnegativerespiratoryinfections.WehavediscoveredCorus1040,aspecificcombinationofabroadspectrumantibioticand
aGramnegativeantibioticthatishighlyeffectiveinkillingbacteria,especiallyinthepresenceofmucin,aglycoproteinfoundin
mucus,thatfrequentlyinactivatesantibioticsbybindingthem.Wehavefiledpatentapplicationsforthisnovelantibiotic
formulationandexpecttocommencePhaseIclinicaltrialsforCorus1040by2006.

NonnumbingLidocaineProdrugs

Asideeffectofnebulizedlidocaineisitstendencytocausemouthandthroatnumbing.Althoughourclinicaltrialshave
showntodatethatthisparticularsideeffectismitigatedbytheuseofCorus1030inconjunctionwiththePARIeFlowinhalation
device,mouthandthroatnumbingisnotentirelyeliminated.Weareinvestigatingtwoprodrugstrategiesformaskingthese
numbingeffectsofnebulizedlidocaine.Ourfirstprodrugstrategyutilizesknownbiologicalprocessesforinvivoreductionof
amineoxides.Thegoalofthereductiveprodrugstrategyistoprovideasustainedreleaseoflidocaineoverseveralhoursinthe
lungviathebioconversionprocess.Oursecondprodrugstrategyutilizesaspecificenzymepresentinlungtissuetoactivatea
novellidocaineprodrug.Thisstrategyisdesignedtoreleaselidocaineinthelungafteraerosoladministrationatarapidrateover
severalminutes.Wehavefiledpatentapplicationsforbothlidocaineprodrugstrategies.

CombinationbetaAgonistLidocaineTherapeutics

Wehaveincorporatedthefastreleaseprodrugtechnologydescribedaboveintoasinglemolecularentitythatcombines
lidocainewithashortactingbetaagonist.Likethelidocaineprodrugsdescribedabove,these

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combinationbetaagonistlidocainetherapeuticsarealsobelievedtobenonnumbingand,whenadministeredtothelungsby
aerosolization,producetwotherapeuticeffects,bronchodilation(betaagonisteffect)andantiinflammatory(lidocaineeffect).We
havefiledpatentapplicationsforthistechnology.

Manufacturing

WerelyonEuticalsSpA,orEuticals,asoursinglesourceofsupplyforaztreonam,theAPIforCorus1020.Wehave
enteredintoalongtermsupplyagreementwithEuticalsforthissupplyofaztreonam.OuragreementwithEuticalsisterminable
byeitherusorEuticalsuponthelatertooccuroftwoyearswrittennoticeandthesevenyearanniversaryofourfirstcommercial
saleofCorus1020.WealsomayterminatetheagreementifEuticalsfailstoproperlyaddressanyFDAwarningormaintain
requiredregistrationsforitsproductionfacility.Finally,wemayterminatetheagreementifaftersevenyearsfromtheagreements
effectivedate,analternativesupplyofaztreonamisavailabletousatareducedrate.Euticalshasalsocontractuallyagreedto
manufacturetheAPIatanalternatefacilityaspartofabackupstrategytomitigatesupplyriskintheeventofaninterruptionin
supply.Activitiesareongoingtocompletethefacilityregistrationandtovalidateprocessmethodsforcommercialquantitiesof
theAPI,whichweexpectwillbecompletedbeforecommercialquantitiesareneeded.

UnderoursupplyagreementwithEuticals,weareabletoreceiveatleast25kgpershipmentoftheAPI,uptoanannual
maximumof3,000kg.Webelievethatforcurrentclinicalindicationsanannualsupplyof650kgwillbesufficienttomeetour
commercialrequirements.

Lidocaine,theAPIforCorus1030,isreadilyavailablefromanumberofcommercialFDAregisteredsuppliersat
competitivecostandpharmaceuticalquality.ThepackagingforCorus1030canbeperformedatmultipleU.S.andnonU.S.based
contractserviceoperations.Wearecurrentlyevaluatingalternativestosecurealongtermproductionsupplysourceforthe
formulationandfinishingofCorus1030aswellasfortheproductionofthereconstitutiondiluentsforCorus1020.

SalesandMarketing

WeownworldwidemarketingrightstoCorus1020andCorus1030.Wearecurrentlybuildingourmarketing
organizationandintendtodevelopasalesorganizationintheUnitedStatestocommercializeourproducts.Weintendtodevelop
partnershipswithmultinationalorregionalpharmaceuticalcompaniestocommercializeourproductsoutsidetheUnitedStates.

ThetreatmentofCFpatientsintheUnitedStatesishighlycentralized.Ifapproved,Corus1020wouldbepotentially
prescribedbythemorethan700pulmonologistswhowebelievetreatCFpatientsthroughtheapproximately115accreditedCF
centersintheUnitedStates.Becauseoftherelativelysmallsizeofourtargetprofessionalaudienceandthegeographic
concentrationofpatientsintheUnitedStates,webelievethatwecaninitiallydeveloptheCFcentermarketthroughasalesforce
ofapproximately25salesrepresentativesand,later,expandtocoverotherpulmonologistswiththemostactivepracticesoutside
theCFcenters.

WhenourCorus1030programforpatientswithseverepersistentasthmawhoaredependentonthechronicuseoforal
corticosteroidscompletesPhaseIIIclinicaltrials,weanticipateexpandingoursalesforceinanticipationofitspotential
commerciallaunchtoapproximately100salesrepresentativesinordertocoverthemajorityofpulmonologiststreatingpatients
withseverepersistentasthma.Ifapprovedforasthmaindicationsotherthanthetreatmentofpatientswithseverepersistentasthma
whoaredependentonthechronicuseoforalcorticosteroids,weexpectsalesofCorus1030willbeachievedthroughpartnerships
withestablishedpharmaceuticalcompanies.

LicenseAgreements

Wearepartytothreelicenseagreementsthatwebelievearematerialtoourbusiness.

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PARIGmbH

Todate,wehaveenteredintotwoagreementswithPARI.

InFebruary2002,weenteredintoacollaborativeagreementwithPARItoenabledevelopmentandcommercializationof
Corus1020totreatrespiratoryinfectionsinCFpatientsandotherassociatedrespiratorydiseasesusingPARIsproprietaryeFlow
inhalationtechnology.TheagreementprovidesaccesstoPARIspharmaceuticalformulationserviceandproprietaryeFlow
inhalationtechnology.Underthetermsofthisagreement,weagreedtopayPARIanupfrontfee,aswellasdevelopmentcosts,
andmakecertainotherpayments,basedonachievingspecifieddevelopmentandcommerciallaunchmilestones.Wealsoagreed
topayroyaltiesonproductnetsales.UnderouragreementwithPARI,wehavetherightstomanufacturethePARIeFlow
inhalationdeviceindependentlyundercertaincircumstances.

InApril2003,weenteredintoanagreementwithPARItoenabledevelopmentandcommercializationofCorus1030
usingPARIsproprietaryeFlowinhalationtechnology.Underthetermsofthisagreement,PARIhasgrantedusaworldwide,
exclusivelicensetouse,test,import,export,offerforsale,sellanddistributePARIeFlowinhalationdevicesforusewith
lidocaine,andtomake,havemade,use,test,develop,import,export,offerforsale,sellanddistributeexistingformulationsof
Corus1030,novelformulationsofCorus1030andCorus1030madeusingexistingornovelformulationsforusewiththeeFlow
inhalationdevices.WegrantedPARIanonexclusivelicensetoutilizeourintellectualpropertyinamannerthatdoesnotcompete,
directlyorindirectly,withourworldwidecommercializationofanydrugforinhalationtreatment,prophylaxisofrespiratorytract
diseasesandthetreatmentofcoughincidentaltotheinhalationtreatmentorprophylaxisofrespiratorytractdiseases.

WeagreedtopayPARIanupfrontlicensefeeandtomakecertainpaymentsbasedonachievingspecifieddevelopment
andcommerciallaunchmilestones.Thesemilestonepaymentswillonlybemadeforthefirstachievementofamilestone
regardlessofthenumberofindicationsforwhichitisattained.WealsoagreedtopayroyaltiesbasedonnetsalesofCorus1030
whenproducedwiththeexistingornovelformulationsbyus,ouraffiliatesoroursublicensees.

MayoFoundationforMedicalEducationandResearch

InJanuary2002,weenteredintoanagreementwithMayoClinicforanexclusive,worldwidelicense,underthepatents
andknowhowrelatedtoinhalationtechnologycontrolledbyMayoClinic,todevelop,manufactureandcommercializeCorus
1030.

InexchangefortherightslicensedfromMayoClinic,weagreedtopayMayoClinicanupfrontpaymentandreimbursed
MayoClinicforcertaincosts,expensesandfeesincurredpriortotheeffectivedateoftheagreement.Wealsoagreedtoreimburse
patentexpensesincurredbyMayoClinicforcosts,expensesandfeesincurredorowedbyMayoClinicforlegalservicesrendered
andpatentofficefeespaidbetweenJuly2001andJanuary2002fortheapplicationandmaintenanceofthelicensedpatents.We
alsoagreedtomakepaymentstoMayoClinicbasedonachievingspecifieddevelopmentandcommerciallaunchmilestonesand
topayroyaltiestoMayoClinicbasedonnetsalesofCorus1030byus,ouraffiliatesoroursublicensees.Ourroyaltyobligationis
forthelasttoexpirevalidclaimwithinthelicensedpatents.Uponpatentexpiration,whichoccursbetweenApril2013and
December2017,thelicensetousunderthelicensedknowhowbecomespaidup,irrevocableandnonexclusive.

Theagreementobligatesustousecommerciallyreasonableeffortstodevelop,obtainregulatoryapprovalsforand
commercializeCorus1030.Eachpartyhastherighttoterminatetheagreementiftheotherpartymateriallybreachesthe
agreement.

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PatentsandProprietaryRights

Oursuccessdependsinpartonourabilitytoobtainandmaintainproprietaryprotectionforourproductcandidates,
technologyandknowhow,tooperatewithoutinfringingontheproprietaryrightsofothersandtopreventothersfrominfringing
ourproprietaryrights.Ourpolicyistoseekprotectionofourproprietarypositionby,amongothermethods,filingU.S.andforeign
patentapplicationsrelatedtoourproprietarytechnology,inventionsandimprovementsthatareimportanttothedevelopmentof
ourbusiness.Wealsorelyontradesecrets,knowhow,continuingtechnologicalinnovation,regulatorystatutes,suchasorphan
drugdesignation,andinlicensingopportunitiestodevelopandmaintainourproprietaryposition.

WeownorholdlicensesforatotaloffiveissuedU.S.patents,anissuedEuropeanpatentand12U.S.patentapplications,
aswellas21foreigncounterpartapplicationstomanyofthesepatentsandpatentapplications.Intellectualpropertyrelatingto
aztreonamincludesoneU.S.patentcoveringamethodforthetreatmentofcertainpulmonaryinfectionswithinhalabledrypowder
formulationofaztreonamorapharmaceuticallyacceptablesaltofaztreonam,andthreeU.S.patentapplicationswithclaims
coveringtheformulation,manufacturingmethodandmethodofuseforinhalabledrypowderaztreonam.Thispatentexpires
December20,2021.WehavealsoenteredintoanexclusivelicensingagreementwithPARIthatgrantsusrightsunderpatents
ownedbyPARItoaztreonamformulationandinhalationtechnology.

IntellectualpropertyrelatingtoCorus1030includeslicenserightstofourU.S.patentscoveringthemethodfortreatment
ofbronchialasthmabyadministrationoftopicalanesthetics,andeosinophilassociatedpathologiesbyadministrationoftopical
anesthetics,glucocorticoidsandotheragents.Inaddition,wehavelicensedtwoU.S.patentapplicationsandseveralforeign
counterpartswithclaimscoveringmethodsfortreatmentofneutrophilrelateddiseasesbyadministrationoftopicalanesthetics.

OtherintellectualpropertydevelopedbyusincludesthreeU.S.patentapplicationscovering:

thesynthesis,formulationandmethodoftreatmentofasthmaandpulmonaryinflammationwithacetanilidesand
benzamides

formulationsofprodrugsoflocalanestheticsforthetreatmentofpulmonaryinflammationassociatedwithasthma,
bronchitisandchronicobstructivepulmonarydiseaseand

thesynthesis,formulationandmethodoftreatmentofpulmonaryinflammationwithprodrugs.

ThepatentrightsrelatingtoCorus1020consistofasingleU.S.patentissuedonDecember9,2003,pending
applicationsbeforetheU.S.PatentandTrademarkOffice,andforeigncounterpartsinArgentina,Australia,Brazil,Canada,Europe,
Israel,JapanandNorway.ThepatentrightsrelatingtoCorus1030ownedandlicensedexclusivelytousbyMayoClinicconsist
ofthreeU.S.patents,counterpartpatentsissuedinAustralia,EuropeandNewZealand,andpatentapplicationspendinginthe
UnitedStatesandinanumberofotherjurisdictions,includingAustralia,Canada,Israel,JapanandNorway.

AztreonamisthesubjectofseveralpatentsidentifyingE.R.Squibb&Sons,Inc.astheownerofrecord.Oneofthese
patentscoversaformofaztreonamthatisnotusedbyusinconnectionwithCorus1020.Anotherofthesepatentsexpireson
October4,2005,beforetheanticipateddateofcommerciallaunchofCorus1020.Webelievethatallofourusesofaztreonamto
date,andthroughOctober4,2005,havebeenandwillbesolelyforusesreasonablyrelatedtothedevelopmentandsubmissionof
informationtotheFDA,whichactivitiesareprotectedanddonotconstitutepatentinfringementunderU.S.law.Athirdpatent
issuedtoE.R.Squibb&SonsexpiresonAugust7,2007andcoversacrystalline,anhydrousformofaztreonam.Wedonotbelieve
thatthispatentencompassesthedry,saltversionofaztreonamusedinCorus1020.

Wealsodependupontradesecrets,knowhowandcontinuingtechnologicaladvancestodevelopandmaintainour
competitiveposition.Wemayrely,insomecircumstances,ontradesecretstoprotectour

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technologyhowever,tradesecretsaredifficulttoprotect.Tomaintaintheconfidentialityoftradesecretsandproprietary
information,itisourgeneralpracticetoenterintoconfidentialityagreementswithouremployees,consultants,scientificadvisors,
contractorsandotherthirdparties.Theseagreementsaredesignedtoprotectourproprietaryinformation,butmaynotprovide
protectionforourtradesecretsintheeventofunauthorizeddisclosureofsuchinformation.Inaddition,ourtradesecretsmay
otherwisebecomeknownorbeindependentlydiscoveredbycompetitors.Totheextentthatouremployees,consultants,scientific
advisors,contractorsandotherthirdpartiesuseintellectualpropertyownedbyothersintheirworkforus,disputesmayariseasto
therightsinrelatedorresultingknowhowandinventions.

WehavefiledatrademarkapplicationtoregistertheCorusPharmanameinboththeUnitedStatesandEurope.

Competition

Thedevelopmentandcommercializationofnewdrugsanddeliverytechnologiestotreatdiseasesoftherespiratory
systemishighlycompetitive.WewillfacecompetitionwithrespecttoCorus1020,Corus1030andanyotherproductswemay
developorcommercializeinthefuturefrommajorpharmaceuticalcompanies,specialtypharmaceuticalcompanies,compounding
pharmaciesandbiotechnologycompaniesworldwide.Manyofthesecompanieshavesubstantiallygreaterfinancial,
manufacturing,marketing,productdevelopment,technicalandhumanresourcesthanwedo.Largepharmaceuticalcompaniesin
particularhaveextensiveexperienceinclinicaltestingandinobtainingregulatoryapprovalsfordrugs.Thesecompaniesalso
havesignificantlygreaterresearchcapabilitiesthanwedo.

Corus1020

IfCorus1020receivesmarketingapproval,itwillcompeteagainstcurrentlyapprovedantimicrobialtherapiesforthe
treatmentofrespiratoryinfectionsinCFpatients.WeareawareofonlyoneinhaledantibioticapprovedintheUnitedStatesfor
thetreatmentofP.aeruginosainfectionsinCFpatients,whichisTOBI,marketedbyChiron.AlthoughinsevereCFpatientswe
expectCorus1020tobecomplementarybecauseTOBIisapprovedonlyforadministrationinalternating28daycycles,we
expectCorus1020tocompetedirectlywithTOBIinmildtomoderateCFpatients.Therearecurrentlyanumberofcompanies
workingtodevelopnewproductcandidatestospecificallytreatrespiratoryinfectionsinCFpatients.Webelievethatthe
followingproductcandidatesarecurrentlyinPhaseIclinicaltrials:

ChironisdevelopingadrypowderformulationofTOBIand
PeninsulaPharmaceuticals,Inc.isdevelopingdoripenem,abetalactamantibiotic.

Inaddition,inseveralEuropeancountries,colistin,agenericantibiotic,isapprovedasaninhalationantibioticforthetreatmentof
infectionsinCFpatients.

TherearealsoanumberofcompaniesworkingtodevelopnewdrugstotreatCFgenerally.Webelievethatthefollowing
productcandidatesarecurrentlyinPhaseIIorPhaseIIIclinicaltrials:

DyaxCorp.andDebiopharm,S.A.arejointlydevelopingarecombinantpeptidehumanneutrophilelastase(hNE)
inhibitor

TargetedGeneticsCorporationisdevelopingagenetherapytreatmentbasedonadenoassociatedvirus

SucampoPharmaceuticalsInc.isdevelopingSPI8811,anoralagentbelievedtocorrecttransportdefectsofsodium
andchlorideions.

InspirePharmaceuticalsInc.isdevelopingINS37217,atreatmentaimedatcorrectingtheiontransportdefectinCF
and

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Inaddition,thereareanumberofothercompaniesthataredevelopinginhaledantimicrobialproductcandidatesandtechnologies.
SomeofthesecompaniesmayseektoapplytheirtechnologiestoCF.

Corus1030

IfCorus1030receivesmarketingapproval,itwouldcompeteagainstcurrentlyapprovedtherapiesforthetreatmentof
severepersistentasthma.Weareawareofonlyoneproductmarketedspecificallyasacorticosteroidsparingagentforsevere
persistentasthma,Xolair,marketedbyGenentechintheUnitedStates.Therearealsoanumberofcompaniesworkingtodevelop
newcorticosteroidalternativestotreatasthma.WebelievethatthefollowingproductcandidatesarecurrentlyinPhaseIIorPhase
IIIclinicaltrials:

ProteinDesignLabsInc.isdevelopingthemonoclonalantibodydaclizumabfortreatmentofpatientswithasthma
whoareunresponsivetoinhaledcorticosteroids

EpigenesisPharmaceuticals,Inc.isdevelopingEPI12323,aninhalednonglucocorticoidsteroidthattargetsthe
inflammatoryandairwayobstructioncascadeintheirritatedlung

RottaResearchLaboratoriumisdevelopingAndolast,aninhaledsmallmoleculetreatmentthoughttoinhibitIgE
mediatedlunginflammation

GlaxoSmithKlineplcisdevelopingmepolizumab,anantiIL5monoclonalantibody,and842470,a
phosphodiesteraseIVinhibitorand

HoffmannLaRocheInc.isdevelopingR411,adualintegrinantagonist,whichspecificallyblocksthedockingof
adhesionmoleculesatselectedintegrinreceptors.

Inaddition,thereareanumberofothercompaniesthataredevelopingproductcandidatesbasedonformulationsof
bronchodilatorsandsteroidsincombination.

GovernmentalRegulation

U.S.Regulation

Drugresearch,preclinicaltesting,clinicaltrials,manufacturingandmarketingactivitiesaresubjecttoextensive
regulationbynumerousgovernmentalauthoritiesintheUnitedStatesandothercountries.IntheUnitedStates,nonbiological
drugssuchasourproductcandidatesaresubjecttorigorousFDAregulationundertheFederalFood,DrugandCosmeticActand
otherfederalandstatestatutesandregulations.Theselawsandregulationsgovern,amongotherthings,thepreclinicaland
clinicaltesting,manufacture,qualitycontrol,safety,efficacy,labeling,storage,recordkeeping,approval,marketing,advertising
andpromotionofourdrugproductcandidates.Theproductdevelopmentandregulatoryapprovalprocessrequiresthe
commitmentofsubstantialtime,effortandfinancialresources.

Ingeneral,themarketingapprovalprocessrequiredbytheFDAforunapprovednewdrugsnotpreviouslymarketedin
theUnitedStatesinvolvesthefollowingsteps:

preclinicallaboratoryandanimaltests
submissionofanIND,whichmustbecomeeffectivebeforeclinicaltrialsmaybegin
adequateandwellcontrolledhumanclinicaltrialstoestablishthesafetyandefficacyoftheproposeddrugforits
intendeduse
preapprovalinspectionofmanufacturingfacilitiesand
FDAreviewandapprovalofanNDA,orofanNDAsupplementforsubsequentindications.
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PreclinicalStudies.Preclinicalstudiesincludethelaboratoryevaluationofinvitropharmacology,productchemistry
andformulation,aswellasanimalstudiestoassessthepotentialsafetyandefficacyofaproduct.Certainpreclinicalsafetytests
mustbeconductedbylaboratoriesthatcomplywithgoodlaboratorypracticesrequirements.Theresultsofcompletedpreclinical
tests,togetherwithmanufacturinginformationandanalyticaldata,aresubmittedtotheFDAaspartofanINDapplicationandare
reviewedbytheFDAbeforehumanclinicaltrialsmaybegin.Somepreclinicalstudiesmaybeconductedinparallelwithhuman
clinicaltesting,particularlyforAPIswithpriorapprovals,suchasCorus1020.TheINDmustalsocontaintheprotocolsforthe
initialclinicaltrialsthatwillbecarriedout.TheINDautomaticallybecomeseffective30daysafterreceiptbytheFDA,unlessthe
FDAraisesconcernsorquestionsregardingtheconductoftheproposedclinicaltrialduringthe30daywaitingperiod.IftheFDA
objectstoanINDapplicationduringthis30daywaitingperiodoratanytimethereafter,theFDAmayhaltproposedorongoing
clinicaltrialsormayauthorizetrialsonlyunderspecifiedterms.Suchahalt,calledaclinicalhold,continuesineffectuntiland
unlesstheFDAsconcernsareadequatelyaddressed.Insomecases,clinicalholdsareneverlifted.ImpositionbytheFDAofa
clinicalholdcandelayorprecludefurtherproductdevelopment.TheprotocolsforfutureclinicaltrialsaresenttotheFDAasan
amendmenttotheINDbeforesuchtrialsmaycommence.

ClinicalTrials.Clinicaltrialsmustbeconductedinaccordancewithgoodclinicalpracticerequirementsandunder
protocolsandmethodologiesthat,amongotherthings:

ensurereceiptfromparticipantsofsignedconsentsthatinformthemofrisks
detailtheprotocolandobjectivesofthestudy
detailtheparameterstobeusedtomonitorsafetyand
detailtheefficacycriteriatobeevaluated.

Furthermore,eachclinicalstudymustbeconductedunderthesupervisionofaprincipalinvestigatoroperatingunderthe
auspicesofaninstitutionalreviewboard,orIRB,attheinstitutionwherethestudyisconducted.TheIRBmustreviewand
approvetheplanforanyclinicaltrialbeforeitcommencesatthatinstitutionanditmustmonitorthestudyuntilitiscompleted.
TheIRBwillconsider,amongotherthings,ethicalfactors,thesafetyofhumansubjectsandthepossibleliabilityofthe
institution.Sponsors,investigatorsandIRBmembersareobligatedtoavoidconflictsofinterestsandensurecompliancewithall
legalrequirements.TheFDA,theIRBorthesponsormaysuspendordiscontinueaclinicaltrialatanytimeonvariousgrounds,
includingpotentialhealthriskstostudysubjects.

ClinicaltrialsfornewdrugcandidatesnotpreviouslymarketedintheUnitedStatesaretypicallyconductedinthree
sequentialphasesthatmayoverlap.PhaseIinvolvestheinitialintroductionofthedrugcandidateintohealthyhumanvolunteers
or,sometimes,patients,andtestsforsafetyoradverseeffects,dosage,tolerance,metabolism,distribution,excretion,andclinical
pharmacology.PhaseIIinvolvesstudiesinalimitedpatientpopulationtodeterminetheinitialefficacyofthedrugcandidatefor
specifictargetedindications,todeterminedosagetoleranceandoptimaldosageandtoidentifypossibleadversesideeffectsand
safetyrisks.OnceacompoundshowsevidenceofefficacyandisfoundtohaveanacceptablesafetyprofileinPhaseIIevaluations,
PhaseIIItrialsareundertakentomorefullyevaluateclinicaloutcomes,toestablishtheoverallrisk/benefitratioofthedrug
candidate,andtoprovide,ifappropriate,anadequatebasisforproductlabeling.Duringallclinicaltrials,physicianswillmonitor
patientstodetermineefficacyofthedrugcandidateandtoobserveandreportanyreactionsorsafetyrisksthatmayresultfromuse
ofthedrugcandidate.DrugproductsadministeredtoparticipantsinclinicaltrialsmustbeproducedincompliancewiththeFDAs
currentgoodmanufacturingpractices,orcGMP,requirements.

FastTrackDesignation.FDAfasttrackdesignationprovidescertaindevelopmentandreviewmechanismsfordrug
productsintendedtotreatseriousorlifethreateningconditionsthatdemonstratethepotentialtoaddressunmetmedicalneeds.
TheprocedurespermitearlyconsultationandcommitmentfromtheFDAregardingthepreclinicalandclinicalstudiesnecessary
togainmarketingapproval.Provisionsofthis

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regulatoryframeworkalsopermit,incertaincases,accelerateddevelopmentwherebydrugsforseriousorlifethreateningdiseases
thatprovidemeaningfultherapeuticbenefitoverexistingtreatmentscanbeapprovedonthebasisofvalidsurrogatemarkersof
producteffectiveness.UndertheaccelerateddevelopmentprogramtheFDAmayrequirepostapproval,orPhaseIV,studiesasa
conditionoffasttrackapproval.Inaddition,theFDAmayimposerestrictionsondistributionand/orpromotioninconnection
withanyacceleratedapproval,andmaywithdrawapprovalifpostapprovalstudiesdonotconfirmtheintendedclinicalbenefitor
safetyofthepotentialproduct.

OrphanDrugDesignationandMarketExclusivity.UndertheOrphanDrugAct,theFDAmaygrantorphandrug
designationtodrugsintendedtotreatararediseaseorcondition,whichisgenerallyadiseaseorconditionthataffectsfewerthan
200,000individualsintheUnitedStates.OrphandrugdesignationmustberequestedbeforesubmittinganNDA.AftertheFDA
grantsorphandrugdesignation,theidentityofthetherapeuticagentanditspotentialorphanusearedisclosedpubliclybythe
FDA.Orphandrugdesignationdoesnotconveyanyadvantageinorshortenthedurationoftheregulatoryreviewandapproval
process.IfaproductthathasorphandrugdesignationsubsequentlyreceivesFDAapprovalforthediseaseforwhichithassuch
designation,theproductisentitledtoorphanproductexclusivity,whichmeansthattheFDAmaynotapproveanyother
applicationstomarketthesamedrugforthesamedisease,exceptinverylimitedcircumstances,forsevenyears.The
circumstancesunderwhichasubsequentidenticaldrugmaybeapprovedforthesameorphandiseaseorconditionincludewhere
thecompetitiveproductisclinicallysuperiororwheresufficientquantitiesofthepreviouslyapprovedproductcannotbeassured.

NewDrugApplicationSubmissionsandReview.FordrugsnotpreviouslymarketedintheUnitedStates,thedatafrom
theclinicaltrials,togetherwithpreclinicaldataandothersupportinginformationthatestablishesadrugcandidatessafety,as
wellasmanufacturinginformation,aresubmittedtotheFDAintheformofanNDA.UnderthePediatricResearchEquityActof
2003,NDAsarerequiredtoincludeanassessment,generallybasedonclinicalstudydata,ofthesafetyandefficacyofdrugsforall
relevantpediatricpopulations.Thestatuteprovidesforwaiversordeferralsincertainsituationsbutwecanmakenoassurances
thatsuchsituationswillapplytoourproductcandidates.

FordrugsthatcontainthesameAPI,areforthesameconditionsofuseasafirstapproveddrugandarethesamewith
respecttostrength,dosageform,androuteofadministration,anabbreviatednewdrugapplication,orANDA,whichwouldcontain
onlyclinicalinformationintheformofbioavailabilityorbioequivalencestudies,maybesubmitted.ANDAsmayalsobe
submittedforcertainchangesinpreviouslyapproveddrugsuponFDAapprovalofasuitabilitypetitionrequestingsuchchanges.

AnothertypeofNDA,aSection505(b)(2)application,maybepermittedwhereacompanydoesnotownorhavearight
ofreferencetoallofthedatarequiredforapproval.Section505(b)(2)NDAsareoftensubmittedfordrugproductsthatcontainthe
sameAPIasthoseoffirstapproveddrugproducts,andwhereadditionalstudiesarerequiredforapproval,suchasforchangesin
routesofadministrationordosageforms.TheadvantageoftheseNDAsisthatacompanydoesnotneedtoconductallthesafety
andefficacystudiesrequiredforapprovalofthefirstapprovedproduct,butonlyforchangesthataremadetosuchproduct.
BecausetheAPIsforCorus1020andCorus1030werepreviouslyapprovedfordifferentindicationsandroutesofadministration,
amongotherdifferences,weplantosubmitSection505(b)(2)NDAsforbothoftheseproductcandidates.

UnderapplicablelawsandFDAregulations,eachNDAsubmittedforFDAapprovalisusuallygivenaninternal
administrativereviewwithin45daysto60daysfollowingsubmissionoftheNDA.Ifdeemedcomplete,theFDAwillfilethe
NDA,therebytriggeringsubstantivereviewoftheapplication.TheFDAcanrefusetofileanyNDAthatitdeemsincompleteor
notproperlyreviewable.ThePrescriptionDrugUserFeeAct,orPDUFA,requiresthepaymentofsubstantialfeesforapplication
review,and,ifapproved,facilityregistrationandproductlisting.TheFDAhasestablishedPDUFAreviewgoalsofsixmonthsfor
priorityNDAsfordrugsthatprovideasignificantimprovementinthetreatmentofadiseasecomparedtomarketeddrugsandten
monthsforotherNDAs.TheFDA,however,isnotlegallyrequiredtocompleteitsreviewwithintheseperiods,andthese
performancegoalsmaychangeovertime.Moreover,theoutcomeofthereview,evenifgenerallyfavorable,is

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notnecessarilyanactualapproval,butanactionletterthatdescribesadditionalworkthatmustbedonebeforetheNDAcanbe
approved.TheFDAsreviewofanNDAmayinvolvereviewandrecommendationsbyanindependentFDAadvisorycommittee,
whichtheFDAisnotobligatedtofollow.TheFDAmaydenyapprovalofanNDAiftheapplicableregulatorycriteria,including
manufacturingstandards,arenotsatisfied,oritmayrequireadditionalclinicaldata,includinganadditionalpivotalPhaseIII
clinicaltrial.Evenifsuchdataaresubmitted,theFDAmayultimatelydecidethattheNDAdoesnotsatisfythecriteriafor
approval.Dataobtainedfromclinicaltrialsarenotalwaysconclusiveandmaybesusceptibletovaryinginterpretationsthatcould
delay,limitorpreventregulatoryapproval.

TheapprovalofanNDApermitscommercialscalemanufacturing,marketing,distributionandsaleofthedruginthe
UnitedStatesand,withsomelimitations,exportfromtheUnitedStates.Uponapproval,adrugmayonlybemarketedinthose
dosageforms,forthoseindicationsandsubjecttothoselimitationsapprovedintheNDA.Moreover,afterapproval,theFDAmay
requireadditionalpostapprovaltesting,surveillanceandreportingtomonitortheproducts.Thus,evenifapprovalforadrugis
granted,itcanbelimitedorrevokedifevidencesubsequentlyemergescastingdoubtonthesafetyorefficacyofaproductorifthe
manufacturingfacility,processesorcontrolsdonotcomplywithregulatoryrequirements.Finally,anapprovalmayentail
limitationsontheuses,labeling,dosageforms,distributionandpackagingoftheproduct.

Amongtheconditionsfornewdrugapprovalistherequirementthattheprospectivemanufacturersqualitycontrol,
recordkeeping,notificationsandreportingandmanufacturingsystemsconformtotheFDAscGMPregulations.Toobtain
approval,thedrugmanufacturingfacilitymustberegisteredwiththeFDAandmustpassapreapprovalinspectiondemonstrating
compliancewithcGMPrequirements.Manufacturingestablishmentsalsoaresubjecttoperiodic,ongoingcomplianceinspections.
Incomplyingwiththestandardscontainedintheseregulations,manufacturersmustcontinuetoexpendtime,money,resources
andeffortinordertoensurecompliance.Failuretocomplywiththeserequirementscanresultinlegalorregulatoryaction,
includingwarningletters,suspensionofmanufacture,productseizureorrecalls,injunctiveactionorcivilorcriminalpenalties.

TheFDAcloselyregulatesthepostapprovalmarketingandpromotionofdrugs,includingstandardsandregulationsfor
directtoconsumeradvertising,offlabelpromotion,industrysponsoredscientificandeducationalactivitiesandpromotional
activitiesinvolvingtheInternet.Continuingpostapprovalregulationalsosubjectsmanufacturersandmarketersofdrugsto
recordkeepingrequirements,reportingrequirementsforadverseevents,otherperiodicreportingrequirements,drugsamplingand
distributionrequirements,andnotificationofandapprovalbytheFDAofchangestolabelingandmanufacturingmethodsand
components.Failuretocomplywiththeserequirementscanresultinadversepublicity,warningletters,correctiveadvertisingand
potentialcivilandcriminalpenalties.

HatchWaxmanMarketExclusivityandPatentRestoration

UndertheDrugPriceCompetitionandPatentTermRestorationActof1984,orHatchWaxmanAct,aperiodofmarket
exclusivityisprovidedtocertainnewlyapproveddrugsthatpreventstheFDAfromapprovingoracceptingcertaincompetitive
drugproductapplicationsandthatprovidestherestorationofaportionofaproductspatenttermthatislostduringitsproduct
developmentphaseandtheFDAapplicationreviewprocess.TitleIoftheHatchWaxmanActprovidesthatwheretheFDAhasnot
previouslyapprovedanothernewdrugcontainingthesameAPI,anANDAforagenericdrugoraSection505(b)(2)NDAcannot
besubmittedbyanothercompanyforacompetitiveversionofsuchdrugforaperiodoffiveyearsfromthedateofapprovalofthe
NDA.ThismarketexclusivityprovisionwillnotpreventthefilingorapprovalofafullNDA,asopposedtoanANDAoraSection
505(b)(2)NDA,forsuchdrug,including,forexample,adrugwiththesameAPI,formofdosage,routeofadministration,strength
andconditionsofuse.Similarly,iftheFDAapprovesanNDAforanewdrugcontaininganAPIthatwaspreviouslyapprovedby
theFDA,butthatNDAisforadrugthatincludesaninnovationnotinthefirstapproveddrug,suchasanNDAapprovalforanew
formulationofdrugwiththesameAPIasapreviouslyapproveddrug,andifsuchNDAapprovalwasdependentuponthe
submissiontotheFDAofnew

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clinicalinvestigationsotherthanbioavailabilitystudies,thentheHatchWaxmanActprohibitstheFDAfrommakingeffective
theapprovalofanANDAoraSection505(b)(2)NDAforsuchdrugwiththenewinnovationbyanothercompanyforaperiodof
threeyearsfromthedateofapproval.Thisthreeyearexclusivityperiod,however,onlycoverstheinnovationassociatedwiththe
NDAtowhichitattaches.Thus,thethreeyearexclusivitydoesnotprohibittheFDAfromapprovingapplications,including
ANDAsorSection505(b)(2)NDAs,fordrugscontainingthesameAPIbutwithouttheinnovativechange.

UnderSection125ofTitleIoftheFoodandDrugAdministrationModernizationActof1997,orFDAMA,theHatch
WaxmanTitleImarketexclusivityprovisionsdonotapplytoantibioticsthatwerepreviouslythesubjectofmarketing
applicationsreceivedbyFDAonorbeforeNovember20,1997,orsocalledoldantibiotics.Aztreonamissuchanoldantibiotic
and,therefore,ifCorus1020isapproved,itwillnothavethebenefitofthethreeyearmarketexclusivityprotectionunderthe
HatchWaxmanAct.Section125oftheFDAMAdoesnotpreventtheapplicationoforphandrugexclusivity,suchasCorus1020,
nordoesitapplytononantibioticdrugs,suchasCorus1030.

PARIeFlowInhalationDeviceRegulation.

Aswithdrugs,medicaldevicesaresubjecttorigorousFDAregulatoryoversightandenforcement.Adevicegenerally
cannotbecommerciallydistributedintheUnitedStateswithouteither510(k)clearanceorpremarketapplication,orPMA,
approvalfromtheFDA.DevicesdeemedtoposerelativelylowriskareplacedineitherclassIorIIandmayrequire510(k)
clearance.Toobtainsuchclearance,themanufacturermustdemonstratethattheproposeddeviceissubstantiallyequivalentin
intendeduseandinsafetyandeffectivenesstoapreviously510(k)cleareddeviceortoadevicegrandfatheredonthemarket
becauseitwasincommercialdistributionbeforeMay28,1976andforwhichtheFDAhasnotyetcalledforPMAapplications.
Devicesthatposegreaterrisk,orthatcannototherwisequalifyfor510(k)clearance,areplacedinclassIIIandmustfollowthe
PMAapprovalpathway,whichrequiresrigorousproofofthesafetyandeffectivenessofthedevicetotheFDAssatisfaction.

ThePARIeFlowinhalationdevicehasreceived510(k)clearanceasaclassIIdevicewhenlabeledasahandheld
nebulizerforusewithdrugsprescribedbydoctorsfornebulization.Thisclearancewasobtainedbydemonstratingthesame
intendeduseandthesameorsimilartechnologicalcharacteristicsasotherclassIInebulizersalreadygranted510(k)clearance.No
clinicaldatawasrequiredforthisclearance.TheclearanceallowsthePARIeFlowinhalationdevicetobemarketedgenerallyasa
handheldnebulizer,butdoesnotpermitittobemarketedspecificallyforusewithCorus1020orourotherproductcandidates.
OurNDAapprovalforCorus1020orotherproductcandidates,ifobtained,willbebasedonademonstrationbyclinicaldataand
otherevidencethatthedrugcandidateissafeandeffectivewhenusedspecificallywiththePARIeFlowinhalationdevice.The
NDAapprovalforourproductcandidates,ifobtained,willbetheregulatorybasispermittingourproductcandidatestobe
marketedforusewiththePARIeFlowinhalationdevice.AnymodificationofthePARIeFlowinhalationdeviceforusewithour
productcandidatesafterNDAapprovalwillrequiretheFDAsapprovalofanNDAsupplement.

Afteradeviceisplacedonthemarket,numerousregulatoryrequirementsapply,includingthequalitysystemregulation,
orQSR,whichrequiresmanufacturerstofollowelaboratedesign,testing,control,documentationandotherqualityassurance
proceduresduringthemanufacturingprocess.PARIwillberequiredtocomplywithQSRrequirementswhenmanufacturingthe
eFlowinhalationdevice.PARIsfailuretocomplywithQSRorotherregulatoryrequirementscouldresultinlegalorregulatory
action,includingwarningletters,suspensionofmanufacture,productseizureorrecalls,injunctiveactionorcivilorcriminal
penalties.

ForeignRegulation

InadditiontotheapplicationandreviewprocessintheUnitedStates,wewillbeexposedto,andheldaccountableto,a
widerangeofforeignregulationsgoverningthedevelopment,manufactureandmarketingof

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ourproducts.RegardlessofapossibleFDAproductapproval,wemustobtainproductapprovalsfromtheappropriateregulatory
agencieswhereweintendtomarketandsellourproducts.

Europeanregulatoryproceduresareinatransitionalphaseandthecurrentregulatorymandateswillberevisedon
October30,2005.WewillneedtoworkwithinthechangingregulatoryatmosphereoftheEU.Otherchallengesincludewide
variationamongvariousEUnationsintermsofrequirementsforconductofclinicaltrials,productlicensing,pricingand
reimbursement.Additionally,itisnotcertainthatclinicaltrialsormanufacturingconductedintheUnitedStateswillbe
acceptabletoregulatoryagenciesintheEU.AdditionaldevelopmentalandclinicalprogramsmaybenecessarytofulfillEU
regulatorymandatesatthetimeofsubmission,andtheseitemsandotherswillneedtobeaddressedpriortosubmissionofthe
marketingapplication.

ThirdPartyReimbursementandPricingControls

AvailabilityofcoverageandpaymentforthePARIeFlowinhalationdeviceandCorus1020willaffectthemarketfor
theseproducts.Healthinsuranceplanscontinuetohavespendinglimitsfornewdrugsanddevicesthroughreduced
reimbursement,coveragelimitationsandothercostcontainmentmechanisms.Webelievethatourbusinesscouldbesubstantially
affectedifweincurbarrierstoreimbursementforthePARIeFlowinhalationdeviceorCorus1020.

Establishingappropriatecodingtodescribedrugsanddevicesisessentialtoobtainingappropriatelevelsof
reimbursementtohealthcarepurchasers.WhilewewillworkdiligentlytoensurethatappropriatecodestodescribethePARI
eFlowinhalationdevice,Corus1020,Corus1030orourotherproductcandidatesareacknowledgedorassigned,establishing
codingwilldependonourabilitytoclinicallydemonstratetheefficacyofthePARIeFlowinhalationdevice.Ourbusinesscould
beaffectediffavorablecodingscenariosarenotrecommendedoradoptedbypayors.

Privatepayorsoftenrequirethatanewtherapybereviewedbyinternalcommitteespriortoestablishingandapproving
reimbursementpoliciesandrates.Suchdecisionsarebasedonreviewofsafety,efficacyandcosteffectiveness,oftenin
comparisontoothertherapies.MostavailableCFtherapiesarebeingreimbursedadequatelybyprivatepayors,althoughtheymay
besubjecttobenefitlimitations,highbeneficiarycostsharingorstrictlydefinedmedicalnecessitycriteria.Whilewewillactively
pursuefavorablereimbursementwithprivatepayors,theprocesscanbelengthyandcostly.Ourbusinesscouldbesignificantly
affectedifestablishedreimbursementpoliciesandratesfromprivatepayorsareunsatisfactoryordenied.

WhilecoverageandpaymentforCFtherapiesarewidelyavailablethroughMedicaid,SCHIPandTitleVprograms,state
governmentsystemsareexperiencingunprecedentedbudgetconstraintswithrespecttohealthcareprograms.Statefundedpayors
mayimposerestrictionsthatcouldincludequalifyingguidelinesforapplicants,suchasmedicalnecessitycriteriaandagelimits,
andannualormonthlybenefitcapsonthecostornumberofservicesorprescriptionsallowedforrecipients.

Thepresentreforminfederalandstatepayorscontinuestobringconstantandsignificantchangetothewayshealthcare
services,productsandtherapiesarereimbursed.TheMedicarePrescriptionDrug,Improvement,andModernizationActof2003is
restructuringdrugreimbursementacrossvarioussitesofserviceinawaythatisintendedtoreduceMedicarepaymentfordrugs.
WhileMedicareisanticipatedtobearelativelysmallpayorforthePARIeFlowinhalationdevice,Corus1020,Corus1030orour
otherproductcandidates,stateandprivatepayorsmayestablishsimilarreductionsinpaymentfordrugs.Additionallegislative
reformatthefederalandstatelevelsislikelytooccur.Theprofitabilityofourbusinesscouldbemateriallyaffectedbycurrentor
futurelegislation,aswellasbythepossibleeffectsofsuchlegislationonthedecisionsofprivatepayorstoreducedrugordevice
reimbursement.

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PatientAssistance

Webelieveindigentpatientassistancewillbeavaluableandneededservice,especiallyduringearlymarketavailability.
Thelagininitialpayorformularyinclusionofnewtherapiesduringreviewprocessescanmeanadelayinaccessforpatients
whoseinsuranceplansarestillevaluatingnewproducts.

Additionally,manypatientswithintheCFpopulationareconsideredunderinsured,orhavecoveragebutlackresources
toaffordtheirfinancialresponsibility.MostCFpatientsmaintainatherapyregimenthatincludesseveralmedications,andoften
needdurablemedicalequipment,orDME,toadministerdrugsorphysicaltherapy.Patientswithhighdeductiblesorcoinsurances,
annualbenefitcaps,orlifetimemaximumbenefitsthatareexceededbyfrequenthospitalizationsremainresponsiblefora
considerableshareofthecost.Otherpatientswithinsuranceplansthatrequirenominalfinancialcontributionsforservicesmaybe
unabletoaffordmonthlyinsurancepremiums.

PrivatePayors

CFpatientswithprivateinsurancepoliciescommonlyhavebenefitlimitationsorhighcostsharing.Benefitlimitations
canincludecapssuchasannualmaximums,leavingthepatientuninsuredforaportionoftheyear,orlifetimemaximums.
Alternativesforindividualswhohavereachedalifetimecapincludestatehighriskpoolplans,thecoverageofwhichvariesand
oftencarrieshighpremiumsorcoinsurances.

ThefrequenthospitalizationsthatCFpatientsexperiencecanleadtolossofemployersponsoredcoverage.Patientsor
caregiverswhoareemployedmayneedtostopworkingtoattendtothemselvesorhospitalizedfamilymembers.Inthese
circumstances,thecoveragerequiredtobeofferedundertheConsolidatedOmnibusBudgetReconciliationActisaviableoption
tomaintaincontinuouscoverage,althoughpremiums,again,maybeunaffordable.Ifapatientorcoveredfamilymemberisunable
tomaintaincoverage,thelapsemaymeanthatthefamilyhasnocoverageforanyCFrelatedservicesforayearormoredueto
preexistingconditions,eventhoughanewpolicymaybeavailablethroughnewemployment.

Additionally,coveragecanbecontingentuponmedicalnecessitycriteria.Payorsmayrequirecompletionofprior
authorizationorsteptherapy,andthatpatientstryandfailothertherapiesinthesameclassbeforeaccessinganewer,costlier
therapy.SomephysiciansprescribeCFtherapiesbutarereluctanttoassignadiagnosisofCFduringruleoutphasesofthe
diagnosingprocess.Ifthephysicianselectsotherindications,suchasCOPD,payorsmaynotcoverCFdrugsandmayconsider
suchuseofflabel.

AnotherfacetofmedicalnecessityrelevantforthePARIeFlowinhalationdevice,Corus1020,Corus1030orourother
productcandidatesistheuseofaspecificnebulizerwiththedrugtherapy.Forexample,somepayorsrestrictcoverageofspecialty
nebulizersmorestringentlythanforstandardnebulizers.Theymayonlycoverspecialtynebulizersforadministrationofcertain
medicationsforpatientsmeetingspecificcriteria.ClinicaldatademonstratingthatthePARIeFlowinhalationdeviceisrequiredto
administerthisdrugappropriatelymayberequired.NebulizersgenerallyfallunderaplansDMEbenefit.Whilemostprivate
payorplansoffersomeformofDMEbenefit,DMEcoveragecanbelimitedandsomepatientsmayhavehighcostsharing
requirements,includingannualmaximumsonDMEandhigherdeductiblesandcoinsuranceresponsibilitiescomparedwith
medicalandpharmacybenefits.

MedicaidandStatePayors

ManyoftheformularyandmedicalnecessityconcernsspecifictoprivatepayorsarealsorelevantforMedicaid,SCHIP
andTitleVprograms.Steptherapyanddiagnosisrestrictionsareoftenimposedbystatepayorsand,inadditiontoannualand
lifetimemaximums,manystatepayorsallowalimitednumberofprescriptionsorcostforservicesonamonthlyorquarterlybasis.
Thesepayors,especiallySCHIPandTitleVprograms,generallyhaveagelimitsthataredeterminedatthestatelevelandexclude
adultsfromcovered

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populations.Continuingandtighteningbudgetconstraintscancausewaitlistsforenrollmentorservices,formularyexclusionsfor
costlymedicines,andreductionsinavailableservices.

Inadditiontoformularyreviewprocesses,MedicaidprogramsrequirethatmanufacturersparticipateintheMedicaid
rebateprogramtoprovidecoveragefordrugs.Onastatespecificlevel,Medicaidprogramsoftenrequiresupplementalrebatesor
additionalpaperworktobecompletedbeforeconsideringadditionofdrugstoformulariesorpreferreddruglists.

Employees

Webelievethatoursuccesswilldependgreatlyonourabilitytoidentify,attractandretaincapableemployees.Asof
June30,2004,wehad86employees,nineofwhomholdPh.D.degrees.Ouremployeesarenotrepresentedbyanycollective
bargainingunit,andwebelieveourrelationswithouremployeesaregood.

TriNetEmployerGroup,Inc.,orTriNet,provideshumanresourceservicestousandouremployees,includingpayroll,
employeerelationsandcertainemployeebenefitplans.TriNetisanemployerservicescompanycontractedbyustoperform
certainemployerresponsibilitiesonourbehalf,andTriNetistheemployerofrecordforpayroll,benefitsandotherfunctions
involvingouremploymentrelatedadministration.OuragreementwithTriNetisterminablebyeitherpartywith30daysnotice.

Facilities

WeareheadquarteredinSeattle,Washington,wherewecurrentlyleaseanaggregateof33,803squarefeetofofficeand
laboratoryspace.AsofJune30,2004,weleasedthefollowingpropertiesthatsupportourcurrentandanticipatedfutureneeds.
Thefollowingsummaryhighlightsthecurrentstatusofourleases.

Approximate
SquareFootage

PropertyLocation

20251stAvenue,Seattle,Washington
30051stAvenue,Seattle,Washington
1124ColumbiaStreet,Seattle,Washington

29,330
3,586
887

Headquarters
Laboratory
Laboratory

LeaseExpiration
Date

IntendedUse

August2010
March2005
April2005

OnJune4,2004,inconnectionwiththeextensionofourlease,weamendedourleasetoincludetheleaseofadditional
officespaceatour20251stAvenuelocationtoincorporateanadditional4,743squarefeet,effectiveNovember2004,an
additional9,360squarefeetinJanuary2006andarightoffirstrefusalonadditionalspace.Thiswillbringthetotaldedicated
headquartersspaceto43,433squarefeet.Thisnewleasewillexpirein2010andcontainsanoptiontorenewforanadditional
fiveyearterm.

LegalProceedings

Wearenotapartytoanymateriallegalproceeding.

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MANAGEMENT

ExecutiveOfficersandDirectors

Thenamesandagesofourexecutiveofficersanddirectorsasofthedateofthisprospectusareasfollows:

Name

A.BruceMontgomery,M.D.
WilliamR.Baker,Ph.D.
IainW.Duncan
JonathanP.Mow
DonaldF.SeatonIII
DinendraSen
MelissaA.Yeager
KirbyL.Cramer(1)(3)
RichardB.Brewer(2)(3)
FritzR.Bhler,M.D.(1)
RobertT.deGavre(2)(3)
RodneyA.Ferguson,Ph.D.(1)
JohnH.Kim,M.D.(2)
UlrikSpork
SamuelP.Wertheimer,Ph.D.(1)

Age

51
52
49
39

47
54
50
68
53
64
63
48
42
45
44

Position(s)

President,ChiefExecutiveOfficer,TreasurerandDirector
VicePresidentResearch
VicePresidentOperations
VicePresidentCommercialandBusinessDevelopmentand
Secretary
VicePresidentFinanceandChiefFinancialOfficer
ChiefCommercialOfficer
VicePresidentRegulatoryAffairsandQualityAssurance
ChairmanoftheBoard
Director
Director
Director
Director
Director
Director
Director

(1) MemberofCompensationCommittee
(2) MemberofAuditCommittee
(3) MemberofNominatingandCorporateGovernanceCommittee

A.BruceMontgomery,M.D.Dr.MontgomeryfoundedCorusinJanuary2001andservesasadirector,President,Chief
ExecutiveOfficerandTreasurer.FromJanuary1998toOctober2000,Dr.MontgomeryservedasExecutiveVicePresident,
ResearchandDevelopmentofPathoGenesisCorporation,adeveloperofdrugstotreatinfectiousdiseases,whichwasacquiredby
ChironCorporation,abiotechnologycompany,inSeptember2000,asVicePresidentofMedicalandRegulatoryAffairsfrom
December1993toJuly1995andasSeniorVicePresidentofResearchandDevelopmentfromJuly1995toJanuary1998.From
November1989toNovember1993,Dr.MontgomeryservedasAssociateDirectorofClinicalResearchofGenentech,Inc.,a
biotechnologycompany.Dr.MontgomeryalsoservedasadirectorofArmyScienceBoardandcurrentlyservesasadirectorofthe
SeattleBiomedicalResearchInstitute,theAmericanLungAssociationandLightSciencesCorporation.Dr.Montgomeryreceived
hisB.S.degreeandhisM.D.degreefromtheUniversityofWashingtonandisaboardcertifiedinternistandpulmonologist.

WilliamR.Baker,Ph.D.Dr.BakerjoinedCorusasVicePresidentResearchinJune2002.FromJune2001toJune
2002,Dr.BakerservedasChiefOperatingOfficerofOptimerPharmaceuticals,Inc.,abiopharmaceuticalcompany.From
September2000toApril2001,Dr.BakerservedasDivisionVicePresident,AntiInfectiveResearchandGeneralManagerof
ChironCorporation.FromJanuary1993toSeptember2000,Dr.BakerservedinseveralpositionsatPathoGenesisCorporation,
whichwasacquiredbyChironCorporationinSeptember2000,mostrecentlyasSeniorVicePresidentofResearchandPreclinical
Development.From1981toDecember1992,Dr.BakerservedinseveralpositionsatAbbottLaboratories,aglobalhealthcare
company,mostrecentlyasAssociateResearchFellow.Dr.BakerreceivedhisB.S.degreefromtheUniversityofWashingtonand
hisPh.D.degreefromtheUniversityofIllinois.

IainW.Duncan.Mr.DuncanjoinedCorusasVicePresidentOperationsinApril2001.FromNovember2000toMarch
2001,Mr.DuncanservedasSeniorDirectorofStaffingandOrganizational

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Development,andfromMarch2000toNovember2000,heservedasSeniorDirectorofHumanResources,ofPathoGenesis
Corporation,whichwasacquiredbyChironCorporationinSeptember2000.FromNovember1994toMarch2000,heservedin
multiplepositionsatLyondellPetrochemicalCompany,acommoditychemicalmanufacturer,mostrecentlyasManager
CorporateStaffingandAffirmativeAction.Mr.DuncanreceivedhisB.S.degreefromTrentUniversityinPeterborough,Ontario.

JonathanP.Mow.Mr.MowjoinedCorusasVicePresidentCommercialandBusinessDevelopmentandSecretaryin
January2001,andfromJanuary2001toFebruary2003,healsoservedasadirector.FromJanuary1997toDecember2000,Mr.
MowservedasSeniorDirector,BusinessDevelopmentofPathoGenesisCorporation,whichwasacquiredbyChironCorporation
inSeptember2000.From1995toJanuary1997,Mr.MowservedasDirector,WorldwideOncologyStrategicBusinessPlanningof
BristolMyersSquibbCompany,apharmaceuticalcompany.From1992to1995,Mr.MowservedinseveralpositionsatAmerican
CyanamidCompany,LederleInternationalDivision,apharmaceuticalcompany,mostrecentlyasInternationalProductManager.
From1990to1992,Mr.MowservedasMarketingResearchAnalystandSalesRepresentativeofSyntexLaboratories,Inc.Mr.
MowreceivedhisB.S.degreefromtheUniversityofCaliforniaBerkeleyandhisM.S.(M.B.A.)degreefromCarnegieMellon
University.

DonaldF.SeatonIII.Mr.SeatonjoinedCorusasVicePresidentFinanceandChiefFinancialOfficerinMay2002.
FromJuly2000toDecember2001,Mr.SeatonservedasChiefFinancialOfficerofTalismaCorporation,aproviderofenterprise
levelcustomerrelationshipmanagementsolutions.FromJune1998toJune2000,Mr.SeatonservedasChiefFinancialOfficer
andChiefOperatingOfficerofSonoSite,Inc.,amedicaldevicecompany,andasSecretaryfromDecember1998toJune2000.
FromApril1994toJune1998,Mr.SeatonservedasVicePresident,Finance,ChiefFinancialOfficer,TreasurerandSecretaryof
InControl,Inc.,adeveloperofimplantableatrialdefibrillators.Mr.SeatonreceivedhisB.A.degreefromStanfordUniversityand
hisM.B.A.degreefromtheUniversityofChicago.

DinendraSen.Mr.SenjoinedCorusasChiefCommercialOfficerinOctober2004.FromAugust2001toSeptember
2004,Mr.SenservedasChiefExecutiveOfficerofCURxPharma,Inc.,abiotechnologycompany.FromMarch2001toAugust
2001,Mr.SenservedasPresidentandChiefOperatingOfficerofCubistPharmaceuticals,Inc.,abiopharmaceuticalcompany.
FromJanuary2000toDecember2000,Mr.SenservedasSeniorVicePresidentofSalesandMarketingofPathoGenesis
Corporation,whichwasacquiredbyChironCorporationinSeptember2000.FromJanuary1998toDecember1999,Mr.Sen
servedasVicePresidentofSalesandMarketingofSchwarzPharma,amultinationalpharmaceuticalcompany.Priortothat,Mr.
SenheldseveralseniormarketingpositionsatAmgen,Inc.,abiopharmaceuticalcompany.Mr.SenreceivedhisB.A.degreefrom
theUniversityofDelhiinDelhi,IndiaandhisM.M.degreefromtheKelloggGraduateSchoolofBusiness,Northwestern
University.Mr.SenwasaFellowofTheInstituteofCharteredAccountantsofEnglandandWales.

MelissaA.Yeager.Ms.YeagerjoinedCorusasSeniorDirectorRegulatoryAffairsinJune2002andbecameVice
PresidentRegulatoryAffairsandQualityAssuranceinApril2003.FromNovember2000toJune2002,Ms.Yeagerwasa
regulatoryaffairsconsultantforvariousbiotechnologycompanies,includingCorus.FromMarch1997toOctober2000,Ms.
YeagerwasemployedatPathoGenesisCorporation,whichwasacquiredbyChironCorporationinSeptember2000,mostrecently
asDirectorofRegulatoryAffairs.From1994to1995,Ms.YeagerservedasManagerofRegulatoryAffairsofBecktonDickinson
ImmunocytometrySystems,abusinessunitofBDBiosciences,whichinturnisabusinesssegmentofBeckton,Dickinsonand
Company,amedicaltechnologycompany.From1992to1993,sheservedasanAssociateDirectorofRegulatoryAffairsof
LiposomeTechnology,abiopharmaceuticalcompany.From1988to1992,sheservedasSeniorRegulatoryAffairsAssociateof
AlzaCorporation,apharmaceuticalcompany,andfrom1986to1988,asanassociatewithBurditt,Bowles&Radzius,alawfirm.
Ms.YeagerreceivedherB.A.degreefromStanfordUniversityandherJ.D.degreefromSantaClaraUniversity.

KirbyL.Cramer.Mr.CramerhasservedasadirectorsinceNovember2001andasChairmanoftheBoardsinceApril
2003.From1968to1987,heservedasChairmanandChiefExecutiveOfficerofHazletonLaboratoriesCorporation,acontract
biologicalandchemicalresearchlaboratory,whichCorning,Inc.acquiredin

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1987andsubsequentlyrenamedCovance,Inc.Mr.CramercontinuedtoserveasChairmanofHazletonfrom1987to1991,at
whichtimehebecameChairmanEmeritus.HeservedastheseniordirectorofImmunexCorporation,apharmaceuticalcompany,
from1994until2002,whenthecompanywasacquiredbyAmgen,Inc.Mr.Crameralsoisthenonexecutivechairmanof
SonoSite,Inc.,amedicaldevicecompany,andservesontheBoardofDirectorsofdjOrthopedics,Inc.,aglobalmedicaldevice
company,LandecCorporation,amaterialsciencecompany,andHarrisBank,N.A.HereceivedhisB.A.degreefromNorthwestern
University,hisM.B.A.degreefromtheUniversityofWashington,andisagraduateoftheHarvardBusinessSchoolsAdvance
ManagementProgram.In1987,Mr.CramerreceivedanhonorarydoctoratefromJamesMadisonUniversity.

RichardB.Brewer.Mr.BrewerhasservedasadirectorsinceApril2004.SinceJanuary2003,Mr.Brewerhasservedas
thefoundingpartnerofCrestAssetManagement,aproviderofmanagementguidancetohealthcarecompanies.FromSeptember
1998toFebruary2004,Mr.BrewerservedasPresidentandChiefExecutiveOfficerofSciosInc.,abiopharmaceuticalcompany
andasubsidiaryofJohnson&Johnson,apharmaceuticalcompany,sinceApril2003.FromFebruary1996toJune1998,Mr.
BrewerservedastheExecutiveVicePresidentofOperationsandthenChiefOperatingOfficerofHeartport,Inc.,amedicaldevice
company.From1984to1995,Mr.BrewerheldanumberofseniormanagementpositionsatGenentech,Inc.,abiopharmaceutical
company,andGenentechEuropeLtd.andGenentechCanada,Inc.,mostrecentlyasSeniorVicePresident,U.S.Salesand
Marketing.From1994to1995,Mr.BrewerservedasChairmanoftheAmericanHeartAssociationPharmaceuticalRoundtable
and,from1993to1994,asamemberoftheAmericanHeartAssociationCorporateRoundtable.Mr.Brewerisalsoadirectorof
DendreonCorporation,abiotechnologycompany,Corgentech,Inc.,abiotechnologycompany,andaprivatelyheldcompany,
andisanadvisoryboardmemberfortheCenterforAcceleratingMedicalSolutions,anonprofitorganization,andanadvisory
boardmemberoftheKelloggGraduateSchoolofManagementCenterforBiotechnologyatNorthwesternUniversity.Mr.Brewer
receivedhisB.S.degreefromVirginiaPolytechnicInstituteandStateUniversityandhisM.B.A.degreefromNorthwestern
University.

FritzR.Bhler,M.D.Dr.BhlerhasservedasadirectorsinceApril2004.Since2001,Dr.Bhlerhasservedasa
ManagingPartnerofBearStearnsHealthInnoventures,aventurecapitalfirm.From1997to2000,Dr.BhlerservedasVice
ChairmanoftheBoardofInternationalBiomedicineManagementPartners,aventurecapitalfirminBasel,Switzerland.From
1991to1995,Dr.BhlerservedasHeadofGlobalClinicalResearchandDevelopmentandChiefMedicalOfficerofF.Hoffmann
LaRocheA.G.inBasel.From1987to1991,Dr.BhlerservedasDirectoroftheDepartmentofResearchattheUniversity
Hospital,Basel,wherehecontinueshisaffiliationasaProfessorofPharmaceuticalMedicine,Pathophysiology,InternalMedicine
andCardiology.Dr.BhleriscurrentlyalsothedirectoroftheEuropeanCenterofPharmaceuticalMedicine,aboardmemberof
theGeorgetownCenterofDrugDevelopmentScienceinWashington,D.C.,acofounderoftheBioValleyBaselA.G.inEurope
andaformerexecutiveboardmemberoftheSwissAcademyofMedicalSciences.Dr.BhlerreceivedhisM.D.degreefromthe
UniversityofBaselandanhonorarydoctoratefromtheUniversityofLouisPasteurinStrasbourg,France.

RobertT.deGavre.Mr.deGavrehasservedasadirectorsinceJuly2002.From1987to1992,Mr.deGavreservedas
ChiefFinancialOfficer,TreasurerandSeniorVicePresidentFinanceandAdministrationofWestmarkInternational,a
manufacturerofdiagnosticultrasoundandpatientmonitoringequipment.From1982to1987,Mr.deGavreservedasVice
PresidentandTreasurerofSquibbCorporation,aninternationalpharmaceuticalscompany.From1977to1982,heservedas
TreasurerofINCOLimited,ametalsandminingcompany.From1979to1987,Mr.deGavreservedontheAdvisoryCommitteeof
PrincetonUniversitysEconomicsDepartment,servingasChairmanofthecommitteefrom1984to1985.Mr.deGavrereceived
hisB.A.degreeandhisM.P.A.degreefromtheWoodrowWilsonSchoolofPublicandInternationalAffairsatPrinceton
University.

RodneyA.Ferguson,Ph.D.Dr.FergusonhasservedasadirectorsinceJuly2001.Dr.Fergusonhasservedasapartner
ofJ.P.MorganPartners,aglobalprivateequityfirm,since2001.From1999to2000,Dr.FergusonservedasapartnerofInterWest
Partners,aventurecapitalfirm.From1988to1999,Dr.Ferguson

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heldanumberofpositionsatGenentech,Inc.,abiotechnologycompany,includingSeniorCorporateCounselandSeniorDirector
ofBusinessandCorporateDevelopment.From1984to1988,Dr.FergusonwasalawyeratMcCutchen,Doyle,Brown&Enersen,
alawfirm.Dr.FergusonisalsotheChairmanoftheBoardandadirectorofCorgentechInc.,abiotechnologycompany,anda
directorofSantarus,Inc.,aspecialtypharmaceuticalcompany,andseveralprivatelyheldcompanies.Dr.Fergusonreceivedhis
B.S.degreefromtheUniversityofIllinois,hisPh.D.degreefromtheStateUniversityofNewYorkatBuffaloandhisJ.D.degree
fromNorthwesternUniversity.

JohnH.Kim,M.D.Dr.KimhasservedasadirectorsinceJuly2001.Dr.KimhasservedasaManagingDirectorat
Burrill&CompanyLLC,alifesciencesventurecapitalfirm,since1998.From1997to1998,Dr.KimservedasanEquity
ResearchAnalystwithGoldmanSachs&Co.From1992to1995,Dr.Kimwasapracticingphysicianandaclinicalfaculty
memberoftheUniversityofIllinoisSchoolofMedicine.Dr.Kimalsoservesasadirectorofseveralprivatelyheldcompanies.Dr.
KimreceivedhisB.S.degreeandhisM.D.degree,fromtheHonorsPrograminMedicalEducation,atNorthwesternUniversityand
hisM.B.A.degreewithDistinctionfromtheWhartonSchooloftheUniversityofPennsylvania,wherehewasaPalmerScholar.

UlrikSpork.Mr.SporkhasservedasadirectorsinceFebruary2003.Mr.SporkhasservedinvariouspositionsatNovo
A/S,aprivateholdingandinvestmentcompanywithsignificantlifescienceventurecapitalactivity,sinceitsformationin1999,
andasSeniorPartnersinceMarch2003.FromFebruary1992toNovember1999,Mr.SporkservedasDirectorofCorporate
DevelopmentofNovoNordiskA/S,ahealthcarecompany.From1984to1991,Mr.Sporkheldvariouspositionsininternational
marketingandbusinessdevelopmentinthelifescienceareawithintheVickersPlcgroup.Mr.Sporkalsoservesasadirectorof
severalDanishprivatecompaniesandasChairmanoftheDanishVentureCapitalAssociation.Mr.SporkreceivedhisB.S.degree
fromCopenhagenBusinessSchoolandhisM.S.degreefromtheTechnicalUniversityofCopenhagen.

SamuelP.Wertheimer,Ph.D.Dr.WertheimerhasservedasadirectorsinceJuly2001.SinceApril2000,Dr.Wertheimer
hasservedasaPrincipalwithOrbiMedAdvisorsLLCandOrbiMedCapitalLLC,eachofwhichisahealthcareassetmanagement
company.FromDecember1998toMarch2000,Dr.WertheimerservedasDirector,OfficeofIndustrialLiaisonattheNewYork
UniversitySchoolofMedicine.From1996to1998,Dr.WertheimerservedasDirectorofTechnologyAssessmentatParamount
CapitalInvestments,LLC.From1991to1996,Dr.WertheimerservedasaRegisteredPatentAgentwithDarby&Darby,alaw
firm,andasaFellowattheMemorialSloanKetteringCancerCenter.Dr.Wertheimeralsoservesasadirectorofseveralprivately
heldcompanies.Dr.WertheimerreceivedhisB.A.degreefromtheJohnsHopkinsUniversity,hisM.P.H.degreefromYale
UniversityandhisPh.D.degreefromNewYorkUniversity.

BoardComposition

Ourboardofdirectorscurrentlyconsistsofninemembers.TheboardofdirectorshasdeterminedthateachofMr.Brewer,
Dr.Bhler,Mr.Cramer,Mr.deGavre,Dr.Ferguson,Dr.Kim,Mr.SporkandDr.WertheimerisanindependentdirectorunderRule
4200(a)(15)ofthelistingstandardsoftheNationalAssociationofSecuritiesDealers,orNASD.Inaccordancewiththetermsofour
restatedcertificateofincorporationtobefiledpriortothecompletionofthisoffering,theboardofdirectorswillbedividedinto
threeclasses,thedirectorsineachclasstoservestaggeredthreeyearterms:ClassI,theinitialtermofwhichwillexpireatthe
annualmeetingofstockholderstobeheldin2005ClassII,theinitialtermofwhichwillexpireattheannualmeetingof
stockholderstobeheldin2006andClassIII,theinitialtermofwhichwillexpireattheannualmeetingofstockholderstobe
heldin2007.Asaresult,onlyoneclassofdirectorswillbeelectedateachannualmeetingofourstockholders,withtheother
classescontinuingfortheremainderoftheirrespectiveterms.,andhavebeendesignatedas
ClassIdirectors,andhavebeendesignatedasClassIIdirectorsand,
andhavebeendesignatedasClassIIIdirectors.Theseprovisionsinourrestatedcertificateofincorporationmayhave
theeffectofdelayingorpreventingchangesincontrolormanagementofCorus.Theexecutiveofficersserveatthediscretionof
theboardofdirectors.TherearenofamilyrelationshipsamonganyofthedirectorsorexecutiveofficersofCorus.

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BoardCompensation

Independentdirectorsareentitledtoreceiveanannualfeeof$16,000forservingasamemberoftheboardofdirectors.In
addition,thechairmanoftheboardisentitledtoreceiveanadditional$20,000annuallyforservinginsuchposition,thechairman
oftheauditcommitteeisentitledtoreceiveanadditional$10,000annuallyforservinginsuchpositionandthechairmanofeach
ofthecompensationcommitteeandthenominatingandcorporategovernancecommitteeareentitledtoreceiveanadditional
$5,000annuallyforservinginsuchpositions.Eachindependentdirectorisalsoentitledtoreceive$1,500foreachboardmeeting
attendedinpersonortelephonicallyand$1,000foreachcommitteemeetingattendedinpersonortelephonically.Directorsare
alsoreimbursedforreasonableexpensestheyincurattendingboardandcommitteemeetings.Directorsareeligibletoparticipate
inour2001StockPlanand2004StockIncentivePlan.

OnDecember7,2001,wesold250,000sharesofourcommonstocktoMr.Crameratapersharepriceof$0.22,which
wasdeemedbytheboardofdirectorsasthefairmarketvalueofourcommonstockonthatdate.OnFebruary20,2003,wesold
384,615sharesofourcommonstocktoMr.deGavreatapersharepriceof$0.26,whichwasdeemedbytheboardofdirectorsas
thefairmarketvalueofourcommonstockonthatdate.OnAugust5,2003,wesold192,307sharesofourcommonstocktoMr.
Crameratapersharepriceof$0.26,whichwasdeemedbytheboardofdirectorsasthefairmarketvalueofourcommonstockon
thatdate.OnApril9,2004,wegrantedMr.Breweranoptiontopurchase100,000sharesatanexercisepriceof$0.35pershare,
whichwasdeemedbytheboardofdirectorsasthefairmarketvalueofourcommonstockonthatdate.TheoptiongrantedtoMr.
Brewervestedandbecame100%exercisableontheeffectivedateofthegrant.

Followingthisoffering,eachoftheindependentdirectorswillbegrantedanonqualifiedstockoptiontopurchase
sharesofourcommonstockonthedateoftheofferingor,ifthepersonshallbecomeanindependentdirectorsubsequenttosuch
date,onthedatethatsuchpersoniselectedanindependentdirector.Eachyear,ontheanniversaryoftheinitialgrant,each
independentdirectorwillreceiveanadditionalnonqualifiedstockoptiontopurchaseanadditionalsharesofourcommon
stockatanexercisepriceequaltotheclosingpriceofourcommonstockasquotedontheNASDAQNationalMarketonthedate
ofeachgrant,or,ifnotradingoccursonthatdate,onthenextsucceedingdayonwhichourcommonstocktrades.Eachoption
willbeforatermoftenyearsandwillvestandbecomefullyexercisableoneyearfromthedateofgrant.

BoardCommittees

Ourboardofdirectorshasestablishedthreecommittees:theauditcommittee,thecompensationcommitteeandthe
nominatingandcorporategovernancecommittee.

AuditCommittee

Theauditcommitteeoperatesunderawrittencharteradoptedbytheboardofdirectorsthatmaybeamendedbythe
boardatanytime.Themostcurrentversionwillbeavailableonourwebsiteatwww.coruspharma.com.Messrs.deGavreand
BrewerandDr.Kimcurrentlyconstitutetheauditcommittee,eachofwhomisanindependentdirectorasdefinedbyRule4200(a)
(15)oftheNASDslistingstandards.Mr.deGavreservesaschairmanofthecommitteeandhasbeendeterminedbytheboardof
directorstobeanauditcommitteefinancialexpert,asthattermisdefinedinItem401(h)ofRegulationSKpromulgatedbythe
SecuritiesandExchangeCommission,orSEC.

Ourauditcommitteespurposeistoprovideoversightofourfinancialmanagement,ourreportingstructureandour
independentauditors.Thiscommitteesresponsibilitiesinclude:

retaining,overseeingandterminatingourindependentauditors
determiningthecompensationofourindependentauditors
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approvingallnonauditservicestobeperformedbyourindependentauditors

reviewingwithourindependentauditorsallalternativetreatmentsoffinancialinformationdiscussedwith,and
communicationswith,ourmanagement

overseeingandmonitoringtheintegrityofourfinancialstatementsandourcompliancewithlegalandregulatory
requirementsastheyrelatetofinancialstatementsoraccountingmatters

reviewingwithmanagementandourindependentauditorsourfinancialstatementsandrelatedannualandquarterly
reportsthatwewillberequiredtofilewiththeSEC

reviewingallrelatedpartytransactionsandconflictsofinterest

preparingtheauditcommitteereportforinclusioninourannualproxystatement.

evaluatingthequalifications,independenceandperformanceofourindependentauditors
reviewingwithourindependentauditorsplannedauditservices
reviewingresultsoftheauditwithourindependentauditorsandourmanagement
reviewingthedesign,implementation,adequacy,effectiveness,changesinandramificationsofourinternalcontrols
andourcriticalaccountingpolicies

reviewingwithmanagementanyearningsannouncementsandotherpublicannouncementsregardingourresultsof
operationsand

CompensationCommittee

Thecompensationcommitteeoperatesunderawrittencharteradoptedbytheboardofdirectors.Mr.CramerandDrs.
Bhler,FergusonandWertheimercurrentlyconstitutethecompensationcommittee,eachofwhomisanindependentdirectoras
definedbyRule4200(a)(15)oftheNASDslistingstandards.Mr.Cramerservesaschairmanofthecommittee.

Ourcompensationcommitteespurposeistoassistourboardofdirectorsindeterminingthedevelopmentplansand
compensationofourexecutiveofficersandsuchotheremployeesastheboardshalldeemappropriate,andtorecommendthese
planstoourboardofdirectors.Thiscommitteesresponsibilitiesinclude:

administeringourcurrentstockcompensationplansandanyothersthatwemayadopt
reviewingthegeneralcompensationpoliciesapplicabletoouremployees
reviewing,evaluatingtheperformanceofanddeterminingcompensationandbenefitlevelsforourchiefexecutive
officerandotherexecutiveofficers

reviewingandrecommendingcompensationandbenefitlevelsforournonofficeremployees,directorsand
consultants

reviewingandapprovingemployment,retirement,severanceandchangeincontrolagreementswithourexecutive
officers

overseeingcomplianceofcompensationmatterswithrespecttoSection162(m)oftheInternalRevenueCodeand
preparingtheannualcompensationcommitteereportforinclusioninourannualproxystatement.

NominatingandCorporateGovernanceCommittee

Thenominatingandcorporategovernancecommitteeoperatesunderawrittencharteradoptedbytheboardofdirectors.
Messrs.Brewer,CrameranddeGavrecurrentlyconstitutethenominatingandcorporate

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governancecommittee,eachofwhomisanindependentdirectorasdefinedbyRule4200(a)(15)oftheNASDslistingstandards.
Mr.Brewerservesaschairmanofthecommittee.

Ournominatingandcorporategovernancecommitteespurposeistoassistourboardofdirectorsbyidentifying
individualsqualifiedtobecomemembersofourboardofdirectorsconsistentwithcriteriasetbytheboard,andtodevelopour
corporategovernanceprinciples.Thiscommitteesresponsibilitiesinclude:

establishingandannuallyreviewinggeneralqualificationguidelinesapplicabletonomineesforelectiontoour
boardofdirectorsandforcommitteemembership

monitoringindependenceofdirectorsunderNASDindependencerules

evaluatingthenature,qualityandtimelinessoftheinformationreceivedbyourboardofdirectors

overseeing,reviewingandapprovingourcodeofbusinessconductapplicabletoourofficers,directorsand
employees

evaluatingthecomposition,sizeandgovernanceofourboardofdirectorsanditscommitteesandmaking
recommendationsregardingfutureplanningandtheappointmentofdirectorstoourcommitteesand

overseeingtheevaluationoftheperformanceofeachdirector,theboardofdirectorsandeachcommittee.

evaluatingthecontributionofcurrentdirectorsinconnectionwithrenomination
evaluatingandrecommendingcandidatesforelectiontoourboardofdirectors
reviewingandevaluatingstockholdernomineesforelectiontoourboardofdirectors
reviewingandrecommendingdirectororientationandcontinuingdirectoreducationprograms
reviewingqualifications,requirements,membership,structureandperformanceofourboardcommitteesandmaking
recommendationsregardingcommitteeappointments
reviewingourcorporategovernanceprinciplesandprovidingrecommendationstoourboardofdirectorsregarding
possiblechanges

CompensationCommitteeInterlocksandInsiderParticipation

NocurrentmemberofthecompensationcommitteeisanofficeroremployeeofCorus.Noneofourexecutiveofficers
serveorhaveservedasamemberoftheboardofdirectorsorcompensationcommitteeofanyentitythathasoneormoreofits
executiveofficersservingonourboardofdirectorsorcompensationcommittee.

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ExecutiveCompensation

ThefollowingtableprovidessummaryinformationconcerningthecompensationreceivedforservicesrenderedtoCorus
duringthefiscalyearendedDecember31,2003byourChiefExecutiveOfficerandeachoftheotherfourmosthighly
compensatedexecutiveofficers,eachofwhoseaggregatecompensationduringourlastfiscalyearexceeded$100,000.The
executiveofficerslistedinthetablebelowarereferredtointhisprospectusasournamedexecutiveofficers.

SummaryCompensationTable

LongTerm
Compensation

AnnualCompensation(1)

NameandPrincipalPosition

Year

Salary($)

Bonus($)

SecuritiesUnderlying
Options(#)

A.BruceMontgomery,M.D.

President,ChiefExecutiveOfficerandTreasurer
WilliamR.Baker,Ph.D.

VicePresidentResearch

DonaldF.SeatonIII

VicePresidentFinanceandChiefFinancial
Officer

IainW.Duncan

VicePresidentOperations

JonathanP.Mow

VicePresidentCommercialandBusiness
DevelopmentandSecretary

2003

$ 300,000

2003

201,760

2003

200,000

2003

200,000

2003

200,000

218,800

208,500

103,600

218,800

AllOther
Compensation
($)

(1) Excludescertainperquisitesandotherbenefitsthatdidnotexceed1%ofanyofficerstotalsalaryandbonus.
(2) Representslifeinsurancepremiums.

OptionGrants

During2003,wegrantedoptionstopurchaseatotalof2,846,900sharesofourcommonstocktoouremployees,
includingournamedexecutiveofficers.Nostockappreciationrightsweregrantedduringfiscal2003.

70

1,980(2)

1,406(2)

1,488(2)

1,488(2)

1,488(2)

TableofContents

Thefollowingtableprovidessummaryinformationregardingstockoptionsgrantedtoournamedexecutiveofficers
duringthefiscalyearendedDecember31,2003.Theoptionsweregrantedpursuanttoour2001StockPlanandvestandbecome
exercisableasto25%oneachanniversaryofthedateofgrant,with100%vestedandexercisablefouryearsfromthedateofgrant.
Thepotentialrealizablevaluesetforthinthelastcolumnofthetableiscalculatedbasedonthetermoftheoptionatthetimeof
grant.Thisvalueisbasedonassumedratesofstockpriceappreciationof5%and10%compoundedannuallyfromthedateof
grantuntiltheirexpirationdate,assumingafairmarketvalueequaltoanassumedinitialpublicofferingpriceof$per
share.Stockpriceappreciationof5%and10%isassumedpursuanttotherulesandregulationsoftheSECanddoesnotrepresent
ourestimateorpredictionofourfuturestockpriceperformance.Actualgains,ifany,onstockoptionexercisesdependonthe
futureperformanceofthecommonstockandthedateonwhichtheoptionsareexercised.

OptionGrantsinLastFiscalYear

IndividualGrants

Name

A.BruceMontgomery,M.D.
WilliamR.Baker,Ph.D.
DonaldF.SeatonIII
IainW.Duncan
JonathanP.Mow

Numberof
Securities
Underlying
Options
Granted

Percentof
Total
Options
Grantedto
Employees
inFiscal
Year

Exerciseor
BasePrice
PerShare

Expiration
Date

0.26
0.26
0.26
0.26

3/13/2013
3/13/2013
3/13/2013
3/13/2013

103,600
208,500
218,800
218,800


3.6%
7.3
7.7
7.7

PotentialRealizable
ValueatAssumed
AnnualRatesofStock
PriceAppreciation
forOptionTerm
5%

10%

Theprecedingtabledoesnotincludeoptionstopurchaseatotalof6,007,768sharesofourcommonstockthatwe
grantedtoouremployeesduringthefirsttenmonthsof2004,ofwhichwegrantedoptionstopurchase1,304,000sharestoDr.
Montgomery,356,214sharestoDr.Baker,415,122sharestoMr.Seaton,210,235sharestoMr.Duncanand209,050sharestoMr.
Mow.Theoptionsweregrantedpursuanttoour2001StockPlanandvestandbecomeexercisableasto25%oneachanniversary
ofthedateofgrant,with100%vestedandexercisablefouryearsfromthedateofgrant.

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OptionExercisesin2003andFiscalYearEndOptionValues

Thefollowingtableprovidessummaryinformationregardingoptionsexercisedby,andheldby,ournamedexecutive
officersandthevalueofunexercisedoptionsheldbysuchofficersasofDecember31,2003.Therewasnopublictradingmarket
forourcommonstockasofDecember31,2003.Accordingly,thevalueoftheunexercisedinthemoneyoptionslistedbelowhas
beencalculatedbasedonanassumedinitialpublicofferingpriceof$pershare,lesstheapplicableexercisepricepershare,
multipliedbythenumberofsharesunderlyingtheoptions.

AggregatedOptionExercisesin2003and
FiscalYearEndOptionValues

Name

A.BruceMontgomery,M.D.
WilliamR.Baker,Ph.D.
DonaldF.SeatonIII
IainW.Duncan
JonathanP.Mow

Shares
Acquiredon
Exercise

57,500
57,500

NumberofSecurities
UnderlyingUnexercised
OptionsatDecember31,2003
Value
Realized

Exercisable

Unexercisable

ValueofUnexercised
intheMoneyOptionsat
December31,2003

55,000
50,000

268,600
358,500
276,300
276,300

$2,300
2,300

Exercisable

Unexercisable

ChangeinControlArrangements

Weintendtoenterintochangeincontrolseveranceagreements,orchangeincontrolagreements,withDr.Montgomery,
Dr.Baker,Mr.Seaton,Mr.DuncanandMr.Mow,ourotherofficersandcertainsenioremployees.Thechangeincontrol
agreementswillprovidethatif,duringthe24monthperiodafterachangeincontrol,theemploymentofanyoftheseexecutivesis
terminatedforanyreasonotherthanjustcause,deathortotaldisability,ortheexecutiveterminateshisorheremploymentwithin
60calendardaysafterbecomingawareofanoccurrencethatconstitutesgoodreason,theterminatedexecutivewillbeentitledto
specifiedadditionalbenefits,includingalumpsumpaymentequaltothesumof,or,inthecaseofDr.Montgomery,twotimesthe
sumof:

thegreatestoftheexecutivesannualsalary
asineffectonthedateoftheterminationoftheexecutivesemployment,
asineffectasofthefirstoccurrenceofthechangeincontrolor,ifapplicable,potentialchangeincontrol,or
actuallypaidtotheexecutivewithrespecttothemostrecentfiscalyearpriortothechangeincontroland
thegreaterofthemaximumamountoftheexecutivesannualtargetincentivebonus
asineffectonthedateoftheterminationoftheexecutivesemploymentor
asineffectasofthefirstoccurrenceofthechangeincontrolor,ifapplicable,thepotentialchangein
control,

withoutregardtowhethertheunderlyingperformancecriteriaforreceiptofsuchbonusareactuallyachievedbytheexecutiveor
Corus.

Inaddition,theterminatedexecutivewillbeentitledtobepaidanamountsufficienttocompensatetheexecutiveforany
excisetax,includinginterestandpenalties,imposedunderSection4999oftheInternalRevenueCodeandwillbeentitledto
reimbursementofhealthinsurancecoveragecostsuntiltheearlierof12

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monthsaftertermination,or24monthsafterterminationinthecaseofDr.Montgomery,andthetimeatwhichtheexecutive
becomescoveredbycomparablehealthcoverageofferedbyanotheremployer.Theterminatedexecutivewillalsobeentitledto
anyaccruedandunpaidbonusesearnedasofthedateoftermination,aproratedportionoftheterminatedexecutivestarget
bonusforthefiscalyearinwhichtheterminationoccurs,anyaccruedandunusedvacation,andfullvestingofanyoutstanding
stockoptions,outstandingstockappreciationrights,outstandingwarrants,outstandingrestrictedstockoroutstandingphantom
stockawardstotheexecutiveunderour2001StockPlanorour2004StockIncentivePlan.Thechangeincontrolagreements
generallymaybeterminatedwithtwoyearspriorwrittennoticeorimmediatelyupontheterminationoftheexecutives
employmentforjustcause,buttheagreementsshallcontinueineffectfortwoyearsafterachangeincontrolifachangeincontrol
occursduringthetermoftheagreements.

BenefitPlans

2001StockPlan.Our2001StockPlan,or2001Plan,wasadoptedbyourboardofdirectorsandapprovedbyour
stockholdersinMay2001,andbecameeffectiveonMay9,2001.The2001Planprovidesforthediscretionarygrantto
employees,includingofficersandemployeedirectors,ofincentivestockoptionswithinthemeaningofSection422ofthe
InternalRevenueCode,andforthediscretionarygranttoemployees,directorsandconsultantsofnonstatutorystockoptionsand
stockpurchaserights.Originally,2,049,492sharesofcommonstockwerereservedforissuanceunderthe2001Plan.InJune2002,
ourboardofdirectorsapprovedanamendmenttothe2001Plantoincreasethenumberofsharesofcommonstockreservedfor
issuanceundertheplanto2,500,000shares,whichamendmentwasapprovedbyourstockholdersinJuly2002.InFebruary2003,
ourboardofdirectorsandstockholdersapprovedanamendmenttothe2001Plantoincreasethenumberofsharesreservedfor
issuanceundertheplanto4,000,000shares.InOctober2003,ourboardofdirectorsapprovedanamendmenttothe2001Planto
increasethenumberofsharesofcommonstockreservedforissuanceundertheplanto8,000,000shares,whichamendmentwas
approvedbyourstockholdersinJanuary2004.InApril2004,ourboardofdirectorsandstockholdersapprovedafurther
amendmenttothe2001Plantoincreasethenumberofsharesreservedforissuanceundertheplanto12,000,000shares.AsofJune
30,2004,optionstopurchaseanaggregateof6,089,350sharesofourcommonstockwereoutstandingunderthe2001Plan.Ifan
optioneeissubjecttoaninvoluntaryterminationwithin12monthsafterachangeincontrol,unvestedoptionsgrantedunderthe
2001Planshallaccelerateandbecomefullyexercisable.Ourboardofdirectorshasdeterminedthatnofurtheroptionsorstock
awardswillbegrantedunderthe2001Planafterthisoffering.Unlessterminatedsooner,the2001Planwillterminate
automaticallytenyearsfromitseffectivedate.

2004StockIncentivePlan.Our2004StockIncentivePlan,or2004Plan,willbeadoptedbyourboardofdirectorsand
willbesubmittedtoourstockholdersforapprovalpriortothecompletionofthisoffering.The2004Planwillbecomeeffective
whentheunderwritingagreementforthisofferingissigned.Atthattime,alloutstandingoptionsunderthe2001Planwillbe
administeredunderthe2004Plan,butwillcontinuetobegovernedbytheirexistingterms.Unlessterminatedsooner,the2004
Planwillterminateautomaticallytenyearsfromitseffectivedate.

The2004Planwillprovideforthediscretionarygranttoemployees,includingofficersandemployeedirectors,of
incentivestockoptionswithinthemeaningofSection422oftheInternalRevenueCodeandofstockawards,andforthe
discretionarygranttoemployees,directorsandconsultantsofnonstatutorystockoptionsandstockawards.

Thetotalnumberofsharesofcommonstockthatwillbereservedforissuanceunderthe2004Planwillequal
sharesofcommonstockplusthenumberofsharesthatremainreservedforissuanceunderthe2001Planasofthedatethe2004
Planbecomeseffective.Thenumberofsharesthatwillbereservedforissuanceunderthe2004Planwillbeincreasedonthefirst
dayofeachofourfiscalyearsbytheleastof(a)%oftheoutstandingcommonstockonthelastdayoftheimmediately
precedingfiscalyear,(b)sharesand(c)suchlesseramountastheboardofdirectorsmaydetermine.

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Themaximumnumberofoptionshareseachoptioneemaybegrantedduringafiscalyearunderthe2004Planis
shares.Inconnectionwithanoptioneesinitialservicewithus,however,suchoptioneemaybegrantedoptionsforuptoatotalof
sharesduringtheoptioneesfirstyearofservice.Restrictedstockgrantsarelimitedtosharesperpersoninanyfiscal
year.

The2004Planwillbeadministeredbyourcompensationcommittee,whichcommitteeshall,inthecaseofoptions
intendedtoqualifyasperformancebasedcompensationwithinthemeaningofSection162(m)oftheInternalRevenueCode,
consistoftwoormoreoutsidedirectorswithinthemeaningofthatsection.Theadministratorhasthepowertodeterminethe
termsandconditionsoftheoptionsgranted,includingwhetherandtowhomtograntoptions,theexercisepriceoftheoptions,the
numberofsharessubjecttoeachoption,thetermandexercisescheduleofeachoptionandtheformofconsiderationpayable
upontheexerciseofeachoption.Theboardofdirectorswillhavetheauthoritytoamend,suspendorterminatethe2004Plan,
providedthatnosuchactionadverselyaffectsanyoptionpreviouslygrantedunderthe2004Plan.

Optionsandstockawardstobegrantedunderthe2004Plangenerallywillnotbetransferable,andmaybeexercisedor
purchasedduringthelifetimeoftheoptioneeortheholderofthestockawardonlybytheoptioneeortheholderortheoptionees
ortheholdersguardianorlegalrepresentative.Generally,optionstobegrantedunderthe2004Planmustbeexercisedwithin90
daysoftheoptioneesseparationofservice,providedthattheseparationisnotforcause,inwhichcasetheoptionwillterminate
immediately.Optionsmaybeexercisedwithinfiveyearsoftheoptioneesdeathordateofretirement,oradeterminationof
disabilityunderourlongtermdisabilitypolicy.Eachstockoptionagreementwillspecifythedatewhenalloranysharesubjectto
anoutstandingoptionshallbecomeexercisable

Theexercisepriceofallincentivestockoptionstobegrantedunderthe2004Planmustbeatleastequaltothefair
marketvalueofthecommonstockonthedateofgrant.Theexercisepriceofallothernonstatutorystockoptionsandstockawards
grantedunderthe2004Planshallbedeterminedbytheadministratorofthe2004Plan,butwithrespecttononstatutorystock
optionsintendedtoqualifyasperformancebasedcompensationwithinthemeaningofSection162(m)oftheInternalRevenue
Code,theexercisepricemustbeatleastequaltothefairmarketvalueofourcommonstockonthedateofgrant.Withrespectto
anyoptioneewhoownsstockpossessingmorethan10%ofthevotingpowerofallclassesofouroutstandingcapitalstock,the
exercisepriceofanyincentivestockoptionmustequalatleast110%ofthefairmarketvalueonthedateofgrantandthetermof
anyincentivestockoptionmustnotexceedfiveyears.Thetermofallotheroptionsgrantedunderthe2004Planmaynotexceed
tenyears.

The2004Planwillprovidethatintheeventthatwearepartytoamerger,reorganizationorothercorporatetransaction,
outstandingawardsunderthe2004Planmaybeassumedbythesuccessorentity,continuedbyus,ifwearethesurvivingentity,
acceleratedorcancelledwithoutconsideration.

74

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CERTAINRELATIONSHIPSANDRELATEDPARTYTRANSACTIONS

InsiderTransactions

ThefollowingisacompletelistofeachtransactionorseriesofsimilartransactionssinceAugust27,2001,towhichwe
wereorareapartyinwhichtheamountinvolvedexceededorexceeds$60,000andinwhichanyofourdirectorsorexecutive
officers,anyholderofmorethan5%ofanyclassofourvotingsecuritiesoranymemberoftheimmediatefamilyofanyofthe
foregoingpersonshadorwillhaveadirectorindirectmaterialinterest.

DateofPurchase

Purchaser

December7,2001

February20,2003
February21,2003

March6,2003

August5,2003

April9,2004

Numberof
Shares
Purchased

TypeofSecurity

KirbyL.Cramer,Chairmanofthe
Board

RobertT.deGavre,Director

NovoA/S(2)

J.P.MorganPartners(SBIC),
LLC(3)

J.P.MorganPartnersGlobal
Investors(SBIC),LLC(3)

BurrillBiotechnologyCapital
Fund,L.P.(4)

CaduceusPrivateInvestments,
LP(5)

OrbiMedAssociatesLLC(5)

UBSJuniperCrossoverFund,
L.L.C.(5)

DigitalCoastVentures,LLC(6)
(7)(8)

CascadeInvestment,LLC(9)

MDSLifeSciencesTechnology
FundIINCLimited
Partnership(9)

MDSLifeSciencesTechnology
FundIIQuebecLimited
Partnership(9)

MLIICoInvestmentFundNC
LimitedPartnership(9)

CorusPharmaHoldings(6)(7)(10)
RBCLifeSciencesLimited
PartnershipII(9)

JonathanP.Mow,VicePresident
KirbyL.Cramer,Chairmanofthe
Board

J.P.MorganPartnersSBIC,
LLC(3)

J.P.MorganPartnersGlobal
Investors(SBIC),LLC(3)

BurrillBiotechnologyCapital
Fund,L.P.(4)

BurrillIndianaLifeSciences
CapitalFund,L.P.(4)

CommonStock

Price
per
Share(1)

250,000

Aggregate
Purchase
Price(1)

$ 0.22

TotalValue
of
Sharesatthe
InitialPublic
OfferingPrice
of$
PerShare

55,000

CommonStock
384,615 0.26
100,000
SeriesBStock 4,111,419 0.97 4,000,000
SeriesBStock
10,525,867 0.97 10,240,616

SeriesBStock

2,836,246

SeriesBStock

3,083,565

SeriesBStock

1,333,333

10,279 0.97
192,307 0.26

6,957,105

8,070,241

1.16

10,000
50,000

1.16

2,094,618

694,746

0.97

SeriesCStock

796,587 0.97
775,000
4,770,769 0.97 4,641,481

SeriesCStock

0.97

SeriesBStock
CommonStock

500,000

1,370,473

3,545,860 0.97 3,449,767


2,026,847 0.97 1,971,919

SeriesBStock
SeriesBStock

0.97

714,099

SeriesBStock

2,370,924

SeriesBStock

0.97

513,927

3,000,000

50,726 0.97
49,351
1,058,169 0.97 1,029,493

SeriesBStock
SeriesBStock

SeriesBStock

2,759,383

0.97

2,436,966

SeriesBStock
SeriesBStock

0.97

2,429,756

SeriesCStock

862,069 1.16 1,000,000

SeriesCStock

258,156 1.16

75

299,460

TableofContents

DateofPurchase

Purchaser

TypeofSecurity

April21,2004
May7,2004

September21,2004
(1)

(2)

(3)

Numberof
Shares
Purchased

BurrillLifeSciencesCapitalFund,L.P.
(4)
CaduceusPrivateInvestments,LP(5)
OrbiMedAssociatesLLC(5)
UBSJuniperCrossoverFund,L.L.C.(5)
NovoA/S(2)
BearStearnsHealthInnoventuresL.P.
(11)
BearStearnsHealthInnoventures
EmployeeFund,L.P.(11)
BearStearnsHealthInnoventures
Offshore,L.P.(11)
BSHIMembers,L.L.C.(11)
BX,L.P.(11)
CascadeInvestment,LLC(9)
MDSLifeSciencesTechnologyFundII
NCLimitedPartnership(9)
MDSLifeSciencesTechnologyFundII
NCQuebecLimitedPartnership(9)
MLIICoInvestmentFundNCLimited
Partnership(9)
RBCLifeSciencesLimitedPartnership
II(9)
CramerHoldingsLLC(12)
DigitalCoastVentures,LLC(6)(7)(8)
MichaelJ.Montgomery(6)
JamesW.MontgomeryFamilyTrust(7)
Montgomery&Co.,LLC(13)

Price
per
Share(1)

TotalValue
of
Sharesatthe
InitialPublic
OfferingPrice
of$
PerShare

Aggregate
Purchase
Price(1)

3,103,913
2,494,318
51,920
1,083,073
2,456,897

1.16
1.16
1.16
1.16
1.16

3,600,539
2,893,409
60,227
1,256,365
2,850,000

SeriesCStock
SeriesCStock
SeriesCStock
SeriesCStock
SeriesCStock

SeriesCStock

1,247,597

1.16 1,447,212

SeriesCStock

809,290

1.16

938,776

1,026,347
579,851
4,957,605
4,625,000

1.16 1,190,562
1.16 672,627
1.16 5,750,821
1.16 5,365,000

SeriesCStock
SeriesCStock
SeriesCStock
SeriesCStock

SeriesCStock

1,211,201

1.16 1,404,993

SeriesCStock

426,730

1.16

495,006

SeriesCStock

818,966

1.16

950,000

SeriesCStock 2,586,207
SeriesCStock 431,034
SeriesCStock 646,552
SeriesCStock
27,018
SeriesCStock
64,655
CommonStock 211,207

1.16 3,000,000
1.16 500,000
1.16 750,000
1.16
31,341
1.16
75,000
0.95 200,647

Thepricepersharehasbeenroundedtothenearestcentandtheaggregatepurchasepriceisroundedtothenearestdollar
and,therefore,theaggregatepurchasepricemaynotequalthenumberofsharespurchasedmultipliedbythepricepershare
duetorounding.
UlrikSpork,oneofourdirectors,isSeniorPartnerofNovoA/S,andtheChiefExecutiveOfficerofNovoVentures1A/S,
whichisawhollyownedsubsidiaryofNovoA/Sandhasa17.8%limitedpartnerinterestinBurrillBiotechnologyCapital
Fund,L.P.anda3.8%limitedpartnerinterestinBurrillLifeSciencesCapitalFund,L.P.Mr.Sporkdisclaimsbeneficial
ownershipofsuchshares,excepttotheextentofhispecuniaryinterestarisingasaresultofhisengagementwithNovoA/S.
Uponthecompletionofthisoffering,eachshareofSeriesBPreferredStockandeachshareofSeriesCPreferredStockwill
beconvertedintooneshareofcommonstock.
RodneyA.Ferguson,oneofourdirectors,isaManagingDirectorofJ.P.MorganPartners(SBIC),LLC,orJPMPSBIC,J.P.
MorganPartnersGlobalInvestors(SBIC),LLC,orJPMPGlobal,andJPMPCapitalCorp.,orJPMPCapital.JPMPSBICand
JPMPGlobalareeachholdersofsharesofourSeriesBPreferredStockandSeriesCPreferredStock.JPMPSBICisawholly
ownedsubsidiaryofJ.P.MorganPartners(BHCA),L.P.,thegeneralpartnerofwhichisJPMPMasterFundManager,L.P.,or
MFManager.ThegeneralpartnerofeachofthemembersofJPMPGlobalisJPMPGlobalInvestors,L.P.,orGlobal
Investors.JPMPCapital,awhollyownedsubsidiaryofJ.P.Morgan

(footnotescontinuedonfollowingpage)

76

TableofContents

(4)

(5)

(6)

(7)
(8)

(9)

(10)

(11)

(12)

(13)

Chase&Co.,orJPMChase,isthegeneralpartnerofeachofMFManagerandGlobalInvestors.Asaresultthereof,eachof
Dr.Ferguson,MFManager,JPMPCapitalandJPMChasemaybedeemedtobeneficiallyownthesharesheldbyJPMP
SBIC,andeachofGlobalInvestors,JPMPCapitalandJPMChasemaybedeemedtobeneficiallyownthesharesheldby
JPMPGlobal.Theforegoing,however,shallnotbeanadmissionthatDr.Ferguson,MFManager,GlobalInvestors,JPMP
CapitalorJPMChasearethebeneficialownersofsuchshares,andeachdisclaimsbeneficialownership,excepttotheextent
oftheirpecuniaryinterestineachoftheapplicableentities.Uponthecompletionofthisoffering,eachshareofSeriesB
PreferredStockandeachshareofSeriesCPreferredStockwillbeconvertedintooneshareofcommonstock.
JohnH.Kim,oneofourdirectors,isamemberofeachof(a)Burrill&Company(BiotechnologyGP),LLC,whichisthe
generalpartnerofBurrillBiotechnologyCapitalFund,L.P.,aholderofoursecurities,(b)Burrill&Company(LifeSciences
GP),LLC,whichisthegeneralpartnerofBurrillLifeSciencesCapitalFund,L.P.,aholderofoursecurities,and(c)Burrill&
Company(IndianaGP),LLC,whichisthegeneralpartnerofBurrillIndianaLifeSciencesCapitalFund,L.P.,aholderofour
securities.Dr.Kimdisclaimsbeneficialownershipofsuchshares,excepttotheextentofhispecuniaryinterestarisingasa
resultofhisinterestineachofBurrill&Company(BiotechnologyGP),LLC,Burrill&Company(LifeSciencesGP),LLC,
andBurrill&Company(IndianaGP),LLC.Uponthecompletionofthisoffering,eachshareofSeriesBPreferredStockand
eachshareofSeriesCPreferredStockwillbeconvertedintooneshareofcommonstock.
SamuelP.Wertheimer,oneofourdirectors,isaPrincipalwithOrbiMedAdvisorsLLCandOrbiMedCapitalLLC.OrbiMed
CapitalLLCistheGeneralPartnerofCaduceusPrivateInvestments,LPandtheManagingMemberofOrbiMedAssociates
LLC.OrbiMedAdvisorsLLCisamemberofPWFundAdvisorLLC,whichistheManagingMemberofUBSJuniper
CrossoverFund,L.L.C.Dr.Wertheimerdisclaimsbeneficialownershipofsuchshares,excepttotheextentofhis5%
minorityinterestin,andpecuniaryinterestarisingasaresultofhisinterestin,OrbiMedAssociatesLLC.Uponthe
completionofthisoffering,eachshareofSeriesBPreferredStockandeachshareofSeriesCPreferredStockwillbe
convertedintooneshareofcommonstock.
MichaelJ.MontgomerywasoneofourdirectorsfromJanuary26,2001toNovember20,2003andisthebrotherof
A.BruceMontgomery,ourPresident,ChiefExecutiveOfficerandTreasurer,andoneofourdirectors.
JamesW.Montgomery,thebrotherofA.BruceMontgomery,isthetrusteeoftheJamesW.MontgomeryFamilyTrust.
JamesW.MontgomeryistheChiefExecutiveOfficer,andMichaelJ.Montgomeryisadirector,ofDigitalCoastVentures,
LLC.EachofJamesW.MontgomeryandMichaelJ.Montgomerydisclaimsbeneficialownershipofsuchshares,exceptto
theextentofhispecuniaryinterestarisingasaresultofhisinterestinDigitalCoastVentures,LLC.Uponthecompletionof
thisoffering,eachshareofSeriesBPreferredStockandeachshareofSeriesCPreferredStockwillbeconvertedintoone
shareofcommonstock.
Uponthecompletionofthisoffering,eachshareofSeriesBPreferredStockandeachshareofSeriesCPreferredStockwill
beconvertedintooneshareofcommonstock.Thenamedentityeitherseparately,ortogetherwithitsaffiliatedentities,isa
5%orgreaterholderofourvotingsecurities.SeethePrincipalStockholderssection.
MichaelJ.MontgomeryistheGeneralPartnerandamemberofCorusPharmaHoldings,and,asalimitedpartnerofCorus
PharmaHoldings,holdsapercentageinterestinsharesofSeriesBPreferredStockpurchasedbyCorusPharmaHoldings.
JamesW.MontgomeryisthetrusteeoftheJamesW.MontgomeryFamilyTrust,which,asalimitedpartnerofCorusPharma
Holdings,holdsapercentageinterestinsharesofSeriesBPreferredStockpurchasedbyCorusPharmaHoldings.Eachof
MichaelJ.MontgomeryandJamesW.Montgomerydisclaimsbeneficialownershipofsuchshares,excepttotheextentof
hisorthetrusts,asapplicable,pecuniaryinterestarisingasaresultofhisorthetrusts,asapplicable,interestinCorus
PharmaHoldings.Uponthecompletionofthisoffering,eachshareofSeriesBPreferredStockandeachshareofSeriesC
PreferredStockwillbeconvertedintooneshareofcommonstock.
FritzR.Bhler,oneofourdirectors,isamemberofBearStearnsHealthInnoventuresManagement,LLC,whichisthe
generalpartnerofeachofBX,L.P.,BearStearnsHealthInnoventures,L.P.,BearStearnsHealthInnoventuresOffshore,L.P.
andBearStearnsHealthInnoventuresEmployeeFund,L.P.andthemanagingmemberofBSHIMembers,L.L.C.,together
theBSHIFunds,holdersofourSeriesCPreferredStock,andinsuchcapacitymaybedeemedtohavesharedvotingand
dispositivepoweroverthesharesheldbytheBSHIFunds.Dr.Bhlerdisclaimsbeneficialownershipofsuchshares,except
totheextentofhispecuniaryinterestarisingasaresultofhisinterestineachoftheBSHIFunds.Uponthecompletionof
thisoffering,eachshareofSeriesCPreferredStockwillbeconvertedintooneshareofcommonstock.
KirbyL.Cramer,oneofourdirectors,isamanagerandamemberofCramerHoldingsLLC.Uponcompletionofthis
offering,eachshareofSeriesCPreferredStockwillbeconvertedintooneshareofcommonstock.
SuchsharesofcommonstockwereissuedtoMontgomery&Co.andthreeofitsprincipals.JamesW.Montgomeryand
MichaelJ.Montgomery,brothersofA.BruceMontgomery,ourChiefExecutiveOfficer,areofficersofMontgomery&Co.

77

TableofContents

AgreementsWithManagement

Wehaveenteredintoindemnificationagreementswithourofficersanddirectorscontainingprovisionsthatmayrequire
us,amongotherthings,toindemnifyourofficersanddirectorsagainstcertainliabilitiesthatmayarisebyreasonoftheirstatusor
serviceasofficersordirectors,otherthanliabilitiesarisingfromwillfulmisconductofaculpablenature,andtoadvancetheir
expensesincurredasaresultofanyproceedingagainstthemastowhichtheycouldbeindemnified.SeeDescriptionofCapital
StockIndemnificationProvisions.

InJanuary2001,weenteredintoafinancingrepresentationagreementwithDigitalCoastPartners,LLC,orDCP,under
whichweengagedDCPtoactasourexclusiverepresentativeforarrangingequity,debtorotherfinancing.MichaelJ.
Montgomery,adirectorofCorusuntilNovember20,2003andabrotherofA.BruceMontgomery,ourPresident,ChiefExecutive
OfficerandTreasurer,wastheCoChiefExecutiveOfficerofDCP.Underthefinancingrepresentationagreement,weagreedto(i)
payDCPafeeof5%ofthegrossproceedsofthefinancingand(ii)issuetoDCPawarranttopurchasesharesofourcommonstock
havinganaggregateexercisepriceequalto2%ofthegrossproceedsofthefinancing.WealsoagreedtoindemnifyDCPagainst
anyandallthirdpartylosses,claims,damages,liabilities,costs,expensesandfees,including,withoutlimitation,legalfees
incurredbyDCPasapartyorparticipantarisingoutofDCPsservicesasourfinancingrepresentative.

InMay2001,wesold8,468,757sharesofourSeriesAPreferredStockinaprivateplacementinwhichwereceivedgross
proceedsof$18,500,000.Uponcompletionofthetransaction,wepaidDCPafinancingrepresentationfeeof$953,086.Alsoin
connectionwiththistransaction,weissuedtoDCPawarranttopurchase164,796sharesofourcommonstockatanexerciseprice
of$2.18pershare.Otherthanthisfeeandwarrant,noothercompensationwasearnedbyDCPunderthefinancingrepresentation
agreement,whichwasterminatedonMay18,2001.Pursuanttothetermsofthewarrant,asaresultofanadjustmentinthe
conversionpriceofourSeriesAPreferredStock,onJuly16,2002,thenumberofsharesexercisableunderthewarrantwasadjusted
to219,725sharesandtheexercisepricewasadjustedto$1.64pershare.

OnJanuary15,2004,weengagedMontgomery&Co.,LLC,thesuccessortoDCP,underafinancingrepresentation
agreementtoactasourexclusiverepresentativeforarrangingourSeriesCPreferredStockfinancing.MichaelJ.Montgomery,the
President,JamesW.Montgomery,theChiefExecutiveOfficer,andGeorgeG.Montgomery,theManagingDirector,of
Montgomery&Co.,arebrothersofA.BruceMontgomery,ourPresident,ChiefExecutiveOfficerandTreasurer.MichaelJ.
MontgomerywasoneofourdirectorsfromJanuary26,2001toNovember30,2003.Underthefinancingrepresentation
agreement,weagreedto(i)payMontgomery&Co.anupfrontfeeof$50,000andafeeequaltothegreaterof$750,000or5%of
thegrossproceedsofourSeriesCPreferredStockfinancing,excluding100%ofthegrossproceedsofanyfundsprovidedbyour
existingstockholders,(ii)issuetoMontgomery&Co.awarranttopurchasesharesofourcommonstockand(iii)indemnify
Montgomery&Co.onsubstantiallythesametermsasprovidedinthe2001financingrepresentationagreementwithDigital.In
April,MayandJuneof2004,wesoldanaggregateof56,038,635sharesofourSeriesCPreferredStockinaprivateplacementin
whichwereceivedgrossproceedsof$65,004,818.Uponcompletionofthetransaction,wepaidafeeof$1,175,000to
Montgomery&Co.andinsubstitutionoftheoriginallyagreeduponwarrantweissuedanaggregateof211,207sharesof
commonstocktoMontgomery&Co.andthreeofitsprincipals.Otherthanthisfeeandthesharesofcommonstocktobeissuedto
designeesofMontgomery&Co.,noothercompensationwasearnedbyMontgomery&Co.underthe2004financing
representationagreement.

WeintendtoenterintochangeincontrolseveranceagreementswithDr.Montgomery,Mr.Sen,Dr.Baker,Mr.Seaton,
Mr.DuncanandMr.Mow,ourotherofficersandcertainsenioremployees.SeeManagementChangeinControlArrangements.

78

TableofContents

PRINCIPALSTOCKHOLDERS

Thefollowingtablesetsforth,asofJune30,2004,certaininformationregardingthebeneficialownershipof:

eachpersonknownbyustoownbeneficially5%ormoreofourvotingsecurities
eachofournamedexecutiveofficersforwhominformationisprovidedundertheSummaryCompensationTable
eachofourdirectorsand
allofourdirectorsandofficersasagroup.

OnJune30,2004,wehad122,188,301sharesofcommonstockoutstandingaftergivingeffecttotheautomatic
conversionofalloutstandingsharesofourconvertiblepreferredstock.Exceptasotherwisenoted,theaddressofeachperson
listedinthetableisc/oCorusPharma,Inc.,20251stAvenue,Suite800,Seattle,Washington98121.Beneficialownershipis
determinedinaccordancewiththerulesoftheSECandincludesvotingandinvestmentpowerwithrespecttoshares.Toour
knowledge,exceptunderapplicablecommunitypropertylawsorasotherwiseindicated,thepersonsnamedinthetablehavesole
votingandsoleinvestmentcontrolregardingallsharesbeneficiallyowned.Sharesofcommonstocksubjecttooptionsorwarrants
exercisablecurrentlyorwithin60daysaredeemedoutstandingforpurposesofcomputingthepercentageownershipoftheperson
holdingtheseoptionsandwarrants,butarenotdeemedoutstandingforpurposesofcomputingthepercentageownershipofany
otherperson.

Numberof
Shares

Beneficially
Owned

NameandAddressofBeneficialOwner

OtherDirectors
RichardB.Brewer(6)
FritzR.Bhler,M.D.(7)
KirbyL.Cramer(8)
RobertT.deGavre
RodneyA.Ferguson,Ph.D.(9)
JohnH.Kim,M.D.(10)
UlrikSpork(11)
SamuelP.Wertheimer,Ph.D.(12)
Alldirectorsandofficersasagroup(14persons)(13)

100,000
8,620,690
442,765
384,615
24,835,346
11,482,719
6,568,316
9,680,183
68,845,813

OtherPrincipalStockholders
EntitiesassociatedwithJ.P.MorganPartners(9)
1221AvenueoftheAmericas,40thFloor
NewYork,NY10020

24,835,346

EntitiesaffiliatedwithBurrill&CompanyLLC(10)
OneEmbarcaderoCenter,Suite2700
SanFrancisco,CA94111

11,482,719

79

After
Offering

5,000,000
173,543
151,318
671,089
676,229

Before
Offering

NamedExecutiveOfficers
A.BruceMontgomery,M.D.(1)
DonaldF.SeatonIII(2)
WilliamR.Baker,Ph.D.(3)
IainW.Duncan(4)
JonathanP.Mow(5)

PercentageofShares
BeneficiallyOwned

4.1%
*
*
*
*

*
7.1
*
*
20.3
9.4
5.4
7.9
56.0

9.4

20.3

TableofContents

Numberof
Shares

Beneficially
Owned

NameandAddressofBeneficialOwner

CascadeInvestment,LLC(14)
2365CarillonPoint
Kirkland,WA98033

10,675,870

8.7

EntitiesaffiliatedwithOrbiMedAdvisorsLLC(12)
767ThirdAvenue,30thFloor
NewYork,NY10017

7.9

EntitiesaffiliatedwithBSHIFunds(7)
383MadisonAve.,28thFloor
NewYork,NY10179

7.1

RBCLifeSciencesLimitedPartnershipII(15)
c/oRBCCapitalPartners
4thFloorNorthTower
RoyalBankPlaza
Toronto,OntarioMJ52W7
Canada

6.0

5.4

MDSLifeSciencesTechnologyFundIIQuebecLimited
Partnership(16)
2000PeelStreet,Suite560
Montreal,QuebecH3A2W5
Canada
NovoA/S(11)
Krogshoejvej41
DK2880Bagsvaerd
Denmark

(2)
(3)
(4)
(5)
(6)
(7)

9,680,183

8,620,690

7,356,976

6,568,316

5.4

6,568,316

Lessthan1%oftheoutstandingsharesofcommonstock.
Includes1,000,000sharesofcommonstockheldbyatrustforthebenefitofDr.Montgomeryschildren.Dr.Montgomery
disclaimsbeneficialownershipofsuchshares.
Includes152,125sharessubjecttooptionsexercisablecurrentlyorwithin60daysofJune30,2004.
Includes135,900sharessubjecttooptionsexercisablecurrentlyorwithin60daysofJune30,2004.
Includes83,450sharessubjecttooptionsexercisablecurrentlyorwithin60daysofJune30,2004.
Includes83,450sharessubjecttooptionsexercisablecurrentlyorwithin60daysofJune30,2004.
Includes100,000sharessubjecttooptionsexercisablecurrentlyorwithin60daysofJune30,2004.
Represents(a)4,957,605sharesofcommonstockissuableupontheconversionofconvertiblepreferredstockheldbyBX,
L.P.,(b)1,247,597sharesofcommonstockissuableupontheconversionofconvertiblepreferredstockheldbyBearStearns
HealthInnoventures,L.P.,(c)1,026,347sharesofcommonstockissuableupontheconversionofconvertiblepreferred
stockheldbyBearStearnsHealthInnoventures

Offshore,L.P.,(d)809,290sharesofcommonstockissuableupontheconversionofconvertiblepreferred

After
Offering

and

Before
Offering

MDSLifeSciencesTechnologyFundIINCLimitedPartnershipand
MLIICoInvestmentFundNCLimitedPartnership(16)
100InternationalBoulevard
Toronto,OntarioM9W6J6
Canada

*
(1)

PercentageofShares
BeneficiallyOwned

(footnotescontinuedonfollowingpage)

80

TableofContents

stockheldbyBearStearnsHealthInnoventuresEmployeeFund,L.P.and(e)579,851sharesofcommonstockissuableuponthe
conversionofconvertiblepreferredstockheldbyBSHIMembers,L.L.C.ThesefivefundsaretogetherreferredtoastheBSHI
Funds.BearStearnsAssetManagement,Inc.,orBSAM,isthemanagingmemberofBearStearnsHealthInnoventures
Management,LLC,orBSHIManagement,whichisthegeneralpartnerofeachoftheBSHIFunds,excludingBSHIMembers,
L.L.C.,themanagingmemberofwhichisBSHIManagement.Accordingly,BSAMandBSHIManagementmaybedeemedtobe
thebeneficialownersofthesharesheldbytheBSHIFunds.FritzR.Bhler,oneofourdirectors,ElizabethCzerepak,Michael
Aspinwall,StefanRyser,JurgenDrews,TheodoreSlocomb,AspinwallBlankerLLC,ofwhichMr.Aspinwallisamember,
CzerepakAdkinsLLC,ofwhichMs.Czerepakisamember,andBSAMaremembersofBSHIManagement,andthereforemaybe
deemedtosharevotinganddispositivepowerwithrespecttosuchshares.Eachsuchmemberdisclaimsbeneficialownershipof
suchshares,excepttotheextentofhis,heroritspecuniaryinterestarisingasaresultofhis,heroritsinterestineachoftheBSHI
Funds.
(8)

Includes431,034sharesofcommonstockissuableuponconversionofconvertiblepreferredstock,whichsharesareheldby
CramerHoldingsLLC,ofwhichKirbyL.Cramerismanagerandamember.
(9) Represents(a)19,904,482sharesofcommonstockissuableupontheconversionofconvertiblepreferredstockheldbyJ.P.
MorganPartners(SBIC),LLC,orJPMPSBIC,and(b)4,930,864sharesofcommonstockissuableupontheconversionof
convertiblepreferredstockheldbyJ.P.MorganPartnersGlobalInvestors(SBIC),LLC,orJPMPGlobal.JPMPSBICisa
whollyownedsubsidiaryofJ.P.MorganPartners(BHCA),L.P.,thegeneralpartnerofwhichisJPMPMasterFundManager,
L.P.,orMFManager.ThegeneralpartnerofeachofthemembersofJPMPGlobalisJPMPGlobalInvestors,L.P.,orGlobal
Investors.JPMPCapitalCorp.,orJPMPCapital,awhollyownedsubsidiaryofJ.P.MorganChase&Co.,orJPMChase,is
thegeneralpartnerofeachofMFManagerandGlobalInvestors.Asaresultthereof,eachofMFManager,JPMPCapitaland
JPMChasemaybedeemedtobeneficiallyownthesharesheldbyJPMPSBIC,andeachofGlobalInvestors,JPMPCapital
andJPMChasemaybedeemedtobeneficiallyownthesharesheldbyJPMPGlobal.RodneyA.Ferguson,oneofour
directors,isaManagingDirectorofJPMPSBIC,JPMPGlobalandJPMPCapitaland,asaresult,Dr.Fergusonmaybe
deemedtobethebeneficialownerofthesharesheldbyJPMPSBICandJPMPGlobal.Additionally,JeffreyC.Walker,as
PresidentofJPMPCapital,maybedeemedtohavebeneficialownershipofthesharesheldbyJPMPSBICandJPMPGlobal
sincepursuanttopoliciesandproceduresadoptedbyJPMPCapital,Mr.Walkerhasdispositivepoweroversuchshares.The
foregoing,however,shallnotbeanadmissionthatMr.Walker,Dr.Ferguson,MFManager,GlobalInvestors,JPMPCapital
orJPMChasearethebeneficialownersofsuchshares,andeachdisclaimsbeneficialownership,excepttotheextentoftheir
pecuniaryinterestineachoftheapplicableentities.
(10) Represents(a)8,120,650sharesofcommonstockissuableupontheconversionofconvertiblepreferredstockheldby
BurrillBiotechnologyCapitalFund,L.P.,thegeneralpartnerofwhichisBurrill&Company(BiotechnologyGP),LLC,(b)
258,156sharesofcommonstockissuableupontheconversionofconvertiblepreferredstockheldbyBurrillIndianaLife
SciencesCapitalFund,L.P.,thegeneralpartnerofwhichisBurrill&Company(IndianaGP),LLCand(c)3,103,913shares
ofcommonstockissuableuponconversionofconvertiblepreferredstockheldbyBurrillLifeSciencesCapitalFund,L.P.,
thegeneralpartnerofwhichisBurrill&Company(LifeSciencesGP),LLC.JohnH.Kim,adirectorofCorus,isamemberof
eachofBurrill&Company(BiotechnologyGP),LLC,Burrill&Company(LifeSciencesGP),LLCandBurrill&Company
(IndianaGP),LLC.ThemembersofBurrill&Company(BiotechnologyGP),LLC,Burrill&Company(IndianaGP),LLC
andBurrill&Company(BiotechnologyGP),LLCareG.StevenBurrill,JohnH.Kim,whoisoneofourdirectors,Roger
Wyse,AnnHanhamandMichaelUllman,whosharevotinganddispositivepoweroversuchshares.Eachofsuchpersons
disclaimsbeneficialownershipofsuchshares,excepttotheextentofhisorherpecuniaryinterestarisingasaresultofhisor
herinterestineachofBurrill&Company(BiotechnologyGP),LLC,Burrill&Company(LifeSciencesGP),LLCand
Burrill&Company(IndianaGP),LLC.
(11) Represents6,568,316sharesofcommonstockissuableuponconversionofconvertiblepreferredstock.UlrikSpork,a
directorofCorus,isSeniorPartnerofNovoA/S,andtheChiefExecutiveOfficerofNovoVentures1A/S,whichisawholly
ownedsubsidiaryofNovoA/Sandhasa17.8%limitedpartnerinterest

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(12)

(13)
(14)

(15)

(16)

inBurrillBiotechnologyCapitalFund,L.P.anda3.8%limitedpartnerinterestinBurrillLifeSciencesCapitalFund,L.P.
Mr.Sporkdisclaimsbeneficialownershipofsuchshares,excepttotheextentofhispecuniaryinterestarisingasaresultof
hisengagementwithNovoA/S.TheboardofdirectorsofNovoA/Shasvotinganddispositivecontroloverthesharesheld
byNovoA/S.ThemembersoftheboardarePalleMarcus,JrgenBoe,UlfJ.Johansson,KurtAnkerNielsenandHans
Werdelin.Eachsuchpersondisclaimsbeneficialownershipofsuchshares.
Represents(a)6,652,904sharesofcommonstockissuableupontheconversionofconvertiblepreferredstockheldby
CaduceusPrivateInvestments,LP,(b)138,482sharesofcommonstockissuableupontheconversionofconvertible
preferredstockheldbyOrbiMedAssociatesLLCand(c)2,888,797sharesofcommonstockissuableupontheconversionof
convertiblepreferredstockheldbyUBSJuniperCrossoverFund,L.L.C.SamuelP.Wertheimer,adirectorofCorus,isa
PrincipalwithOrbiMedAdvisorsLLCandOrbiMedCapitalLLC.OrbiMedCapitalLLCistheGeneralPartnerofCaduceus
PrivateInvestmentsLPandtheManagingMemberofOrbiMedAssociatesLLC.OrbiMedAdvisorsLLCisamemberofPW
FundAdvisorLLC,whichistheManagingMemberofUBSJuniperCrossoverFund,L.L.C.Dr.Wertheimerdisclaims
beneficialownershipofsuchshares,excepttotheextentofhispecuniaryinterestinsuchshares.SamuelD.Islayisthe
managingmemberofbothOrbiMedAdvisorsLLCandOrbiMedCapitalLLC.Asmanagingmember,Mr.Islaypossesses
votinganddispositivecontrolovertheshares.Mr.Islaydisclaimsbeneficialownershipofsuchshares,excepttotheextent
ofhispecuniaryinterestinsuchshares.
Includes603,925sharessubjecttooptionsexercisablecurrentlyorwithin60daysofJune30,2004.
Represents10,675,870sharesofcommonstockissuableuponconversionofconvertiblepreferredstockheldbyCascade
Investment,LLC,orCascade.AllsharesheldbyCascademaybedeemedtobebeneficiallyownedbyWilliamH.GatesIII
asthesolememberofCascade.MichaelLarson,themanagerandexecutiveofficerofCascade,hasvotinganddispositive
powerwithrespecttothesharesheldbyCascade.Mr.Larsondisclaimsbeneficialownershipofthesharesbeneficially
ownedbyCascadeandMr.Gates.
Represents7,356,976sharesofcommonstockissuableuponconversionofconvertiblepreferredstock.AlanHibben,Barre
Laver,WallyHunter,RobertBechardandWesleyDiongsharevotinganddispositivepoweroversuchshares.Eachofsuch
personsdisclaimsbeneficialownershipofsuchshares,excepttotheextentofhispecuniaryinterestinRBCLifeSciences
LimitedPartnershipII.
Represents(a)3,238,048sharesofcommonstockissuableuponconversionofconvertiblepreferredstockheldbyMDSLife
SciencesTechnologyFundIINCLimitedPartnership,orMDSFundIINC,thegeneralpartnerofwhichisMDSLSTFII
(NCGP)Inc.,(b)1,140,829sharesofcommonstockissuableuponconversionofconvertiblepreferredstockheldbyMDS
LifeSciencesTechnologyFundIIQuebecLimitedPartnership,orMDSFundIIQuebec,thegeneralpartnerofwhichis
MDSLSTFII(QGP)Inc.,and(c)2,189,439sharesofcommonstockissuableuponconversionofconvertiblepreferredstock
heldbyMLIICoInvestmentFundNCLimitedPartnership,orMLIICoInvestmentFund,thegeneralpartnerofwhichis
MLII(NCGP)Inc.MDSCapitalManagementInc.,orMDSCapitalManagement,asubsidiaryofMDSCapitalCorp.,maybe
deemedtosharevotinganddispositivecontroloverthesharesheldbyMDSFundIINCpursuanttoanagreementwith
MDSFundIINC.MDSCapitalManagementalsoprovidesservicestoeachofMDSFundIIQuebecandMLIICo
InvestmentFund.Asaresult,eachofMDSCapitalManagement,MDSLSTFII(NCGP)Inc.,MDSLSTFII(QGP)Inc.and
MLII(NCGP)Inc.maybedeemedtosharevotinganddispositivecontroloverthesharesheldbyMDSFundIINC,MDS
FundIIQuebecandMLIICoInvestmentFund,ortheMDSEntitieshowever,eachdisclaimsbeneficialownershipofthe
sharesheldbytheMDSEntitieswithwhichitmaybeassociated,excepttotheextentofitsrespectivepecuniaryinterestin
theassociatedMDSEntity.Further,(a)pursuanttothetermsofitslimitedpartnershipagreement,MDSLSTFII(NCGP)Inc.
hasvotinganddispositivecontroloverthesharesheldbyMDSFundIINCMichaelMuellerandGregoryD.Gubitzarethe
directorsofMDSLSTFII(NCGP)Inc.andMr.Muellerisitspresident.Inaddition,MDSCapitalManagement,in
connectionwithitsagreementwithMDSFundIINC,hasbeengivendiscretionaryauthorityoverinvestments,divestments
andvoting.Messrs.MuellerandGubitzaredirectorsofMDSCapitalManagementandMr.Muellerisits

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presidentandchiefexecutiveofficer(b)theboardofdirectorsofMDSLSTFII(QGP)Inc.,whichiscomposedofMurray
Ducharme,MichaelMueller,BernardCoupal,JeanPageandMauriceForget,hasvotinganddispositivecontroloverthe
sharesheldbyMDSFundIIQuebec,andmaydelegatevotingcontroloversuchsharestoanytwopersonswhoaredirectors
orofficersofMDSLSTFII(QGP)Inc.,(c)theboardofdirectorsofMLII(NCGP)Inc.,whichiscomposedofMichael
MuellerandGregoryD.Gubitz,hasvotinganddispositivecontroloverthesharesheldbyMLIICoInvestmentFund,and
maydelegatevotingcontroloversuchsharestoanytwopersonswhoaredirectorsorofficersofMLII(NCGP)Inc.Eachof
thedirectorsandofficersofMDSLSTFII(NCGP)Inc.,MDSLSTFII(QGP)Inc.,MLII(NCGP)Inc.andMDSCapital
ManagementdisclaimsbeneficialownershipofthesharesheldbytheMDSEntitieswithwhichheorshemaybeassociated,
excepttotheextentofhisorherpecuniaryinteresttherein,ifany.

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DESCRIPTIONOFCAPITALSTOCK

Uponthecompletionofthisoffering,wewillbeauthorizedtoissuesharesofcommonstock,$0.001parvalueper
share,andsharesofundesignatedpreferredstock,$0.001parvaluepershare.

CommonStock

AsofJune30,2004,therewere122,188,301sharesofcommonstockoutstanding,heldofrecordby130stockholders,
assumingtheconversionofalloutstandingsharesofourconvertiblepreferredstock,totaling105,621,341shares,into
112,600,145sharesofcommonstock.AsofJune30,2004,optionstopurchase6,089,350sharesofcommonstockwerealso
outstanding.Therewillbesharesofcommonstockoutstanding,assumingnoexerciseofoutstandingoptionsunderour
stockcompensationplansafter,2004,aftergivingeffecttothesaleofthesharesofferedhereby.

Theholdersofcommonstockareentitledtoonevoteforeachshareheldofrecordonallmatterssubmittedtoavoteof
thestockholders.Subjecttopreferencesthatmaybeapplicabletoanyoutstandingpreferredstock,holdersofcommonstockare
entitledtoreceiveratablysuchdividendsasmaybedeclaredbytheboardofdirectorsoutoffundslegallyavailableforthat
purpose.SeeDividendPolicy.Intheeventofliquidation,dissolutionorwindingupofCorus,theholdersofcommonstockare
entitledtoshareratablyinallassetsremainingafterpaymentofliabilities,subjecttothepriordistributionrightsofany
outstandingpreferredstock.Thecommonstockhasnopreemptiveorconversionrightsorothersubscriptionrights.The
outstandingsharesofcommonstockare,andthesharesofcommonstocktobeissueduponcompletionofthisofferingwillbe,
fullypaidandnonassessable.

PreferredStock

Effectiveuponthecompletionofthisoffering,alloutstandingsharesofconvertiblepreferredstockwillbeconverted
intocommonstock.Uponthecompletionofthisoffering,ourboardofdirectorswillhavetheauthority,withoutfurtheractionby
thestockholders,toissueuptosharesofpreferredstock,$0.001parvalue,inoneormoreseries.Ourboardofdirectorswill
alsohavetheauthoritytodesignatetherights,preferences,privilegesandrestrictionsofeachsuchseries,includingdividend
rights,dividendrates,conversionrights,votingrights,termsofredemption,redemptionprices,liquidationpreferencesandthe
numberofsharesconstitutinganyseries.

Theissuanceofpreferredstockmayhavetheeffectofdelaying,deferringorpreventingachangeincontrolofCorus
withoutfurtheractionbythestockholders.Theissuanceofpreferredstockwithvotingandconversionrightsmayalsoadversely
affectthevotingpoweroftheholdersofcommonstock.Incertaincircumstances,anissuanceofpreferredstockcouldhavethe
effectofdecreasingthemarketpriceofthecommonstock.Asofthecompletionofthisoffering,nosharesofpreferredstockwill
beoutstanding.Wecurrentlyhavenoplanstoissueanysharesofpreferredstock.

CommonStockWarrant

AsofJune30,2004,therewasoneoutstandingwarranttopurchaseupto219,725sharesofourcommonstockatan
exercisepriceof$1.64pershare.ThewarrantiscurrentlyexercisableinfullandexpiresonMay31,2011.

RegistrationRights

Theholdersof112,600,145sharesofcommonstock,assumingtheconversionofalloutstandingconvertiblepreferred
stockuponcompletionofthisoffering,ortheirtransfereesareentitledtocertainrightswithrespecttotheregistrationofsuch
sharesundertheSecuritiesActof1933,asamended,orSecuritiesAct.These

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rightsareprovidedunderthetermsofanagreementbetweenusandtheholdersofthesesecurities.Beginningsixmonthsafterthe
completionofthisoffering,theholdersofatleast20%ofthesesecuritiesthenoutstandingmayrequirethatweuseallreasonable
effortstoregisterallorpartofthesesecurities,providedthattheanticipatedaggregateofferingprice,netofunderwriting
discountsandcommissions,isatleast$5.0million,forpublicresaleontwooccasions,andprovidedfurther,amongother
limitationssetforthintheagreement,thatFormS3registrationisnotavailable.Theholdersofanyofthesesecuritiesthen
outstandingmayalsorequireus,notmorethantwice,touseallreasonableeffortstoregisteralloraportionofthesesecuritiesona
FormS3registrationstatementwhentheuseofthatformbecomesavailabletous,provided,amongotherlimitations,thatthe
proposedaggregateofferingprice,netofanyunderwritingdiscountsorcommissions,isatleast$1.0million.Inaddition,ifwe
registeranyofourcommonstockeitherforourownaccountorfortheaccountofothersecurityholders,theholdersofthese
securitiesareentitledtoincludetheirsharesofcommonstockinthatregistration,subjecttotheabilityoftheunderwriterstolimit
thenumberofsharesincludedintheofferingto30%oftheoffering.Wewillberesponsibleforpayingallregistrationexpenses
incurredinconnectionwiththeseregistrations,subjecttocertainlimitations.

DelawareandWashingtonAntitakeoverLawsandCharterandBylawProvisions

ProvisionsoftheDelawareGeneralCorporationLaw,orDGCL,andtheWashingtonBusinessCorporationAct,or
WBCA,andourcharterdocumentscouldmaketheacquisitionofusandtheremovalofourincumbentofficersanddirectorsmore
difficult.Theseprovisionsareexpectedtodiscouragecertaintypesofcoercivetakeoverpracticesandinadequatetakeoverbids
andtoencouragepersonsseekingtoacquirecontrolofustonegotiatewithusfirst.Webelievethatthebenefitsofincreased
protectionofourpotentialabilitytonegotiatewiththeproponentofanunfriendlyorunsolicitedproposaltoacquireor
restructureusoutweighthedisadvantagesofdiscouragingsuchproposalsbecause,amongotherthings,negotiationofsuch
proposalscouldresultinanimprovementoftheirterms.

WearesubjecttotheprovisionsofSection203oftheDGCL.Ingeneral,thestatuteprohibitsapubliclyheldDelaware
corporationfromengaginginabusinesscombinationwithaninterestedstockholderforaperiodofthreeyearsafterthedate
thatthepersonbecameaninterestedstockholderunless,subjecttoexceptions,thebusinesscombinationorthetransactionin
whichthepersonbecameaninterestedstockholderisapprovedinaprescribedmanner.Generally,abusinesscombination
includesamerger,assetorstocksale,orothertransactionresultinginafinancialbenefittothestockholder.Generally,an
interestedstockholderisapersonwho,togetherwithaffiliatesandassociates,ownsor,withinthepriorthreeyears,didown,
15%ormoreofthecorporationsvotingstock.

WearealsosubjecttoChapter19oftheWBCA.Ingeneral,thestatuteprohibitsatargetcorporation,withlimited
exceptions,fromengaginginspecifiedsignificantbusinesstransactionswithanacquiringperson,oranaffiliateofthe
acquiringpersonthatowns10%ormoreofthevotingsecuritiesofthetargetcorporationforaperiodoffiveyearsafterthe
acquisitionof10%ormoreofthevotingsecurities,unlessthetransactionortheshareacquisitionbytheacquiringpersonis
approvedbyamajorityofthetargetcorporationsdirectorsbeforethedateoftheshareacquisition.Theprohibitedtransactions
include,amongothers,mergerorconsolidationwith,asignificantdispositionofassetsto,redemptionofstockfromorissuanceof
sharesorrightstoacquiresharesto,theacquiringperson,terminationof5%ormoreoftheemployeesofthetargetcorporation,or
allowingtheacquiringpersontoreceiveanydisproportionatebenefitasashareholder.Afterthefiveyearperiodduringwhich
significantbusinesstransactionsareprohibited,thetransactionmayoccurifspecifiedcriteriaaremet.

Targetcorporationsincludeallpubliclytradeddomesticcorporations,aswellasforeigncorporationsthatmeetspecified
requirements.ForeigncorporationsthatarerequiredtohaveacertificateofauthoritytotransactbusinessinWashingtonarealso
subjecttothestatuteif(a)thecorporationhasaclassofvotingsharesregisteredwiththeSECpursuanttosection12or15ofthe
SecuritiesExchangeActof1934,asamended(b)itsprincipalexecutiveofficeislocatedinWashington(c)ithas(i)morethan
10%ofitsshareholdersofrecord

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residentinWashington,(ii)morethan10%ofitssharesownedbyWashingtonresidents,or(iii)1,000ormoreshareholdersof
recordinWashington(d)amajorityofitsemployees,togetherwiththoseofitssubsidiaries,areWashingtonresidentsorit,
togetherwithitssubsidiaries,employsmorethan1,000Washingtonresidentsand(e)amajorityofthecorporationstangible
assets,togetherwiththoseofitssubsidiaries,arelocatedinWashington,orthecorporation,togetherwithitssubsidiaries,hasmore
than$50millionworthoftangibleassetsinWashington.Acorporationthatdoesnotqualifyasatargetcorporationwill
nonethelessbedeemedtobeatargetcorporationifthefailuretosatisfythecriteriaiscausedbytheactionof,oristheresultofa
proposalby,theacquiringpersonoraffiliateoftheacquiringperson.TheseprovisionsofDelawareandWashingtonlawmayhave
theeffectofdelaying,deferringorpreventingachangeincontrolofuswithoutfurtheractionbythestockholders.

SpecialStockholderMeetings.Ourrestatedcertificateofincorporation,orrestatedcertificate,willprovidethatspecial
meetingsofthestockholdersforanypurposeorpurposes,unlessrequiredbylaw,maybecalledbyourchairmanoftheboard,our
chiefexecutiveofficer,ourpresidentorthemajorityoftheentireboardofdirectors,butmaynotbecalledbyanyotherpersonor
persons.Theeliminationoftheabilityofstockholderstocallaspecialmeetingwillmakeitmoredifficultforstockholdersto
initiateactionsthatareopposedbytheboardofdirectors.Theseactionscouldincludetheremovalofanincumbentdirectororthe
electionofastockholdernomineeasadirector.Theycouldalsoincludetheimplementationofarulerequiringstockholder
ratificationofspecificdefensivestrategiesthathavebeenadoptedbytheboardofdirectorswithrespecttounsolicitedtakeover
bids.Inaddition,theeliminationoftheabilityofstockholderstocallaspecialmeetingofstockholdersmaymakeitmoredifficult
tochangetheexistingboardofdirectorsandmanagement.

ClassifiedBoardofDirectors.Ourboardofdirectorswillbedividedintothreeclassesofdirectorsservingstaggered
threeyearterms.Asaresult,approximatelyonethirdoftheboardofdirectorswillbeelectedeachyear.Theseprovisionsare
likelytoincreasethetimerequiredforstockholderstochangethecompositionofourboardofdirectors.Forexample,ingeneralat
leasttwoannualmeetingswillbenecessaryforstockholderstoeffectachangeinthemajorityofourboardofdirectors.Subjectto
therightsoftheholdersofanyoutstandingseriesofpreferredstock,therestatedcertificatewillauthorizeonlytheboardof
directorstofillvacancies,includingnewlycreateddirectorships.Therestatedcertificatealsowillprovidethatdirectorsmaybe
removedbystockholdersonlyforcauseandonlybyaffirmativevoteofholdersoftwothirdsoftheoutstandingsharesofvoting
stock.

SupermajorityVotetoAmendCharterandBylaws.Ourrestatedcertificateandrestatedbylawseachwillprovidethat
ourbylawsmayonlybeamendedbyatwothirdsvoteoftheoutstandingshares.Inaddition,ourrestatedcertificatewillprovide
thatitsprovisionsrelatedtostockholderactionswithoutameeting,specialmeetingsofstockholders,amendmentoftherestated
certificate,amendmentoftherestatedbylawsandclassifiedboardmayonlybeamendedbyatwothirdsvoteoftheoutstanding
shares.

NoStockholderActionbyWrittenConsent.Ourrestatedcertificatewillprovidethatstockholderactioncanbetaken
onlyatanannualorspecialmeetingofstockholdersandmaynotbetakenbywrittenconsent.Therestatedbylawswillprovide
thatspecialmeetingsofstockholderscanbecalledonlybytheboardofdirectors,thechairmanoftheboard,ifany,andthe
president.Moreover,thebusinesspermittedtobeconductedatanyspecialmeetingofstockholderswillbelimitedtothebusiness
broughtbeforethemeetingbytheboardofdirectors,thechairmanoftheboard,ifany,thechiefexecutiveofficerandthe
president.

AdvanceNoticeProcedures.Ourrestatedbylawswillprovideforanadvancenoticeprocedureforthenomination,
otherthanbyoratthedirectionofourboardofdirectors,ofcandidatesforelectionasdirectors,aswellasforotherstockholder
proposalstobeconsideredatannualmeetingsofstockholders.

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IndemnificationProvisions

AspermittedbytheDGCL,ourcertificateofincorporationeliminatesandourrestatedcertificatewilleliminatethe
personalliabilityofourofficersanddirectorsformonetarydamagesforbreachorallegedbreachoftheirfiduciarydutiesas
officersordirectors,otherthanincasesoffraudorotherwillfulmisconduct.Inaddition,ourbylawsprovideandourrestated
bylawswillprovidethatwearerequiredtoindemnifyourofficersanddirectorsevenwhenindemnificationwouldotherwisebe
discretionary,andwearerequiredtoadvanceexpensestoourofficersanddirectorsasincurredinconnectionwithproceedings
againstthemforwhichtheymaybeindemnified.Wehaveenteredintoindemnificationagreementswithourofficersanddirectors
containingprovisionsthatare,insomerespects,broaderthanthespecificindemnificationprovisionscontainedintheDGCL.The
indemnificationagreementsrequireustoindemnifyourofficersanddirectorsagainstliabilitiesthatmayarisebyreasonoftheir
statusorserviceasofficersanddirectorsandtoadvancetheirexpensesincurredasaresultofanyproceedingagainstthemasto
whichtheycouldbeindemnified.

Atpresent,wearenotawareofanypendingorthreatenedlitigationorproceedinginvolvingadirector,officer,employee
oragentofCorusinwhichindemnificationwouldberequiredorpermitted.Wearenotawareofanythreatenedlitigationor
proceedingthatmightresultinaclaimforindemnification.Webelievethatourcharterprovisionsandindemnification
agreementsarenecessarytoattractandretainqualifiedpersonsasdirectorsandofficers.

TransferAgentandRegistrar

ThetransferagentandregistrarforourcommonstockisMellonInvestorServicesLLC.Thetransferagentsaddressand
telephonenumberis520PikeStreet,Suite1220,Seattle,Washington98101,(206)6743030.

NASDAQNationalMarket

WehaveappliedforapprovalfortradingandquotationofourcommonstockontheNASDAQNationalMarketunderthe
symbolCSPH.

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SHARESELIGIBLEFORFUTURESALE

Priortothisoffering,therehasbeennopublicmarketforourcommonstock.Futuresalesofsubstantialamountsofour
commonstockinthepublicmarketcouldreduceprevailingmarketprices.Inaddition,salesofsubstantialamountsofour
commonstockinthepublicmarketafteranyrestrictionsonsalelapsecouldadverselyaffecttheprevailingmarketpriceofthe
commonstockandimpairourabilitytoraiseequityinthefuture.

Uponthecompletionofthisoffering,wewillhavesharesofcommonstockoutstandingbasedonshares
outstandingatJune30,2004,sharesiftheunderwritersoverallotmentoptionisexercisedinfull.Oftheseshares,assuming
noexerciseoftheunderwritersoverallotmentoption,thesharessoldinthisoffering,sharesiftheunderwriters
overallotmentoptionisexercisedinfull,willbefreelytransferablewithoutrestrictionorfurtherregistrationundertheSecurities
Act,exceptforanysharespurchasedbyanaffiliateofus.Theremaining122,188,301sharesofcommonstockheldbyexisting
stockholdersarerestrictedsecurities.Weissuedandsoldtherestrictedsecuritiesinprivatetransactionsinrelianceupon
exemptionsfromregistrationundertheSecuritiesAct.Restrictedsecuritiesmaybesoldinthepublicmarketonlyifregisteredorif
theyqualifyforexemptionfromregistrationdescribedbelowunderRule144,144(k)or701promulgatedundertheSecuritiesAct.

AsaresultofcontractualrestrictionsdescribedbelowandtheprovisionsofRules144,144(k)and701,therestricted
shareswillbeavailableforsaleinthepublicmarketasfollows:

119,828,044shareswillbeeligibleforsaleupontheexpirationofthelockupagreements,describedbelow,
beginning180daysafterthedateofthisprospectus,unlessthis180dayperiodisextendedinthemannersetforthin
Underwritingbelow,andwhenpermittedunderRule144,144(k)or701promulgatedundertheSecuritiesAct,and
2,360,257shareswillbeeligibleforsaleupontheexpirationofvariousoneyearholdingperiodsfollowing
expirationofthe180daylockupperiodwhenpermittedunderRule144.

LockUpAgreements

Allofourdirectorsandofficershaveenteredintolockupagreementsinconnectionwiththisoffering,andweare
seekingsimilaragreementsfromallofourstockholdersandoptionholders.AsofOctober18,2004,holdersof121,260,499
shares,onanasconvertedbasis,ofouroutstandingcapitalstock,or99.0%,haveenteredintolockupagreementsinconnection
withthisoffering.Theselockupagreementsgenerallyprovidethattheseholderswillnotoffer,sell,contracttosell,grantany
optiontopurchaseorotherwisedisposeofourcommonstockoranysecuritiesexercisablefororconvertibleintoourcommon
stockownedbythemforaperiodof180daysafterthedateofthisprospectus,subjecttocertainexceptions,withouttheprior
writtenconsentofMerrillLynch,Pierce,Fenner&SmithIncorporated,orMerrillLynch.TheagreementswithMerrillLynchare
subjecttoextensionassetforthinUnderwritingbelow.Notwithstandingpossibleearliereligibilityforsaleundertheprovisions
ofRules144,144(k)and701,sharessubjecttolockupagreementsmaynotbesolduntiltheseagreementsexpireorarewaivedby
MerrillLynch.

Rule144

Ingeneral,underRule144ascurrentlyineffect,aftertheexpirationofthelockupagreements,apersonwhohas
beneficiallyownedrestrictedsecuritiesforatleastoneyearwouldbeentitledtosellwithinanythreemonthperiodanumberof
sharesthatdoesnotexceedthegreaterof:

1%ofthenumberofsharesofcommonstockthenoutstanding,whichwillequalapproximatelyshares
immediatelyafterthisoffering,and
theaveragereportedweeklytradingvolumeofourcommonstockontheNASDAQNationalMarketduringthefour
calendarweeksprecedingthesalebysuchperson.

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SalesunderRule144arealsosubjecttorequirementswithrespecttomannerofsale,noticeandtheavailabilityof
currentpublicinformationaboutus.

Rule144(k)

UnderRule144(k),apersonwhoisnotdeemedtohavebeenouraffiliateatanytimeduringthethreemonthspreceding
asale,andwhohasbeneficiallyownedthesharesproposedtobesoldforatleasttwoyears,mayselltheseshareswithout
complyingwiththemannerofsale,publicinformation,volumelimitationornoticerequirementsofRule144.

Rule701

Rule701permitsouremployees,officers,directorsorconsultantswhopurchasedsharespursuanttoawritten
compensatoryplanorcontracttoresellsuchsharesinrelianceuponRule144,butwithoutcompliancewithcertainrestrictions.
Rule701providesthataffiliatesmayselltheirRule701sharesunderRule14490daysafterthedateofthisprospectuswithout
complyingwiththeholdingperiodrequirement,andthatnonaffiliatesmaysellsuchsharesinrelianceonRule14490daysafter
thedateofthisprospectuswithoutcomplyingwiththeholdingperiod,publicinformation,volumelimitationornotice
requirementsofRule144.

RegistrationRights

Uponthecompletionofthisoffering,theholdersofapproximately112,600,145sharesofcommonstock,ortheir
transferees,willbeentitledtorightswithrespecttotheregistrationoftheirsharesundertheSecuritiesAct.Registrationoftheir
sharesundertheSecuritiesActwouldresultinthesesharesbecomingfreelytradablewithoutrestrictionundertheSecuritiesAct,
exceptforsharespurchasedbyaffiliates,immediatelyupontheeffectivenessofsuchregistration.SeeDescriptionofCapital
StockRegistrationRights.

StockOptions

WeintendtofilearegistrationstatementundertheSecuritiesActafterthecompletionofthisofferingtoregistersharesto
beissuedpursuanttoour2001Planand2004Plan.Asaresult,sharesofourcommonstockobtainedthroughtheexerciseofany
optionsorrightsgrantedundertheseplanswillalsobefreelytradableinthepublicmarket.Sharesheldbyaffiliateswill,however,
stillbesubjecttothevolumelimitation,mannerofsale,noticeandpublicinformationrequirementsofRule144,unlessotherwise
resalableunderRule701.

CommonStockWarrant

Uponcompletionofthisoffering,therewillbeawarrantoutstandingtopurchase219,725sharesofourcommonstockat
anexercisepriceof$1.64pershare.Sharespurchaseduponexerciseofthewarrantmaybesold180daysaftercompletionofthis
offering,subjecttotherequirementsofRule144andsubjecttothetermsofthelockupagreementtowhichtheholdermaybea
party.ThiswarrantexpiresonMay31,2011.

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UNDERWRITING

MerrillLynch,Pierce,Fenner&SmithIncorporated,PacificGrowthEquities,LLC,SunTrustCapitalMarkets,Inc.and
JMPSecuritiesLLCareactingasrepresentativesofeachoftheunderwritersnamedbelow.Subjecttothetermsandconditionsset
forthinapurchaseagreementamongusandtheunderwriters,wehaveagreedtoselltotheunderwriters,andeachofthe
underwritersseverallyhaveagreedtopurchasefromus,thenumberofshareslistedoppositetheirnamesbelow.

Number
ofShares

Underwriter

MerrillLynch,Pierce,Fenner&Smith
Incorporated
PacificGrowthEquities,LLC
SunTrustCapitalMarkets,Inc.
JMPSecuritiesLLC

Total

Subjecttothetermsandconditionsinthepurchaseagreement,theunderwritershaveagreedtopurchasealloftheshares
soldunderthepurchaseagreementifanyofthesesharesarepurchased.Ifanunderwriterdefaults,thepurchaseagreement
providersthatthepurchasecommitmentsofthenondefaultingunderwritersmaybeincreasedorthepurchaseagreementmaybe
terminated.

Wehaveagreedtoindemnifytheunderwritersagainstcertainliabilities,includingliabilitiesundertheSecuritiesAct,or
tocontributetopaymentstheunderwritersmayberequiredtomakeinrespectofthoseliabilities.

Theunderwritersareofferingtheshares,subjecttopriorsale,when,asandifissuedtoandacceptedbythem,subjectto
approvaloflegalmattersbytheircounsel,includingthevalidityoftheshares,andotherconditionscontainedinthepurchase
agreement,suchasthereceiptbytheunderwritersofofficerscertificatesandlegalopinions.Theunderwritersreservetherightto
withdraw,cancelormodifyofferstothepublicandtorejectordersinwholeorinpart.

CommissionsandDiscounts

Theunderwritershaveadvisedusthattheunderwritersproposeinitiallytoofferthesharestothepublicattheinitial
publicofferingpriceonthecoverpageofthisprospectusandtodealersatthatpricelessaconcessionnotinexcessof$per
share.Theunderwritersmayallow,andthedealersmayreallow,adiscountnotinexcessof$persharetootherdealers.
Aftertheinitialpublicoffering,thepublicofferingprice,concessionanddiscountmaybechanged.

Thefollowingtableshowsthepublicofferingprice,underwritingdiscountandproceedsbeforeexpensestous.The
informationassumeseithernoexerciseorfullexercisebytheunderwritersoftheiroverallotmentoption.

PerShare

Publicofferingprice
Underwritingdiscount
Proceeds,beforeexpenses,tous

With
Option

$
$
$

Without
Option

$
$
$

$
$
$

Theexpensesoftheoffering,notincludingtheunderwritingdiscount,areestimatedat$2millionandarepayablebyus.

90

TableofContents

OverallotmentOption

Wehavegrantedanoptiontotheunderwriterstopurchaseuptoadditionalsharesatthepublicofferingprice,
lesstheunderwritingdiscount.Theunderwritersmayexercisethisoptionfor30daysfromthedateofthisprospectussolelyto
coveranyoverallotments.Iftheunderwritersexercisethisoption,eachwillbeobligated,subjecttoconditionscontainedinthe
purchaseagreement,topurchaseanumberofadditionalsharesproportionatetothatunderwritersinitialamountreflectedinthe
abovetable.

ReservedShares

Atourrequest,theunderwritershavereservedforsale,attheinitialpublicofferingprice,uptosharesofferedby
thisprospectusforsaletosomeofourdirectors,officers,employeesandotherpersonsdesignatedbyus.Ifthesepersonspurchase
reservedshares,thiswillreducethenumberofsharesavailableforsaletothegeneralpublic.Anyreservedsharesthatarenot
orallyconfirmedforpurchasewithinonedayofthepricingofthisofferingwillbeofferedbytheunderwriterstothegeneral
publiconthesametermsastheothersharesofferedbythisprospectus.

NoSalesofSimilarSecurities

We,ourexecutiveofficersandourdirectorshaveagreed,subjecttocertainexceptions,nottosellortransferanycommon
stock180daysafterthedateofthisprospectus,whichincertaincircumstancesmaybeextended,withoutfirstobtainingthe
writtenconsentofMerrillLynch.Weareseekingsimilaragreementsfromallofourstockholdersandoptionholders.Asof
October18,2004,holdersof121,260,499sharesonanasconvertedbasis,ofouroutstandingcapitalstock,or99.0%,have
enteredintolockupagreementsinconnectionwiththisoffering.Unlessextendedinaccordancewiththeirterms,these
agreementsterminate180daysfromthedateofourpurchaseagreementwithMerrillLynch.Specifically,weandtheseother
individualshaveagreednottodirectlyorindirectly:

offer,pledge,sellorcontracttosellanycommonstock
sellanyoptionorcontracttopurchaseanycommonstock
purchaseanyoptionorcontracttosellanycommonstock
grantanyoption,rightorwarrantforthesaleofanycommonstock
lendorotherwisedisposeofortransferanycommonstock
requestordemandthatwefilearegistrationstatementrelatedtothecommonstockor
enterintoanyswaporotheragreementthattransfers,inwholeorinpart,theeconomicconsequenceofownershipof
anycommonstockwhetheranysuchswaportransactionistobesettledbydeliveryofsharesorothersecurities,in
cashorotherwise.

Thislockupprovisionappliestocommonstockandsecuritiesconvertibleintoorexchangeableorexercisableforor
repayablewithcommonstock.Italsoappliestocommonstockownednoworacquiredlaterbythepersonexecutingthe
agreementorforwhichthepersonexecutingtheagreementlateracquiresthepowerofdisposition.

QuotationonNASDAQNationalMarket

WeexpectthesharestobeapprovedforquotationontheNASDAQNationalMarket,subjecttonoticeofissuance,under
thesymbolCSPH.

91

TableofContents

Beforethisoffering,therehasbeennopublicmarketforourcommonstock.Theinitialpublicofferingpricewillbe
determinedthroughnegotiationsbetweenusandtherepresentatives.Inadditiontoprevailingmarketconditions,thefactorstobe
consideredindeterminingtheinitialpublicofferingpriceare:

thevaluationmultiplesofpubliclytradedcompaniesthattherepresentativesbelievetobecomparabletous
ourfinancialinformation
thehistoryof,andprospectsfor,ourcompanyandtheindustryinwhichwecompete
anassessmentofourmanagement,itspastandpresentoperations,andtheprospectsfor,andtimingof,ourfuture
revenues
thepresentstateofourdevelopment
theprogressofourbusinessplanand
theabovefactorsinrelationtomarketvaluesandvariousvaluationmeasuresofothercompaniesengagedin
activitiessimilartoours.

Anactivetradingmarketforthesharesmaynotdevelop.Itisalsopossiblethataftertheofferingtheshareswillnottrade
inthepublicmarketatorabovetheinitialpublicofferingprice.

PriceStabilization,ShortPositionsandPenaltyBids

Untilthedistributionofthesharesiscompleted,SECrulesmaylimittheunderwritersandsellinggroupmembersfrom
biddingforandpurchasingourcommonstock.However,therepresentativesmayengageintransactionsthatstabilizethepriceof
ourcommonstock,suchasbidsorpurchasestopeg,fixormaintainthatprice.

Theunderwritersmaypurchaseandsellourcommonstockintheopenmarket.Thesetransactionsmayincludeshort
sales,stabilizingtransactionsandpurchasestocoverpositionscreatedbyshortsales.Shortsalesinvolvethesalebythe
underwritersofagreaternumberofsharesthantheyarerequiredtopurchaseintheoffering.Coveredshortsalesaresalesmade
inanamountnotgreaterthantheunderwritersoptiontopurchaseadditionalsharesfromtheissuerintheoffering.The
underwritersmaycloseoutanycoveredshortpositionbyeitherexercisingtheiroptiontopurchaseadditionalsharesor
purchasingsharesintheopenmarket.Indeterminingthesourceofsharestocloseoutthecoveredshortposition,theunderwriters
willconsider,amongotherthings,thepriceofsharesavailableforpurchaseintheopenmarketascomparedtothepriceatwhich
theymaypurchasesharesthroughtheoverallotmentoption.Nakedshortsalesareanysalesinexcessofsuchoption.The
underwritersmustcloseoutanynakedshortpositionbypurchasingsharesintheopenmarket.Anakedshortpositionismore
likelytobecreatediftheunderwritersareconcernedthattheremaybedownwardpressureonthepriceofthecommonstockinthe
openmarketafterpricingthatcouldadverselyaffectinvestorswhopurchaseintheoffering.Stabilizingtransactionsconsistof
variousbidsfororpurchasesofsharesofcommonstockmadebytheunderwritersintheopenmarketpriortothecompletionof
theoffering.

Theunderwritersmayalsoimposeapenaltybid.Thisoccurswhenaparticularunderwriterrepaystotheunderwritersa
portionoftheunderwritingdiscountreceivedbyitbecausetherepresentativeshaverepurchasedsharessoldbyorfortheaccount
ofsuchunderwriterinstabilizingorshortcoveringtransactions.

Similartootherpurchasetransactions,theunderwriterspurchasestocoverthesyndicateshortsalesmayhavetheeffect
ofraisingormaintainingthemarketpriceofourcommonstockorpreventingorretardingadeclineinthemarketpriceofthe
commonstock.Asaresult,thepriceofourcommonstockmaybehigherthanthepricethatmightotherwiseexistintheopen
market.

92

TableofContents

Neitherwenoranyoftheunderwritersmakeanyrepresentationorpredictionastothedirectionormagnitudeofany
effectthatthetransactionsdescribedabovemayhaveonthepriceofourcommonstock.Inaddition,neitherwenoranyofthe
representativesmakeanyrepresentationthattherepresentativeswillengageinthesetransactions.Iftheseactivitiesare
commenced,theymaybediscontinuedatanytime.ThesetransactionsmaybeeffectedontheNASDAQNationalMarket,inthe
overthecountermarketorotherwise.

ElectronicOffer,SaleandDistributionofShares

MerrillLynchwillbefacilitatingInternetdistributionforthisofferingtocertainofitsInternetsubscriptioncustomers.
MerrillLynchintendstoallocatealimitednumberofsharesforsaletoitsonlinebrokeragecustomers.Anelectronicprospectusis
availableontheInternetwebsitemaintainedbyMerrillLynch.Otherthantheprospectusinelectronicformat,theinformationon
theMerrillLynchwebsiteisnotapartofthisprospectus.

LEGALMATTERS

ThevalidityofthecommonstockofferedbythisprospectuswillbepasseduponforCorusbyOrrick,Herrington&
SutcliffeLLP,Seattle,Washington.EntitiesaffiliatedwithOrrick,Herrington&SutcliffeLLPownanaggregateof41,213shares
ofourcommonstockandapartnerofOrrick,Herrington&SutcliffeLLPownsanaggregateof17,176sharesofourcommon
stock.CertainlegalmattersinconnectionwiththisofferingwillbepasseduponfortheunderwritersbyHellerEhrmanWhite&
McAuliffeLLP,Seattle,Washington.

EXPERTS

Ernst&YoungLLP,independentregisteredpublicaccountingfirm,haveauditedourconsolidatedfinancialstatements
atDecember31,2002and2003,andforeachofthetwoyearsintheperiodendedDecember31,2003,fortheperiodfromJanuary
2,2001(dateofinception)throughDecember31,2001andfortheperiodfromJanuary2,2001(dateofinception)through
December31,2003,assetforthintheirreport.Wehaveincludedourconsolidatedfinancialstatementsinthisprospectusand
elsewhereintheregistrationstatementinrelianceonErnst&YoungLLPsreport,givenontheirauthorityasexpertsin
accountingandauditing.

WHEREYOUCANFINDMOREINFORMATION

WehavefiledwiththeSECaregistrationstatementonFormS1undertheSecuritiesActforthecommonstockoffered
bythisprospectus.Thisprospectusdoesnotcontainalloftheinformationcontainedintheregistrationstatementandtheexhibits
totheregistrationstatement.Forfurtherinformationregardingusandthecommonstockofferedbythisprospectus,wereferyouto
theregistrationstatementandtotheexhibits.Statementsmadeinthisprospectusconcerningthecontentsofanydocument
referredtointhisprospectusarenotnecessarilycomplete.Withrespecttoeachdocumentfiledasanexhibittotheregistration
statement,wereferyoutothatexhibitforamorecompletedescriptionofthematterinvolved.Theregistrationstatementandthe
exhibitsmaybeinspectedwithoutchargeatthepublicreferencefacilitiesmaintainedbytheSECat450FifthStreet,N.W.,
Washington,D.C.20549.CopiesofalloranypartoftheregistrationstatementmaybeobtainedfromtheSECsofficesupon
paymentoffeesprescribedbytheSEC.TheSECmaintainsawebsitethatcontainsreports,proxyandinformationstatementsand
otherinformationthatregistrantsfileelectronicallywiththeSEC.TheaddressoftheSECswebsiteishttp://www.sec.gov.

93

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

INDEXTOCONSOLIDATEDFINANCIALSTATEMENTS

ReportofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm

F2

ConsolidatedBalanceSheets

F3

ConsolidatedStatementsofOperations

F4

ConsolidatedStatementsofConvertiblePreferredStockandStockholdersDeficit

F5

ConsolidatedStatementsofCashFlows

F7

NotestoConsolidatedFinancialStatements

F8

F1

TableofContents

REPORTOFERNST&YOUNGLLP,INDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM

TheBoardofDirectorsandStockholders
CorusPharma,Inc.

WehaveauditedtheaccompanyingconsolidatedbalancesheetsofCorusPharma,Inc.(adevelopmentstagecompany)
asofDecember31,2002and2003,andtherelatedconsolidatedstatementsofoperations,convertiblepreferredstockand
stockholdersdeficit,andcashflowsfortheperiodfromJanuary2,2001(dateofinception)throughDecember31,2001,theyears
endedDecember31,2002and2003,andtheperiodfromJanuary2,2001(dateofinception)throughDecember31,2003.These
financialstatementsaretheresponsibilityoftheCompanysmanagement.Ourresponsibilityistoexpressanopiniononthese
financialstatementsbasedonouraudits.

WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(United
States.)Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancial
statementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsand
disclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimates
madebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovidea
reasonablebasisforouropinion.

Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancial
positionofCorusPharma,Inc.(adevelopmentstagecompany)atDecember31,2002and2003,andtheconsolidatedresultsofits
operationsanditscashflowsfortheperiodfromJanuary2,2001(dateofinception)throughDecember31,2001,theyearsended
December31,2002and2003,andtheperiodfromJanuary2,2001(dateofinception)throughDecember31,2003,inconformity
withaccountingprinciplesgenerallyacceptedintheUnitedStates.

/s/ERNST&YOUNGLLP

Seattle,Washington
February26,2004

F2

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

CONSOLIDATEDBALANCESHEETS

(inthousands,exceptparvalueandsharedata)

June30,
2004

December31,


2002

2003

Actual

Proforma
stockholders
equityat
June30,
2004

Assets
Currentassets:
Cashandcashequivalents
Shortterminvestments
Prepaidexpensesandother
Deferredfinancingcosts

$ 5,342

114

33

$ 1,087
72,269

462

Totalcurrentassets
Propertyandequipment,net
Restrictedcash
Otherassets

Totalassets

$ 6,183

Liabilities,convertiblepreferredstockandstockholders
equity/(deficit)
Currentliabilities:
Accountspayable
Accruedliabilities
Commonstocksubjecttorepurchase

Totalcurrentliabilities
Otherliabilities
Commitmentsandcontingencies
Convertiblepreferredstock:
SeriesA:8,468,757sharesdesignated,issuedandoutstanding
asofDecember31,2002and2003andJune30,2004no
sharesoutstandingproformaliquidationpreferenceof
$18,500asofDecember31,2002and2003andJune30,
2004
SeriesB:41,113,949sharesdesignated,issuedandoutstanding
asofDecember31,2003andJune30,2004noshares
outstandingproformaliquidationpreferenceof$40,000as
ofDecember31,2003andJune30,2004
SeriesC:56,896,552sharesdesignated56,038,635shares
issuedandoutstandingasofJune30,2004noshares
outstandingproformaliquidationpreferenceof$65,005as
ofJune30,2004

Totalconvertiblepreferredstock
Stockholdersequity/(deficit):
Preferredstock,$0.001parvalue:106,479,258shares
authorizedanddesignatednosharesdesignated,issuedor
outstandingproforma

$ 2,934
18,596

270


(unaudited)

5,489
408
100
186

21,800
1,027

100

73,818

994

200

$ 22,927

$ 75,012

$
552
2,822

157

907
2,046

$
181
1,371

354

2,953
503

17,383

17,383

17,383

39,646

39,646

63,449

17,383

57,029

120,478

1,906

3,531
27

Commonstockandadditionalpaidincapital,$0.001par
value:150,000,000sharesauthorized8,425,483,9,521,756,
and9,588,156sharesissuedandoutstandingasofDecember
31,2002and2003,andJune30,2004,and122,188,301
sharesissuedandoutstandingproforma

Deferredstockbasedcompensation

Accumulatedothercomprehensiveincome

Deficitaccumulatedduringthedevelopmentstage

1,098

(158)


(14,046)

1,573

(69)


(39,164)

1,746

(46)

8
(50,630)

$ 122,224

(46)

8
(50,630)

Totalstockholdersequity/(deficit)

(13,106)

(37,660)

(48,922)

Totalliabilities,convertiblepreferredstockandstockholders
equity/(deficit)

$ 6,183

$ 22,927

$ 75,012

Seeaccompanyingnotes.

F3

$ 71,556

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

CONSOLIDATEDSTATEMENTSOFOPERATIONS

(inthousands,exceptpersharedata)

Operatingexpenses:

Researchanddevelopment
Generalandadministrative

Periodfrom
January2,
2001(Dateof
Inception)

through
December31,
2001

YearEnded
December31,

2002

2003

(unaudited)

(11,768)

176

(25,416)

298

(39,968)

804

(9,908)
127

(11,735)

269

(2,454)

$(11,592)

$(25,118)

$ (39,164)

$(9,781)

$(11,466)

Basicanddilutednetlossper
share

Sharesusedincomputationof
basicanddilutednetlossper
share

Proformabasicanddilutednet
losspershare(unaudited)

Sharesusedincomputationof
proformabasicanddiluted
netlosspershare(unaudited)

(0.80)

(3.58)

$ (1.54)

7,008

6,371

(0.44)

56,717

3,062

(2.50)

$ 8,292
1,616

4,642

Seeaccompanyingnotes.

F4

$ 9,225
2,510

Periodfrom
January2,
2001(Dateof
Inception)
through
June30,
2004

Netloss

$ 31,815

8,153

2004

(unaudited)

(2,784)
330

$ 21,754
3,662

2003

1,171
1,613

Lossfromoperations
Interestincome

SixMonthsEnded
June30,

$ 8,890
2,878

Periodfrom
January2,
2001(Dateof
Inception)

through
December31,
2003

$ 41,040
10,663
(51,703)

1,073
$ (50,630)

(1.30)

8,790

(0.12)

92,148

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

CONSOLIDATEDSTATEMENTSOFCONVERTIBLEPREFERREDSTOCKANDSTOCKHOLDERSDEFICIT

(inthousands,exceptpershareandsharedata)

StockholdersDeficit

Convertible
PreferredStock

Saleofcommonstockto
foundersforcashand
otherconsiderationat
$0.10pershare,subject
torepurchase

Corporateexpensespaidby
founders

IssuanceofSeriesApreferred
stockandcommonstock
warrants,netofoffering
costsof$1,117

Deferredstockbased
compensation

Amortizationofdeferred
stockbased
compensation

Nonemployeestockbased
compensation

Saleofcommonstockto
directorforcashat$0.22
pershare,subjectto
repurchase

Netloss

Shares

Amount

Shares

Amount

DeferredStock
Based

Compensation

Accumulated
Other
Comprehensive
Income

Deficit
Accumulated
Duringthe
Development
Stage

Total
Stockholders
Deficit

8,075,000

339

339

82

82

17,383

84

84

298

(298)

39

39

250,000


(2,454)

(2,454)

17,383

8,325,000

805

(259)

(2,454)

(1,908)

8,468,757

BalanceatDecember31,2001
Issuanceofcommonstock
forservices

Lapseofrepurchaserightson
commonstock

Nonemployeestockbased
compensation

Deferredstockbased
compensation

Amortizationofdeferred
stockbased
compensation

Netloss

8,468,757

BalanceatDecember31,2002
Issuanceofcommonstock
forservices

IssuanceofSeriesBpreferred
stock,netofoffering
costsof$354

Exerciseofstockoptions

Saleofcommonstockto
directorsforcashat
$0.26pershare

Lapseofrepurchaserightson
commonstock

Amortizationofdeferred
stockbased
compensation

Netloss

8,468,757

BalanceatDecember31,2003
(carriedforward)

CommonStock
andAdditional
PaidInCapital

100,483

61

61

170

170

60

(60)

161


(11,592)

161
(11,592)

17,383

8,425,483

1,098

(158)

(14,046)

(13,106)

301,851

78

78

39,646

217,500

50

50

576,922

150

150

197

197

89


(25,118)

89
(25,118)

49,582,706

$ 57,029

9,521,756

$ 1,573

(37,660)

41,113,949

(69)

(39,164)

(tablecontinuedonfollowingpage)

Seeaccompanyingnotes.

F5

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

CONSOLIDATEDSTATEMENTSOFCONVERTIBLEPREFERREDSTOCKANDSTOCKHOLDERSDEFICIT
(continued)

(inthousands,exceptpershareandsharedata)

StockholdersDeficit

CommonStock
andAdditional
PaidInCapital

Convertible
PreferredStock

Amount

Accumulated
Other
Comprehensive
Income

Deficit
Accumulated
Duringthe
Development
Stage

Total
Stockholders
Deficit

BalanceatDecember31,2003
(broughtforward)
Exerciseofstockoptions
(unaudited)
IssuanceofSeriesCpreferred
stock,netofofferingcostsof
$1,555(unaudited)
Lapseofrepurchaserightson
commonstock(unaudited)
Amortizationofdeferredstock
basedcompensation
(unaudited)
Netunrealizedgainonavailable
forsaleinvestments
(unaudited)
Netloss(unaudited)

49,582,706

$ 57,029

9,521,756

$ 1,573

(69)

(39,164)

(37,660)

56,038,635

Totalcomprehensivenetloss
(unaudited)

Shares

Amount

Shares

66,400

16

16

63,449

157

157

23

23


(11,466)

8
(11,466)

(11,458)

(48,922)

Deferred
Stock
Based

Compensation

BalanceatJune30,2004
(unaudited)

105,621,341

$ 120,478

9,588,156

$ 1,746

Seeaccompanyingnotes.

F6

(46)

(50,630)

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

CONSOLIDATEDSTATEMENTSOFCASHFLOWS

(inthousands)

Periodfrom
January2,2001
(Dateof
Inception)

through
December31,
2001

YearEnded
December31,

Operatingactivities
Netloss
Adjustmentstoreconcilenetlosstonet
cashusedinoperatingactivities:
Depreciation
Noncashstockbased
compensation
Stockissuedforservices
Changesinoperatingassetsand
liabilities:
Prepaidexpensesand
otherassets
Accountspayableand
accruedliabilities

(104)

(195)

233

1,319

Netcashusedinoperatingactivities

(2,086)

Investingactivities
Purchaseofpropertyandequipment
Restrictedcash
Purchasesofshortterminvestments
Maturitiesofshortterminvestments

Netcashusedininvestingactivities

Financingactivities
Proceedsfromfinancingagreement
Proceedsfromsaleofcommonstockand
exerciseofstockoptions
NetproceedsfromissuanceofSeriesA
preferredstock
NetproceedsfromissuanceofSeriesB
preferredstock
NetproceedsfromissuanceofSeriesC
preferredstock

Cashandcashequivalentsatbeginning
ofperiod

2003

2003

2004

115

356

163
61

89
78

30

(269)

(9)

1,849

3,401

520

(10,129)

(22,716)

(34,931)

(261)
(100)

(296)


(975)


(29,291)
10,695

(361)

(296)

(19,571)

780

200

17,467

34
205

(unaudited)

$
(50,630)

505

457
139

250

23

(192)

(461)

(445)

2,956

(9,013)

(11,830)

(46,761)

(1,532)
(100)
(29,291)
10,695



(397)

(2)

(217)

(100)
(167,496)
113,831

(20,228)

(399)

(53,982)

500


135
44
78

755
480
139

(1,749)
(200)
(196,787)
124,526
(74,210)

980

100

16

996

17,467

17,467

(33)

39,679

39,646

39,740

39,646

63,449

63,449

122,058

(33)

39,879

(unaudited)

$ (9,781)
$ (11,466)

Periodfrom
January2,
2001(Dateof
Inception)
through
June30,
2004

18,247

(39,164)

$ (25,118)

Netcash(usedin)providedbyfinancing
activities

Netincrease(decrease)incashandcash
equivalents

2002

SixMonthsEnded
June30,

$(11,592)

(2,454)

Periodfrom
January2,2001
(Dateof
Inception)

through
December31,
2003

58,093

39,840

500

63,965

15,800

(10,458)

(2,408)

2,934

30,428

(1,847)

1,087

15,800

5,342

2,934

15,800

$ 5,342

$ 2,934

2,934

$ 35,770

1,087

Cashandcashequivalentsatendof
period

Supplementaldisclosuresofcashflow
information

Issuanceofcommonstockinexchange
forservicesandassets

Lapseofrepurchaserightsoncommon
stock

83

61

170

5,342

78

197

222

367


78

156

1,087

222

524

157

Issuanceofwarrantstopurchasecommon
stockinconnectionwithSeriesA

preferredstock

Corporateexpensespaidbyfounders

84

84

84

82

82

82

Seeaccompanyingnotes.

F7

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

1.OrganizationandSummaryofSignificantAccountingPolicies

CorusPharma,Inc.(theCompanyorCorus)wasincorporatedonJanuary2,2001andislocatedinSeattle,
Washington.TheCompanyisabiopharmaceuticalcompanyfocusedonthedevelopmentandcommercializationofnovel
applicationsandformulationsofknowntherapeuticstotreatsevererespiratorydiseases.TheCompanyhasgeneratednorevenue
todatefromitsoperationsandhasnoassuranceoffuturerevenues,andthereforeisadevelopmentstagecompanyasdefinedin
FinancialAccountingStandardsBoard(FASB)StatementNo.7,AccountingandReportingbyDevelopmentStageEnterprises.

TheconsolidatedfinancialstatementsincludetheaccountsofCorusPharma,Inc.anditswhollyownedsubsidiaries:(a)
SalusPharma,Inc.,(b)AbarisPharma,Inc.,and(c)SummanusPharma,Inc.ThewhollyownedsubsidiariesoftheCompanywere
mergedwithandintoCorusonJanuary1,2004.Accordingly,Coruswillcontinuethebusinessofthesubsidiaries,assumingall
rightsandliabilities.

TheCompanyoperatesinahighlyregulatedandcompetitiveenvironment.TheCompanysbusinessalsoinvolves
inherentrisks.Theserisksinclude,amongothers,dependenceonkeypersonnel,relianceonsinglesourcevendors,availabilityof
rawmaterials,patentabilityoftheCompanysproductsandprocesses,clinicalefficacyoftheCompanysproductsunder
development,approvalbytheUnitedStatesFoodandDrugAdministration(theFDA)andcomparableagenciesinother
countriesoftheCompanysproducts,andsuccessfulcommercializationoftheCompanysproducts.Anyofthetechnologies
coveringtheCompanysexistingproductsunderdevelopmentcouldbecomeobsoleteordiminishedinvaluebydiscoveriesand
developmentsatotherorganizations.

UnauditedInterimFinancialStatements

TheaccompanyinginterimconsolidatedbalancesheetasofJune30,2004,theconsolidatedstatementsofoperationsfor
thesixmonthsendedJune30,2003and2004,theconsolidatedstatementsofcashflowsforthesixmonthsendedJune30,2003
and2004andtheconsolidatedstatementofconvertiblepreferredstockandstockholdersdeficitforthesixmonthsendedJune
30,2004areunaudited.Theseunauditedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordancewith
accountingprinciplesgenerallyacceptedintheUnitedStates.IntheopinionoftheCompanysmanagement,theunaudited
interimconsolidatedfinancialstatementshavebeenpreparedonthesamebasisastheauditedconsolidatedfinancialstatements
andincludealladjustmentsnecessaryforthefairpresentationoftheCompanysstatementoffinancialposition,resultsof
operationsforthesixmonthsendedJune30,2003and2004andtheperiodfromJanuary2,2001(dateofinception)throughJune
30,2004,anditscashflowsforthesixmonthsendedJune30,2003and2004andtheperiodfromJanuary2,2001(dateof
inception)throughJune30,2004.TheresultsforthesixmonthsendedJune30,2004arenotnecessarilyindicativeoftheresults
tobeexpectedfortheyearendingDecember31,2004.

UseofEstimates

Thepreparationofconsolidatedfinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedinthe
UnitedStatesrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,
disclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofexpensesduring
thereportingperiod.Actualresultscoulddifferfromthoseestimates.

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

Onanongoingbasis,theCompanyevaluatesitsestimates,fairvalueofinvestments,usefullivesofpropertyand
equipment,andthevalueofcommonstockforthepurposesofdeterminingstockbasedcompensation(seebelow),amongothers.
TheCompanybasesitsestimatesonhistoricalexperienceandonvariousotherassumptionsthatarebelievedtobereasonable,the
resultsofwhichformthebasisformakingjudgmentsaboutthecarryingvaluesofassetsandliabilities.

TheCompanyhasgrantedstockoptionsatexercisepricesequaltothevalueoftheunderlyingstockasdeterminedbyits
boardofdirectorsonthedateofoptiongrant.Forpurposesoffinancialaccountingforemployeestockbasedcompensation,
managementhasappliedhindsightwithineachyeartoarriveatreassessedvaluesforthesharesunderlyingtheoptionsandshares
issuedunderothertransactionsthatarehigherthanthevaluedeterminedbytheboard.Thesereassessedvaluesweredetermined
basedonanumberoffactors,includingcomparisonstopubliclyheldcompanies.Thereassessedvalueswereusedtodetermine
theamountofstockbasedcompensationrecognizedrelatedtostockandstockoptiongrantstoemployeesandnonemployees.

PrinciplesofConsolidation

TheconsolidatedfinancialstatementsincludetheaccountsoftheCompanyanditswhollyownedsubsidiaries.All
significantintercompanyaccountbalancesandtransactionshavebeeneliminatedinconsolidation.

OnJanuary1,2004,SalusPharma,AbarisPharmaandSummanusPharma,thewhollyownedsubsidiariesofCorus,
mergedwithandintoCorus.Accordingly,Coruswillcontinuethebusinessofthesubsidiaries,assumingallrightsandliabilities.

Cash,CashEquivalentsandShortTermInvestments

TheCompanyscashequivalentsareinvestmentsinliquidinstrumentshavingaremainingmaturityatthetimeof
purchaseof90daysorless.Shortterminvestmentsareinvestmentshavingamaturityoflessthan12months.TheCompanyscash
equivalentsandshortterminvestmentsconsistprincipallyofmoneymarketsecurities,auctionratecertificates,commercialpaper
andcertificatesofdeposit.

Allinvestmentsecuritiesareclassifiedasavailableforsaleandarecarriedatfairvalue.Unrealizedgainsandlossesare
reportedasaseparatecomponentofstockholdersdeficit.Amortization,accretion,interestanddividends,realizedgainsand
lossesanddeclinesinvaluejudgedtobeotherthantemporaryonavailableforsalesecuritiesareincludedininterestincome.The
costofsecuritiessoldisbasedonthespecificidentificationmethod.Investmentsinsecuritieswithmaturitiesoflessthanoneyear
orwhichmanagementintendstousetofundcurrentoperationsareclassifiedasshortterminvestments.

TheCompanyevaluateswhetheraninvestmentisotherthantemporarilyimpaired.Thisevaluationisdependentonthe
specificfactsandencumbrances.Factorsthatareconsideredindeterminingwhetheranotherthantemporarydeclineinvaluehas
occurredinclude:themarketvalueofthesecurityinrelationtoitscostbasis,thefinancialconditionoftheinvestee,andthe
intentandabilitytoretaintheinvestmentforasufficientperiodoftimetoallowforrecoveryinthemarketvalueofthe
investment.

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TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

FinancialInstruments

TheCompanysfinancialinstrumentsconsistofcashandcashequivalents,shortterminvestments,restrictedcash,
accountspayableandaccruedliabilities.Thefairvalueofallfinancialinstrumentsapproximatestherecordedvalueduetothe
liquidnatureortheshorttermmaturitiesoftheseinstruments.

ConcentrationofCredit

TheCompanyissubjecttoaconcentrationofriskfromitscashandshortterminvestments.TheCompanymanagesits
exposuretocashandshortterminvestmentsbyinvestinginsecuritieswithdefinedminimumcreditratingsanddiversifyingits
investmentportfolio.

FinancingCosts

FinancingcostsarethosecostsdirectlyincurredinraisingfundsfrominvestorstofinancetheCompanysoperations.
Suchcostsaredeferreduntiltimeofclosingandarethendeductedfromtheproceeds.Iffundraisingeffortsarenotsuccessful,
suchcostsareexpensed.AtDecember31,2002,theCompanyhad$33,000ofdeferredfinancingcostsrelatingtotheSeriesB
Preferredstockfinancing,whichclosedin2003.

PropertyandEquipment

Propertyandequipment,includingleaseholdimprovements,arestatedatcost,netofaccumulateddepreciationand
amortization.Depreciationiscomputedusingthestraightlinemethodovertheestimatedusefullivesoftherelatedassets,which
rangefromthreeyearstofiveyears.Leaseholdimprovementsareamortizedoverthelesseroftheestimatedusefullivesofthe
assetsortheleaseterm.

ResearchandDevelopment

Researchanddevelopmentcostsarecomprisedprimarilyofcostsfor:personnel,includingsalariesandbenefits
occupancyclinicalstudiesperformedbythirdpartiesmaterialsandsuppliestosupporttheCompanysclinicalprograms
contractedresearchmanufacturingconsultingarrangementsandotherexpensesincurredtosustaintheCompanysoverall
researchanddevelopmentprograms.Researchanddevelopmentcostsareexpensedasincurred.Licenseandmilestonepayments
duepriortoregulatoryapprovaltomarketaproductarealsochargedtoresearchanddevelopment.

Patents

TheCompanygenerallyappliesforpatentprotectiononprocessesandproducts.Patentapplicationcostsareexpensedas
incurred,asrecoverabilityofsuchexpendituresisuncertain.

IncomeTaxes

TheCompanyaccountsforincometaxesundertheliabilitymethod.Undertheliabilitymethod,deferredtaxassetsand
liabilitiesaredeterminedbasedonthedifferencesbetweenthefinancialreportingandtaxbasesofassetsandliabilitiesandare
measuredusingthetaxratesthatwillbeineffectwhenthedifferencesareexpectedtoreverse.Valuationallowancesare
established,whennecessary,toreducedeferredtaxassetstotheamountsexpectedtoberealized.

F10

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

OtherComprehensiveIncome(Loss)

Othercomprehensiveincome(loss)includescertainchangesinequitythatareexcludedfromnetincome(loss).The
Companysonlyothercomprehensiveincome(loss)isunrealizedgain(loss)oninvestments.

Segments

TheCompanyhasadoptedStatementofFinancialAccountingStandards(SFAS)No.131,DisclosureaboutSegments
ofanEnterpriseandRelatedInformation,andrelateddisclosuresaboutitsproducts,services,geographicareasandmajor
customers.TheCompanyhasdeterminedthatitoperatesinonlyonesegment.

StockBasedCompensation

TheCompanyhaselectedtofollowAccountingPrinciplesBoardOpinionNo.25(APBNo.25),AccountingforStock
IssuedtoEmployees,andrelatedinterpretations,inaccountingforemployeestockoptions,ratherthanthealternativefairvalue
accountingallowedbySFASNo.123,AccountingforStockBasedCompensation.UnderAPBNo.25,compensationexpense
relatedtoemployeestockoptiongrantsisrecognizedusingtheintrinsicvaluemethod.Accordingly,theCompanydoesnot
recognizecompensationexpenseforstockoptionsgrantedtoemployeeswithanexercisepriceequaltoorinexcessofthefair
valueofthestockoptionatthedateofgrant.

TheCompanyrecognizescompensationexpenseforoptionsgrantedtononemployeesinaccordancewiththeprovisions
ofSFASNo.123andEmergingIssuesTaskForceIssue9618,AccountingforEquityInstrumentsThatareIssuedtoOtherThan
EmployeesforAcquiring,orinConjunctionwithSelling,Goods,orServices,whichrequiresvaluingthestockoptionsusingan
optionpricingmodelandremeasuringsuchstockoptionstothecurrentfairmarketvalueuntiltheperformancedatehasbeen
reached.

Forpurposesoffinancialaccountingforemployeestockbasedcompensation,managementhasappliedhindsightwithin
eachyeartoarriveatreassessedvaluesforthesharesunderlyingtheoptions.TheCompanyhasrecordeddeferredstockbased
compensationequaltothedifferencebetweenthesereassessedvaluesandtheexerciseprices.

TheCompanyhasrecordeddeferredstockbasedcompensationof$60,000and$298,000fortheintrinsicvalueofthe
optionsatthedateofthegrantandthesaleofrestrictedcommonstockbelowfairvalueduring2002and2001,respectively.
Theseamountsarebeingamortizedovertheirvestingperiodusingthemultipleoptionapproach(gradedvesting),with$89,000,
$161,000and$39,000expensedduring2003,2002and2001,respectively,and$23,000and$44,000forthesixmonthsended
June30,2004and2003,respectively.Additionally,during2002,50,000optionsweregrantedtoconsultants,forwhichthe
Companyrecorded$2,000ofstockbasedcompensationexpensebasedonthefairvalueoftheseoptionsasdeterminedusingthe
BlackScholesoptionpricingmodel.During2002,theconsultantswhooriginallyreceivedthe50,000optionstopurchase
commonstockbecameemployeesoftheCompany.Theseformerconsultantsoptionswereremeasuredandarecurrently
accountedforunderAPBNo.25.Theintrinsicvalueonthedateofstatuschangeisincludedinthedeferredcompensation
discussedabove.

SFASNo.123,whichhasbeenrevisedbySFASNo.148,AccountingforStockBasedCompensationTransitionand
Disclosure,requirescompaniesthatcontinuetofollowAPBNo.25toprovideproforma

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

disclosureoftheimpactofapplyingthefairvaluemethodofSFASNo.123.Certainassumptionswereusedtocalculatethepro
formaeffectoftheapplicationofSFASNo.123.BecausethedeterminationofthefairvalueoftheCompanysoptionsisbasedon
assumptionsdescribedbelow,andbecauseadditionaloptiongrantsareexpectedtobemadeinfutureperiods,thisproforma
informationisnotlikelytoberepresentativeoftheproformaeffectsonreportednetlossforfutureperiods.

Forpurposesofproformadisclosures,theestimatedfairmarketvalueoftheoptionsisamortizedtoexpenseoverthe
optionsvestingperiodusingthemultipleoptionapproach(gradedvesting).ThefollowingtableillustratestheCompanysnet
lossifithadaccountedforitsstockoptionsundertheprovisionsofSFASNo.123(inthousands).

Periodfrom
January2,2001
(DateofInception)
through

December31,
2001

Netlossasreported
Add:Stockbasedemployeecompensationexpense,as
reported
Deduct:Stockbasedcompensationexpenseunderthe
fairvaluebasedmethod

(2,454)

Proformanetloss

Netlosspershare:
Asreportedbasisanddiluted

(0.80)

(0.80)

Proformabasicanddiluted

ForYearEnded
December31,

ForSixMonthsEnded
June30,

2002

2003

2003

2004

(unaudited)

$(11,592)

$(25,118)

$(9,781)

$ (11,466)

39

161

89

44

23

(43)

(137)

(296)

(128)

(321)

(2,458)

$(11,568)

$(25,325)

$(9,865)

(2.50)

(2.49)

$ (1.54)

(1.30)

(1.34)

(3.58)

(3.61)

$ (1.55)

$ (11,764)

Forpurposesoftheaboveproformacalculations,thevalueofeachoptiongrantedthroughJune30,2004wasestimated
onthedateofgrantusingtheBlackScholesoptionpricingmodelwiththefollowingassumptions:

Periodfrom
January2,2001
(DateofInception)
through
December31,
2001

ForYearEnded
December31,

ForSixMonthsEnded
June30,


2002

Riskfreeinterestrate

5.0%

4.0%

3.0%

3.0%

3.3%

Expectedvolatility

100%

100%

100%

100%

100%

Expectedlife(inyears)

Dividendyield

2004

2003

2003

(unaudited)

Theweightedaveragefairvalueofanoptiongrantedin2001,2002and2003,andinthesixmonthsendedJune30,
2003and2004,was$0.43,$0.17,$0.21,$0.21and$0.29,respectively.

F12

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

NetLossPerShare

TheCompanycomputesnetlosspershareinaccordancewithSFASNo.128,EarningsperShare.Basicnetlossper
shareiscalculatedbydividingthenetlossbytheweightedaveragenumberofcommonsharesoutstandingfortheperiod,without
considerationforcommonstockequivalents.Dilutednetlosspershareiscomputedbydividingthenetlossbytheweighted
averagenumberofcommonshareequivalentsoutstandingfortheperioddeterminedusingthetreasurystockmethod.Forthe
purposesofthiscalculation,issuedbutunvestedsharesofcommonstocksubjecttorepurchasebytheCompanyarenot
consideredoutstandingand,therefore,arenotincludedinthecalculationofnetlosspershare.Further,preferredstockandoptions
consideredtobecommonstockequivalentsareonlyincludedinthecalculationofdilutednetlosspersharewhentheireffectis
dilutive.

Theproformabasicanddilutednetlosspersharecalculationsassumetheconversionofalloutstandingsharesof
convertiblepreferredstockintosharesofcommonstockusingtheasifconvertedmethodasofthedateofissuance.

F13

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

Thefollowingtablesetsforththecomputationofbasicanddiluted,andproforma,netlosspershare(inthousands,
exceptpersharedata):

Periodfrom
January2,2001
(DateofInception)
through

December31,
2001

ForYearEnded
December31,

ForSixMonthsEnded
June30,

BasicandDilutive
Netloss
Weightedaveragecommonshares,basic
Less:Weightedaverageunvestedcommon
sharessubjecttorepurchase

(2,454)
6,208

$(11,592)
8,402

$(25,118)
9,133

$ (9,781)
8,902

$ (11,466)
9,571

(3,146)

(3,760)

(2,125)

(2,531)

(781)

Denominatorforbasicanddilutednetloss

3,062

4,642

7,008

6,371

8,790

Basicanddilutednetlosspershare

(0.80)

(2.50)

(3.58)

$ (1.54)

(1.30)

ProForma
Netloss
Basicanddilutedweightedaveragecommon
shares
Proformaadjustmentforpreferredsharesasif
converted

$(25,118)

$ (11,466)

7,008

49,709

83,358

Denominatorforproformabasicanddilutednet
lossbasicanddilutednetloss

Proformabasicanddilutednetlosspershare

56,717
$ (0.44)

15,448
165
565

16,178

16,888

60,549

60,183

Historicaloutstandingdilutivesecuritiesnot
includedindilutednetlosspershare
Preferredstock
Warrantstopurchasecommonstock
Optionstopurchasecommonstock


2002

2003

2003

15,448

220
1,220

56,562

220
3,767

2004

(unaudited)

56,562

220
3,401

8,790

92,148
$ (0.12)

118,909

RecentAccountingPronouncements

InMay2003,theFASBissuedSFASNo.150,AccountingforCertainFinancialInstrumentswithCharacteristicsof
bothLiabilitiesandEquity.SFASNo.150establishesstandardsforhowacompanyclassifiesandmeasurescertainfinancial
instrumentswithcharacteristicsofbothliabilitiesandequity.Itrequiresthatanissuerclassifycertainfinancialinstrumentsasa
liability,orasanassetinsomecircumstances.SFASNo.150iseffectiveforfinancialinstrumentsenteredintoormodifiedafter
May31,2003,andotherwiseiseffectiveatthebeginningofthefirstinterimperiodbeginningafterJune15,2003.Theadoption
ofSFASNo.150didnothaveanimpactontheCompanysconsolidatedfinancialstatements.

F14

112,600

220
6,089

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

2.Cash,CashEquivalents,andShortTermInvestments

Cash,cashequivalentsandshortterminvestmentsconsistofthefollowing(inthousands):

AsofDecember31,

Cashandcashequivalents

$5,342

$ 2,934

1,087

Certificatesofdeposit
Commercialpaper
Auctionratecertificates

396

18,200

2,170
9,925
60,174

18,596

72,269

Totalcash,cashequivalentsandshortterminvestments

$5,342

$21,530

73,356

2002

Totalshortterminvestments

2003

AsofJune30,
2004

(unaudited)

AlloftheCompanysshortterminvestmentshaveamaturitydateoflessthan12months.TheCompanyhasnot
experiencedanysignificantrealizedgainsorlossesonitsinvestmentsintheperiodspresented.Grossunrealizedgainsandlosses
atDecember31,2002and2003andatJune30,2004werenotmaterial.

3.PropertyandEquipment

Propertyandequipmentconsistsofthefollowing(inthousands):

AsofDecember31,

Computerequipment
Officeequipmentandfurniture
Labequipment
Leaseholdimprovements

Lessaccumulateddepreciation

557
(149)

1,532
(505)

$ 408

$ 1,027

2002

2003

303
134
79
41

AsofJune30,
2004

(unaudited)

603
261
390
278

736
271
464
278

1,749
(755)

994

Depreciationexpensetotaled$34,000,$115,000,$356,000and$250,000fortheperiodsendedDecember31,2001,
2002and2003andthesixmonthsendedJune30,2004,respectively.

4.IncomeTaxes

AtDecember31,2003,theCompanyhadanetoperatinglossandresearchanddevelopment(R&D)taxcredit
carryforwardsofapproximately$38.4millionand$985,000,respectively.ThesenetoperatinglosscarryforwardsandR&Dtax
creditswillexpireduring2021to2024.TheCompanysabilitytoutilizeitsnetoperatinglosscarryforwardmaybelimitedinthe
eventthatachangeinownership,asdefinedinSection382oftheInternalRevenueCodeof1986,asamended,occursinthe
future.

F15

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

Deferredincometaxesreflectthenettaxeffectsoftemporarydifferencesbetweenthecarryingamountsofassetsand
liabilitiesforfinancialreportingpurposesandtheamountsusedforincometaxpurposes.TheCompanyhasrecognizeda
valuationallowanceequaltoitsdeferredtaxassetsduetotheuncertaintyofrealizingthebenefitsoftheassets.Theincreaseinthe
valuationallowanceonthedeferredtaxassetwas$9,443,000,$4,050,000and$785,000for2003,2002and2001,respectively.
Theeffectsoftemporarydifferencesandcarryforwardsthatgiverisetodeferredtaxassetsandliabilitiesareasfollows(in
thousands):

AsofDecember31,

Deferredtaxassets:
Netoperatinglosscarryforward
R&Dtaxcreditcarryforwards
Researchaccruals
Othertemporarydifferences

$ 4,321

49
349
116

Totaldeferredtaxassets
Lessvaluationallowance

4,835
(4,835)

Netdeferredtaxassets

2002

2003

$ 13,072

985

221
14,278
(14,278)

5.LeaseCommitments

TheCompanyhasthreefacilityleasesforofficeandlaboratoryspace.Underoneoftheseleases,theCompanywas
initiallyrequiredtoprovidea$100,000letterofcreditassecurityfortheleasethroughtheendoftheleaseterm,whichwas
August2005.InJune2004,thisleasewasamendedandtheletterofcreditwasincreasedto$200,000,theleasetermwasextended
toAugust2010andtheCompanywasgrantedanoptiontorenewtheleaseforanadditionalfiveyearterm.TheCompany
maintainsarestrictedcashaccountatWellsFargoBankequaltothefacevalueoftheletterofcredit.Theothertwofacilityleases
expireinMarchandApril2005.Futureminimumleasecommitmentsundernoncancelableoperatingleaseswithinitialor
remainingtermsinexcessofoneyearasofJune30,2004areasfollows(inthousands):

Amount

Remainderof2004
2005
2006
2007
2008
2009
Thereafter

$ 468
888
1,095
1,117
1,138
1,160
684
$6,550

Rentalexpensetotaled$133,000fortheperiodfromJanuary2,2001(dateofinception)throughDecember31,2001,
$274,000and$676,000fortheyearsendedDecember31,2002and2003,respectively,and$445,000forthesixmonthsended
June30,2004.

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TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

6.ConvertiblePreferredStock

InJune2004,Coruscompletedthesaleof56,038,635sharesofSeriesCPreferredStock(SeriesCPreferred)forgross
proceedsof$65million,or$1.16pershare.TheCompanyincurred$1,555,000offeesandotherexpensesinconnectionwiththe
SeriesCPreferredoffering.Theseexpensesincluded:(a)feesof$1,225,000paidtoMontgomery&Co.,LLC,aninvestment
bankingfirm,ofwhichtwoprincipalsarerelatedtotheCompanysPresidentandChiefExecutiveOfficer,(b)additional
compensationtoMontgomery&Co.valuedat$104,400tobesettledwithequitysecurities,and(c)legalandothercostsof
$225,600.EachshareofSeriesCPreferredisconvertibleintocommonstockasprovidedbytheCompanysCertificateof
Incorporation(currentlyata1:1basis)andtheholdersofSeriesCPreferredhavebroadbasedantidilutionprotectionprovisions
thatcouldchangetheconversionratioasaresultofcertainfuturefinancingscompletedforlessthan$1.16pershare.

InMarch2003,Corussold41,113,949sharesofSeriesBPreferredStock(SeriesBPreferred)forgrossproceedsof$40
million,or$0.9729pershare.TheCompanyincurred$354,000ofexpensesinconnectionwiththeSeriesBPreferredoffering.
Theseexpenseswerecomprisedprimarilyoflegalandtravelcosts.EachshareofSeriesBPreferredisconvertibleintocommon
stockasprovidedbytheCompanysCertificateofIncorporation(currentlyata1:1basis)andtheholdersofSeriesBPreferred
havebroadbasedantidilutionprotectionprovisionsthatcouldchangetheconversionratioasaresultofcertainfuturefinancings
completedforlessthan$0.9729pershare.

InMay2001,Corussold8,468,757sharesofSeriesAPreferredStock(SeriesAPreferred)forgrossproceedsof$18.5
million,or$2.1845pershare.TheCompanyincurred$1,117,000offeesandotherofferingcostsinconnectionwiththeSeriesA
Preferredoffering,whichincluded:(a)feesof$953,086paidtoDigitalCoastPartners(DCP),aninvestmentbankingfirm,of
whichtwoprincipalsarerelatedtotheCompanysPresidentandChiefExecutiveOfficer,(b)awarrantissuedDCPtopurchase
219,725sharesofcommonstockvaluedat$84,000,and(c)legalandothercostsof$80,000.EachshareofSeriesAPreferred,as
providedbytheArticlesofIncorporation,wasoriginallyconvertibleintocommonstockona1:1basis.TheCompanyssleep
apneaandsnoringprogramwascanceledinearly2002.Thiscancellationtriggeredanadjustmenttotheconversionratiofrom1:1
to1:1.339773sharesofcommonstockforeachshareofSeriesAPreferred(or$1.6305pershareforSeriesAPreferredand
11,346,212sharesofcommonstockintheaggregate).Inaddition,asaresultofthecompletionoftheSeriesBPreferredofferingin
March2003atapricebelow$1.6305,theconversionratiooftheSeriesAPreferredwasfurtheradjustedto1.8241sharesof
commonstockforeachshareofSeriesAPreferred(or$1.1976persharefortheSeriesAPreferredand15,447,561sharesof
commonstockintheaggregate).

HoldersofSeriesCPreferred,SeriesBPreferredandSeriesAPreferred(PreferredStockholders)havepreferentialrights
tocommonstockholderstononcumulativedividendswhenandifdeclaredbytheboardofdirectors.PreferredStockholdersare
entitledtothenumberofvotesequaltothenumberofsharesofcommonstockintowhichthePreferredStockcouldbeconverted.
PreferredStockisconvertibleintocommonstock:(a)attheoptionoftheholder,or(b)theearlierof(i)thevoteorwrittenconsent
oftheholdersof662/3 %ofthesharesofPreferredStock,or(ii)theclosingofaninitialpublicofferingoftheCompanys
commonstockatapricenotlessthan$5.00pershareandhavingaggregategrossproceedsnotlessthan$30million.The
conversionrateissubjecttoadjustment,asprovidedbytheCompanysCertificateofIncorporation.

Intheeventofaliquidationevent,rightstoliquidationpaymentsareasfollows:theholdersofSeriesCPreferredhave
preferentialrightstoholdersofSeriesBPreferredwhohavepreferentialrightstoholdersof

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

SeriesAPreferredandholdersofSeriesAPreferredhavepreferentialrightstoholdersofcommonstock.SeriesCPreferredholders
areentitledtoliquidationpaymentsoftheiroriginalissuancepriceof$1.16pershareofSeriesCPreferred,plusanydeclaredand
unpaiddividends.AfterliquidationpaymentsarecompletetoSeriesCPreferredholders,SeriesBPreferredholdersareentitledto
liquidationpaymentsoftheiroriginalissuancepriceof$0.9729pershareofSeriesBPreferred,plusanydeclaredandunpaid
dividends.AfterliquidationpaymentsarecompletetoSeriesBPreferredholders,SeriesAPreferredholdersareentitledto
liquidationpaymentsequaltotheiroriginalissuancepriceof$2.1845pershareofSeriesAPreferred,plusanydeclaredand
unpaiddividends.AnyadditionaldistributionwillbemadetotheholdersofcommonstockandPreferredStockonaprorataas
convertedbasis.

IntheeventofachangeincontrolwherebytheCompany:(a)isinvolvedinanyliquidation,orwindingupofthe
Company,whethervoluntaryornot,(b)sellsordisposesofallorsubstantiallyalloftheassetsoftheCompany,or(c)effectsany
othertransactionorseriesofrelatedtransactionsinwhichmorethan50%ofthevotingpoweroftheCompanyisdisposedof,then
adeemedliquidationeventoccurswherebythePreferredStockholdersareentitledtoreceivetheirliquidationpreferences
describedabove.ThischangeincontrolprovisionrequirestheCompanytoclassifythePreferredStockoutsideofpermanent
equitybecauseunderthosecircumstancestheredemptionofthePreferredStockisoutsidethecontroloftheCompany.

ThePreferredStockholdershavecertainprotectiveprovisionswherebytheCompanyisprecludedfromcarryingout
certainactionsspecifiedintheCompanysCertificateofIncorporationwithouttheapprovalof662/3 %ofthePreferred
Stockholders.Theseactionsinclude:(a)aliquidationorsaleoftheCompany,(b)amendmentstotheCertificateofIncorporation
orBylaws,(c)changestothenumberofauthorizedsharesofPreferredStock,(d)theabilitytoissueanynewequitysecurity
havingapreferenceover,orbeinginparitywith,theholdersofPreferredStock,(e)theabilitytoredeemanysharesofcapital
stock,or(f)changestothenumberofdirectors.

TheCompanyhasenteredintoaStockholdersAgreementwiththeholdersofitscommonstockandPreferredStockand
intoanInformationandRegistrationRightsAgreementwiththeholdersofitsPreferredStock.Certainoftheprovisionsofthese
agreementsarediscussedbelow.

TheStockholdersAgreementcontainsvariousrights,includingarightoffirstrefusalwherebyifastockholderproposes
toacceptanofferfromapersontopurchasesharesoftheCompanyscommonstockorPreferredStock,thensuchselling
stockholdermustfirstgivenoticetotheCompanystatingthetermsandconditionsofsuchpurchaseoffer.TheCompanythenhas
arightoffirstrefusalwithrespecttosuchsellingstockholderssales.Additionally,iftheCompanyelectsnottopurchaseany
shares,thensuchsharesmustbeofferedforsaletootherstockholders,whomaythenparticipateonaproratabasis.The
StockholdersAgreementalsocontains(a)certainrightswherebyPreferredStockholdersareentitledtoparticipateonaprorata
basisinfutureequityofferingsand(b)aprovisionthatiftheboardofdirectorsand662/3 %ofthePreferredStockholdersvotein
favorofanagreementtosellallorsubstantiallyalloftheCompanyssecurities,thenalloftheotherstockholdersmayberequired
toselltheirownershipinaccordancewithsuchagreement.TheStockholdersAgreementalsocontainsprovisionsonthesize,
compositionandvotingrightsoftheboardofdirectors.

TheInformationandRegistrationRightsAgreementcontainsprovisionswhereby(a)theCompanyhasagreedtodeliver
certainfinancialinformationtostockholdersannually,(b)theCompanyhasagreedtoprovidecertainfinancialinformationona
quarterlybasistoastockholderholdingmorethanonemillionsharesofcommonstock,oranequivalentnumberofsharesof
commonstockissuableuponconversionofPreferredStock,and(c)theCompanyhasgrantedtothestockholdersvarious
registrationrightswithrespecttotheircommonstock.

F18

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CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

7.CommonStock

InApril2004,theCompanyincreaseditsauthorizedcommonstockfrom75,000,000sharesto150,000,000sharesand
increaseditsauthorizedpreferredstockfrom50,000,000sharesto106,479,258shares.Inaddition,theCompanydesignated
56,896,552sharesasSeriesCPreferred.

During2003,theCompanysold576,922sharesofcommonstocktoboardmembersat$0.26pershare,whichwasthefair
marketvalueatthedateofpurchase.

InJanuary2002,theCompanyenteredintoanagreementtolicenseaninhalationtechnologyandpatentportfolioforthe
treatmentofasthmaandotherassociatedrespiratorydiseasesfromMayoClinic.BioGeneticVentures,Inc.(BGV)isathirdparty
beneficiaryofthisagreement.Inconnectionwiththisagreement,theCompanyissued301,851sharesofcommonstockvaluedat
$78,000and100,483sharesofcommonstockvaluedat$61,000toBGVduring2003and2002,respectively.

BetweenJanuaryandApril2001,theCompanysold7.25millionsharesofcommonstocktofoundersforcashproceeds
of$725,000,or$0.10pershare.Also,duringthesemonths,theCompanyissued825,000sharesofcommonstocktoother
foundersinexchangeforservicesrenderedtotheCompanyandtheassignmentofpatentrightstotheCompany,whichwere
valuedat$82,000,or$0.10pershare.

BetweenJanuaryandApril2001,generalandadministrativeexpensesoftheCompany,primarilyrent,werepaidbythe
CompanysPresidentandChiefExecutiveOfficer.TotalexpensespaidonbehalfoftheCompanywere$81,612andhavebeen
treatedasacapitalcontributionandexpensed.

InDecember2001,theCompanysold250,000sharesofcommonstocktoaboardmemberat$0.22pershare.Asthefair
valueoftheCompanyscommonstockwasdeemedtobe$0.61pershareinDecember2001,theCompanyrecordedanoncash
deferredcompensationchargeof$97,000.Theamountwasbeingamortizedovera48monthvestingperiodfortheunderlying
repurchaserightuntilOctober2003,whentheboardofdirectorseliminatedtherepurchaseright.

TheCompanysstockpurchaseagreementscontainrepurchaserightswherebytheCompanyhastherighttorepurchase
thesharesofcommonstockheldbyfoundersattheoriginalissuepriceof$0.10,iftheiremploymentterminatesforcause.Such
rightslapseimmediatelyuponaninvoluntaryterminationresultingfromachangeincontrol.AtDecember31,2003,1,562,500
sharesofcommonstockweresubjecttorepurchase.TheCompanysrightstorepurchaselapsedduringthesixmonthsendedJune
30,2004.TheCompanyrecordedaliabilityunderdepositaccountingof$157,000and$354,000atDecember31,2003and2002,
respectively.DuringthesixmonthsendedJune30,2004,andthe12monthsendedDecember31,2003and2002,theCompany
reclassified$157,000,$197,000and$170,000,respectively,fromcommonstocksubjecttorepurchasetoequity,representingthe
lapseofrepurchaserightsduringtheperiods.

Eachholderofcommonstockisentitledtoonevoteforeachshareofcommonstockheldofrecordonallmatterson
whichstockholdersgenerallyareentitledtovote.

F19

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

TheCompanyhasreservedsharesofcommonstockforfutureissuanceasfollows:

Asof
December31,2003

Asof
June30,2004

Stockoptionplan
SeriesAPreferred
SeriesBPreferred
SeriesCPreferred
Commonstockwarrants

7,782,500
15,447,561
41,113,949

219,725

64,563,735

11,716,100
15,447,561
41,113,949
56,038,635
219,725
124,535,970

8.CommonStockWarrants

InMay2001,theCompanyissuedawarranttoDCPforthepurchaseof164,796sharesofcommonstockatanexercise
priceof$2.1845pershareforservicesprovidedinconnectionwiththeSeriesAPreferredoffering.Theestimatedfairvalueofthe
warrantof$84,000wasincludedinthecostsoftheoffering.ThewarrantexpiresinMay2011.Thenumberofsharesandexercise
pricewereautomaticallyadjustedto219,725sharesand$1.6384pershare,respectively,upontheadjustmenttotheSeriesA
PreferredconversionratiodiscussedinNote6totheseconsolidatedfinancialstatements.TheCompanyvaluedthewarrantusinga
BlackScholesequityvaluationmodelwiththefollowingassumptions:volatilityof100%,expectedlifeof10years,fairvalueof
commonstockof$0.61pershareonthedateofgrant,nodividends,andariskfreeinterestrateof5.2%.

9.StockOptionPlan

UnderthetermsoftheCorusPharma,Inc.2001StockPlan(thePlan),theboardofdirectorsmaygrantincentiveand
nonqualifiedstockoptions,restrictedstockandotherformsofstockbasedcompensationtoemployees,officers,directorsand
consultantsoftheCompany.AtDecember31,2003andJune30,2004,thenumberofsharesavailableforgrantforfutureissuance
underthePlanwas4,015,550and5,626,750,respectively.TheCompanygenerallygrantsstockoptionswithexercisepricesequal
tothefairmarketvalueofcommonstockonthedateofgrantasdeterminedbytheboardofdirectors.Optionsvestbyspecific
termsoftheoptionagreement,andtypicallyhaveatermof10yearsfromthedateofgrant.Optionsgenerallyvestoverfouryears
withthefirst25%vestingafter12monthsofcontinuousemploymentbeginningfromthevestingcommencementdate,thenthe
remainingsharesvest25%peryearaftereachsubsequent12monthsofcontinuousemploymentthereafter,suchthattheentire
optionisfullyvestedafterfouryearsofservicefromthevestingcommencementdate.Optionsthatexpire,orotherwiseterminate,
reverttoandagainbecomeavailableforissuanceunderthePlan.

F20

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

InformationwithrespecttothePlanisasfollows:

Outstanding

Adoptionof2001StockPlan
Optionsgranted

Number
ofShares
Availablefor
Grant

Weighted
Average
Exercise
Price

Numberof
Shares

2,049,492
(565,000)


565,000

BalanceatDecember31,2001(exercisablenone)
AuthorizedincreaseinPlan
Optionsgranted
Optionscancelled

1,484,492
450,508
(657,500)
2,500

565,000

657,500
(2,500)

BalanceatDecember31,2002(exercisable311,185)
AuthorizedincreaseinPlan
Optionsgranted
Optionscancelled
Optionsexercised

1,280,000
5,500,000
(2,846,900)
82,450

1,220,000

2,846,900
(82,450)
(217,500)

BalanceatDecember31,2003(exercisable243,750)
AuthorizedincreaseinPlan(unaudited)
Optionsgranted(unaudited)
Optionscancelled(unaudited)
Optionsexercised(unaudited)

4,015,550
4,000,000
(2,401,220)
12,420

3,766,950

2,401,220
(12,420)
(66,400)

BalanceatJune30,2004(unaudited)(exercisable1,088,538)

5,626,750

6,089,350

$ 0.22

$ 0.22

$ 0.55
$ 0.26

$
$
$

0.40

0.26
0.41
0.23

$
$
$

0.30

0.36
0.35
0.25

$ 0.33

ThefollowingsummarizesinformationaboutstockoptionsoutstandingandexercisableatDecember31,2003:

Outstanding

Rangeof
ExercisePrice

Exercisable

Weighted
Average
Remaining
Contractual
Life(Years)

Numberof
Options

Weighted
Average
ExercisePrice

$0.22
$0.26
$0.61

442,500
2,821,950
502,500

7.79
9.32
8.50

3,766,950

9.03

F21

Weighted
Average
ExercisePrice

Numberof
Options

0.22
0.26
0.61

92,500
25,625
125,625

0.30

243,750

0.22
0.26
0.61

0.43

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

ThefollowingsummarizesinformationaboutstockoptionsoutstandingandexercisableatJune30,2004:

Outstanding

Rangeof
ExercisePrice

Exercisable

Weighted
Average
Remaining
Contractual
Life(Years)

Numberof
Options

Weighted
Average
ExercisePrice

$0.22
$0.26
$0.35
$0.50
$0.60
$0.61

420,000
2,778,050
2,238,800
90,000
60,000
502,500

7.29
8.82
9.55
9.83
9.95
8.00

6,089,350

8.94

Weighted
Average
ExercisePrice

Numberof
Options

0.22
0.26
0.35
0.50
0.60
0.61

190,625
562,288
100,000

235,625

0.33

1,088,538

0.22
0.26
0.35

0.61

0.34

10.EmployeeSavingsPlan

TheCompanyhasa401(k)savingsplan(theSavingsPlan)forthoseemployeeswhomeetminimumeligibility
requirements.Eligibleemployeesmaycontributeupto15%oftheirannualcompensationtotheSavingsPlan,subjecttoIRS
limitations.Eachparticipantisfullyvestedinhisorherdeferredsalarycontribution.TheCompanymayalso,atitssolediscretion,
makecontributionstotheSavingsPlan.AnycontributionsmadebytheCompanyduringaSavingsPlanyearwillbeallocatedto
allqualifiedSavingsPlanparticipantswhoareemployeesoftheCompanyonthelastdayofthatSavingsPlanyear.Thelastday
ofaSavingsPlanyearisDecember31.IftheCompanyelectstocontributetotheSavingsPlan,qualifiedparticipantswillbefully
vestedinsuchcontributions.Todate,theCompanyhasnotmadeanycontributionstotheSavingsPlan.

11.Commitments

TheCompanyhasenteredintovariousagreementsforthedevelopmentofitsproductsforrespiratoryandinfectious
diseases.TheCompanyexpensesresearchanddevelopmentcostsasincurred.Licenseandmilestonepaymentsduepriorto
regulatoryapprovaltomarketaproductarealsochargedtoresearchanddevelopment.

InJanuary2002,theCompanyenteredintoanagreementtolicenseaninhalationtechnologyandpatentportfolioforthe
treatmentofasthmaandotherassociatedrespiratorydiseasesfromMayoClinic.ThistechnologyisthebasisoftheCompanys
lidocainesolutionforinhalation(Corus1030)program.TheagreementwithMayoClinicprovidestheCompanysexclusive
righttodevelopmarketableproducts,forpublicuseandbenefitwithinthedefinedterritoryandfield,usingMayoClinics
licensedpatentsandlicensedknowhow.Underthetermsoftheagreement,theCompanywasrequiredtomakeanupfront,
nonrefundableroyaltypaymentandisrequiredtomakemilestonepaymentstoeachpartybasedonthesuccessfulprogressofthe
programanddevelopmentoftheCompanysCorus1030program.Inaddition,thetermsoftheagreementwithMayoClinic
providethattheCompanywillpayMayoClinicaroyaltyonnetsalesofCorus1030inthedefinedterritory.

InJanuary2002,theCompanyalsoenteredintoanagreementwithBGVinconnectionwiththeexecutionoftheMayo
Clinicagreement.ForBGVsassistanceintheexecutionoftheMayoClinicagreement,

F22

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

theCompanywasrequiredtomakemilestonepaymentstoBGVconsistingofcashandequitysecuritiesandisrequiredtomake
additionalmilestonepaymentsbasedonthesuccessfulprogressoftheCorus1030program.

InApril2003,theCompanyenteredintoanagreementwithPARIGmbH(PARI)forthedevelopmentofaninhalerfor
thedeliveryofCorus1030.ThetermsoftheagreementprovidethattheCompanywillmakemilestonepaymentstoPARIbased
onthesuccessfulprogressoftheprogram.Underthetermsoftheagreement,theCompanyisobligatedtopurchaseaminimum
numberofinhalerseachyearforfiveyearsbeginningthefirstyearaftercommercialization.IftheCompanydoesnotmeetthe
minimumpurchaserequirements,theCompanyshallpayPARIforanyunorderedinhalersuptoamaximumof$1.5millioninthe
firstyear,$2.0millioninthesecondyearand$2.5millionineachofyearsthreethroughfive.

InconnectionwiththeCorus1030relatedagreements,theCompanyhasmadenonrefundablepaymentsof$100,000,
$300,000and$621,000duringthesixmonthsendedJune30,2004,andtheyearsendedDecember31,2003and2002,
respectively,andissued301,851sharesofcommonstockvaluedat$0.26pershareand100,483sharesofcommonstockvaluedat
$0.61pershareduring2003and2002,respectively.Underthetermsoftheaboveagreements,inperiodsafterJune30,2004,the
Companymaymakemilestonepaymentstotaling$7.0million,contingentuponthesuccessfulprogressionoftheprogram.
Additionally,thetermsoftheaboveagreementsprovidethattheCompanywillpayroyaltiesonnetsalesofthelicensedproducts
intheirdefinedterritories.

InFebruary2002,theCompanyenteredintoanagreementwithPARIforthedevelopmentofadrugformulation,drug
productandinhalerforthedeliveryofCorussaztreonam(Corus1020)drugtotreatcysticfibrosisandotherassociated
respiratorydiseases.Inadditiontopaymentsforservices,thetermsoftheagreementprovidethattheCompanywillmake
milestonepaymentstoPARIbasedonthesuccessfulprogressoftheprogramandCoruswillpayPARIroyaltypaymentsonnet
salesofCorus1020.

InconnectionwiththisagreementrelatedtoCorus1020,theCompanymadenonrefundablepaymentsof$500,000in
2002and$500,000duringthesixmonthsendedJune30,2004.Underthetermsoftheaboveagreement,inperiodsafterJune30,
2004,theCompanymaymakemilestonepaymentstotaling$4.0million,contingentuponthesuccessfulprogressionoftheCorus
1020program.Additionally,theagreementprovidesthatifCorusobtainsapprovaltocommercializeCorus1020,followingsuch
approval,theCompanywillpayroyaltiestoPARIonnetsalesofCorus1020.Theroyaltyprovisionincludesminimumannual
royaltiesthatincreaseto$1.0millionbythefourthyearfollowingcommercialization.Theagreementalsocontainsclausesthat
couldrequireaccelerationofroyaltypaymentsaggregating$1.0millionandprovidesfortheCompanysabilitytobuydown
royaltyrates.

InconnectionwiththeCompanysCorus1020program,inSeptember2003,theCompanyenteredintoamilestone
basedagreementwithCysticFibrosisFoundationTherapeutics,Inc.(CFFT).Underthetermsoftheagreement,theCompany
willreceivefundingfromCFFTifcertainclinicalmilestonesaremetintheCompanysCorus1020program.TheCompany
received$500,000upondatabaselockoftheCompanysPhaseIbtrialandreceived$500,000uponenrollmentofthelastpatient
intheCompanysPhaseIItrial,whichwasachievedinJuly2004.Underthetermsoftheagreement,theamountandtimingof
repaymentstoCFFTdependsontheoccurrenceofcertainevents.TheCompanyexpectstorepayCFFT$1.0millionuponeither
(1)receivingFDAmarketingapprovalofCorus1020or(2)theCompanysfailuretosubmitanewdrugapplicationorobtainFDA
marketingapprovalbyJuly2007.Inaddition,theagreementrequirestheCompanytopaytoCFFTanadditional$2.0millionif
theCompanyreceivesFDAmarketingapprovalofCorus1020priortoFebruary3,

F23

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

2009,oranadditional$3.0millioniftheCompanyreceivesFDAapprovalsubsequenttoFebruary3,2009.TheCompanywill
accruesuchadditionalamountsatthepointitbecomesprobablethattheamounttoberepaidtoCFFTexceedstheamount
received.

InconnectionwiththedrugmanufacturingsupplyrequirementsoftheCompanysCorus1020program,theCompany
hasenteredintoalongtermsupplyagreementwithEuticalsSpAforthesupplyoftheaztreonamactivepharmaceutical
ingredient.Underthetermsofthisagreement,theCompanyisobligatedtoprovideEuticalswithafivequarterforwardlooking
forecastthatisupdatedquarterly.BasedontheforecaststhattheCompanyprovides,theCompanywillhaveminimumpurchase
obligationsthatarefixedintheearlyportionsoftheforecast,becomingmoreflexibleinthelaterquarters.Underthetermsofthe
agreement,eitherpartymayterminatethisagreementuponthelatertooccuroftwoyearswrittennoticeandthesevenyear
anniversaryoftheCompanysfirstcommercialsaleofCorus1020.TheCompanymayalsoterminatetheagreementifEuticals
failstoproperlyaddressanyFDAwarningormaintainrequiredregistrationsforitsproductionfacilityorif,aftersevenyearsfrom
theeffectivedate,analternativesupplyofaztreonamisavailabletotheCompanyatareducedrate.AsofJune30,2004,the
CompanyhadanobligationtomakecashpaymentstoEuticalsunderthisagreementof$528,000inthethirdquarterof2004.At
thatdate,theCompanyhadnofurtherfinancialobligationstoEuticalsunderthisagreement.

12.RelatedPartyTransactions

MichaelJ.MontgomeryandJamesW.Montgomery,brothersofA.BruceMontgomery,theCompanysPresidentand
ChiefExecutiveOfficer,areprincipalsofDCPandMontgomery&Co.MichaelJ.Montgomerywasalsoadirectorofthe
CompanyfromitsinceptionuntilNovember20,2003.

InJanuary2001,theCompanyenteredintoafinancingrepresentationagreementwithDCPunderwhichtheCompany
engagedDCPtoactasanexclusiverepresentativeforarrangingequity,debtorotherfinancing.Underthefinancing
representationagreement,theCompanyagreedto(a)payDCPafeeof5%ofthegrossproceedsofthefinancingand(b)issueto
DCPawarranttopurchasesharesoftheCompanyscommonstockhavinganaggregateexercisepriceequalto2%ofthegross
proceedsofthefinancing.CorusalsoagreedtoindemnifyDCPagainstanyandallthirdpartylosses,claims,damages,liabilities,
costs,expensesandfees,including,withoutlimitation,legalfeesincurredbyDCPasapartyorparticipantarisingoutofDCPs
servicesastheCompanysfinancingrepresentative.

InMay2001,withtheassistanceofDCP,theCompanysold8,468,757sharesoftheCompanysSeriesAPreferredina
privateplacementinwhichtheCompanyreceivedgrossproceedsof$18.5million.Uponcompletionofthetransaction,the
CompanypaidDCPafinancingrepresentationfeeof$953,000.Alsoinconnectionwiththistransaction,theCompanyissuedto
DCPawarranttopurchase164,796sharesofcommonstockatanexercisepriceof$2.1845pershare.Otherthanthisfeeand
warrant,noothercompensationwasearnedbyDCPunderthefinancingrepresentationagreement,whichwasterminatedonMay
18,2001.Pursuanttothetermsofthewarrant,asaresultofanadjustmentintheconversionpriceoftheSeriesAPreferred,the
numberofsharesexercisableunderthewarrantwasadjustedto219,725andtheexercisepricewasadjustedto$1.6384pershare.
InJune2003,DCPchangeditsnametoMontgomery&Co.whilemaintainingsubstantiallythesameprincipalownership
structure.

F24

TableofContents

CORUSPHARMA,INC.
(ADEVELOPMENTSTAGECOMPANY)

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
(InformationasofJune30,2004andforthesixmonthsendedJune30,2003and2004isunaudited)

InJune2004,withtheassistanceofMontgomery&Co.,theCompanycompletedthesaleof56,038,635sharesofthe
CompanysSeriesCPreferredinaprivateplacement.Inconnectionwiththistransaction,theCompanyreceivedgrossproceedsof
$65.0millionandpaidMontgomery&Co.afinancingrepresentationfeeof$1,225,000andaccruedadditionalcompensation
valuedat$104,400,tobesettledwithequitysecurities.Otherthanthisfeeandaccruedcompensation,noothercompensationwas
earnedbyMontgomery&Co.underthefinancingrepresentationagreement,whichwasterminatedonJune30,2004.

13.EventsSubsequenttoJune30,2004(unaudited)

InitialPublicOfferingandChangeinControlSeveranceAgreements

InAugust2004,theCompanysboardofdirectorsapprovedthefilingofaregistrationstatementwiththeSecuritiesand
ExchangeCommissionforaninitialpublicofferingoftheCompanyscommonstock.InAugust2004,theboardofdirectorsalso
approvedaformofchangeincontrolseveranceagreementthattheCompanyexpectstoenterintowithitsexecutiveofficersand
certainsenioremployees.Theseagreementsprovideforfullaccelerationofvestingofoutstandingstockoptionsandother
outstandingstockawardsuponachangeincontroloftheCompany(asdefinedintheagreement),whichwouldrepresentanew
measurementdateforsuchawardandcouldresultinanaccountingcharge,atthetimeofachangeincontrol,ifany.

CommonStock

InSeptember2004,theCompanyissuedanaggregateof211,207sharesoftheCompanyscommonstockto
Montgomery&Co.andthreeofitsprincipalsinsettlementoftheaccruedcompensationrecordedasofJune30,2004.

IssuanceofStockOptions

TheCompanygrantedanaggregateof2,848,048optionstoemployeesinJuly2004withanexercisepriceof$0.60,
whichequalsthefairmarketvalueoftheCompanyscommonstockonthedateofgrant.

F25

TableofContents

Throughandincluding,2004(the25thdayafterthedateofthisprospectus),alldealerseffectingtransactions
inthesesecurities,whetherornotparticipatinginthisoffering,mayberequiredtodeliveraprospectus.Thisisinadditiontothe
dealersobligationtodeliveraprospectuswhenactingasunderwritersandwithrespecttotheirunsoldallotmentsor
subscriptions.

Shares

CommonStock

PROSPECTUS

MerrillLynch&Co.
PacificGrowthEquities,LLC
SunTrustRobinsonHumphrey
JMPSecurities

,2004

TableofContents

PARTII

INFORMATIONNOTREQUIREDINPROSPECTUS

Item13.OtherExpensesofIssuanceandDistribution

Thefollowingtablesetsforththecostsandexpenses,otherthanunderwritingdiscountsandcommissions,payableby
theregistrantinconnectionwiththesaleofcommonstockbeingregistered.AllamountsareestimatesexcepttheSECregistration
fee,theNASDfilingfeeandtheNASDAQNationalMarketlistingfee.

Amount
tobePaid

SECregistrationfee
NASDfilingfee
NASDAQNationalMarketlistingfee
Printingandengravingexpenses
Legalfeesandexpenses
Accountingfeesandexpenses
BlueSkyqualificationfeesandexpenses
TransferAgentandRegistrarfees
Miscellaneousfeesandexpenses

Total

12,670
10,500
100,000
300,000
800,000
600,000
25,000
5,000
146,830

$2,000,000

Item14.IndemnificationofDirectorsandOfficers

Section145oftheDelawareGeneralCorporationLaw,orDGCL,providesthatacorporationmayindemnifydirectors
andofficers,aswellasotheremployeesandindividuals,againstexpenses(includingattorneysfees),judgments,finesand
amountspaidinsettlementinconnectionwithspecifiedactions,suitsorproceedings,whethercivil,criminal,administrativeor
investigative(otherthananactionbyorintherightofthecorporationaderivativeaction),iftheyactedingoodfaithandina
mannertheyreasonablybelievedtobeinornotopposedtothebestinterestsofthecorporation,and,withrespecttoanycriminal
actionorproceeding,hadnoreasonablecausetobelievetheirconductwasunlawful.Asimilarstandardappliesinthecaseof
derivativeactions,exceptthatindemnificationextendsonlytoexpenses(includingattorneysfees)incurredinconnectionwith
thedefenseorsettlementofsuchactions,andthestatuterequirescourtapprovalbeforetherecanbeanyindemnificationwherethe
personseekingindemnificationhasbeenfoundliabletothecorporation.Thestatuteprovidesthatotherindemnificationmayalso
begrantedbyacorporationscharter,bylaws,disinteresteddirectorvote,stockholdervote,agreementorotherwise.

ArticleVIIIoftheregistrantsamendedandrestatedbylaws(Exhibit3.3)requiresindemnificationtothefullextent
permittedunderDelawarelaw.SubjecttoanyrestrictionsimposedbyDelawarelaw,theregistrantsbylawsprovidean
unconditionalrighttoindemnificationforallexpense,liabilityandloss(includingattorneysfees,judgment,fines,ERISAexcise
taxesorpenaltiesandamountspaidinsettlement)actuallyandreasonablyincurredorsufferedbyanypersoninconnectionwith
anyactualorthreatenedaction,suitorproceeding,whethercivil,criminal,administrativeorinvestigative(including,tothe
extentpermittedbylaw,anyderivativeaction)byreasonofthefactthatthepersonisorwasservingasadirectororofficerofthe
registrantorthat,beingorhavingbeenadirectororofficeroftheregistrant,thepersonisorwasservingattheregistrantsrequest
asadirector,officer,employeeoragentofanothercorporation,partnership,jointventure,trustorotherenterprise,including
servicewithrespecttoanemployeebenefitplan.Thebylawsalsoprovidethattheregistrantmay,byactionoftheregistrants
boardofdirectors,provideindemnificationtoitsemployeesandagentswiththesamescopeandeffectastheabove
indemnificationofdirectorsandofficers.

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Section102(b)(7)oftheDGCLpermitsacorporationtoprovideinitscertificateofincorporationthatadirectorofthe
corporationshallnotbepersonallyliabletothecorporationoritsstockholdersformonetarydamagesforbreachoffiduciaryduty
asadirector,exceptforliabilityfor(i)anybreachofthedirectorsdutyofloyaltytothecorporationoritsstockholders,(ii)actsor
omissionsnotingoodfaithorwhichinvolveintentionalmisconductoraknowingviolationoflaw,(iii)paymentsofunlawful
dividendsorunlawfulstockrepurchasesorredemptions,or(iv)anytransactionfromwhichthedirectorderivedanimproper
personalbenefit.

ArticleTenthoftheregistrantsamendedandrestatedcertificateofincorporation(Exhibit3.1)providesthattothefull
extentthattheDGCLpermitsthelimitationoreliminationoftheliabilityofdirectors,theregistrantsdirectorsshallnotbeliable
totheregistrantoritsstockholdersformonetarydamagesforbreachoffiduciarydutyasadirector.Anyamendmenttoorrepealof
ArticleTenthshallnotadverselyaffectanyrightorprotectionoftheregistrantsdirectorsfororwithrespecttoanyactsor
omissionsofthedirectorsoccurringbeforetheamendmentorrepeal.

Theregistranthasenteredintoindemnificationagreementswitheachdirector,whichagreementsprovide
indemnificationundercertaincircumstancesforactsandomissionsthatmaynotbecoveredbyanydirectorsandofficers
liabilityinsurance.Theindemnificationagreementsmayrequiretheregistrant,amongotherthings,toindemnifyitsofficersand
directorsagainstcertainliabilitiesthatmayarisebyreasonoftheirstatusorserviceasofficersanddirectors(otherthanliabilities
arisingfromwillfulmisconductofaculpablenature),toadvancetheirexpensesincurredasaresultofanyproceedingagainst
themastowhichtheycouldbeindemnified,andtoobtainofficersanddirectorsinsurance,ifavailableonreasonableterms.We
currentlymaintaindirectorsandofficersliabilityinsurance.

TheformofUnderwritingAgreement,filedasExhibit1.1tothisregistrationstatement,providesforindemnificationof
theregistrantanditscontrollingpersonsagainstcertainliabilitiesundertheSecuritiesAct.

Item15.RecentSalesofUnregisteredSecurities

SinceAugust1,2001,theregistranthassoldandissuedthefollowingunregisteredsecurities.

(1)OnDecember7,2001,theregistrantissued250,000sharesofcommonstocktoKirbyL.Cramerfora
considerationof$0.22pershare,oranaggregateof$55,000.

(2)OnJanuary16,2002andMarch31,2003,theregistrantissued75,000and301,851sharesofcommonstock,
respectively,toapartytoalicenseagreementinconnectionwiththetermsofsuchagreement,andanadditional25,483
sharesofcommonstockinconnectionwithanadjustmenttotheoriginal75,000sharesonSeptember12,2002.

(3)OnFebruary20,2003,theregistrantissued384,615sharesofcommonstocktoRobertT.Gavrefora
considerationof$0.26pershare,oranaggregateof$100,000.

(4)OnFebruary21,2003,February28,2003,March6,2003andMarch18,2003,theregistrantissuedan
aggregateof41,113,949sharesofSeriesBPreferredStock,whichareconvertibleinto41,113,949sharesofcommon
stock,to33accreditedinvestorsforaconsiderationof$0.973pershare,oranaggregateof$39,999,761.

(5)OnAugust5,2003,theregistrantissued192,307sharesofcommonstocktoKirbyL.Cramerfora
considerationof$0.26pershare,oranaggregateof$50,000.

(6)OnApril9,2004,April21,2004,May7,2004andJune30,2004,theregistrantissuedanaggregateof
56,038,635sharesofSeriesCPreferredStock,whichareconvertibleinto56,038,635sharesofcommonstock,to79
accreditedinvestorsforaconsiderationof$1.16pershare,oranaggregateof$65,004,818.

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(7)OnSeptember21,2004,theregistrantissuedanaggregateof211,207sharesofcommonstockto
Montgomery&Co.,LLCandthreeofitsprincipalsaspartofthefinancingrepresentationagreementwithMontgomery
&Co.inconnectionwiththeregistrantsSeriesCPreferredStockfinancing.

(8)FromSeptember10,2001toSeptember30,2004,theregistranthasissuedoptionstopurchaseanaggregate
of9,318,668sharesofitscommonstockunderits2001Plantoanumberofitsemployeesanddirectors,366,225shares
ofwhichhavebeenexercisedatpurchasepricesrangingfrom$0.22pershareto$0.61pershare.Oftheseoptions,
optionsfor174,437shareshavebeencancelledwithoutbeingexercisedandoptionsfor8,778,006sharesremain
outstanding.

Thesalesandissuancesdescribedinparagraphs17aboveweredeemedtobeexemptfromregistrationunderthe
SecuritiesActinrelianceuponSection4(2)oftheSecuritiesActorRegulationDpromulgatedundertheSecuritiesAct,onthe
basisthatthetransactionsdidnotinvolveapublicoffering.Therecipientsofsecuritiesineachsuchtransactionrepresentedtheir
intentionstoacquirethesecuritiesforinvestmentonlyandnotwithaviewtoorforsaleinconnectionwithanydistribution
thereofandappropriatelegendswhereaffixedtothesecuritiesissuedinsuchtransactions.Allrecipientshadadequateaccess,
throughtheirrelationshipswithus,toinformationaboutus.

Thesalesandissuancesdescribedinparagraph8abovewasexemptfromSecuritiesActregistrationunderRule701of
theSecuritiesAct,onthebasisthatsuchsecuritieswereofferedandsoldeitherinaccordancewithawrittencompensatorybenefit
planorinaccordancewithawrittencontractrelatingtocompensation.

Item16.ExhibitsandFinancialStatementSchedules

(a)Exhibits

Number

Description

1.1*

FormofUnderwritingAgreement

3.1**

AmendedandRestatedCertificateofIncorporation

3.2**

FormofAmendedandRestatedCertificateofIncorporationtobeeffectiveuponclosing

3.3**

AmendedandRestatedBylaws

3.4**

FormofAmendedandRestatedBylawstobeeffectiveuponclosing

4.1**

AmendedandRestatedInformationandRegistrationRightsAgreementdatedApril9,2004

4.2*

SpecimenCommonStockCertificate

5.1*

OpinionofOrrick,Herrington&SutcliffeLLPregardingthelegalityofthecommonstockbeingregistered

10.1**

FormofIndemnificationAgreementbetweenCorusandeachofitsofficersanddirectors

10.2**

2001StockPlan

10.3*

2004StockIncentivePlan

10.4**

OfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdatedApril6,2001

FirstAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdated
February6,2002

SecondAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdated
September23,2002

ThirdAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdatedJuly
7,2003

FourthAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdated
June4,2004

10.5**
10.6**
10.7**
10.8**

II3

TableofContents
Number

Description

10.9**
10.10**

ConsenttoSubleasebyandamongARE3005FirstAvenue,LLC,DendreonCorporationandCorusdatedasof
September10,2002

SubleasebyandbetweenDendreonCorporationandCorusdatedasofSeptember6,2002

ConsenttoAmendmenttoSubleasebyandamongARE3005FirstAvenue,LLC,DendreonCorporationand
CorusdatedDecember5,2002

AmendmenttoSubleasebyandbetweenDendreonCorporationandCorusdatedDecember19,2002

ConsenttoSecondAmendmenttoSubleasebyandamongARE3005FirstAvenue,LLC,DendreonCorporation
andCorusdatedAugust31,2003

SecondAmendmenttoSubleasebyandbetweenDendreonCorporationandCorusdatedJuly6,2003

LetterfromDendreonCorporationtoCorusPharma,Inc.regardingrelinquishmentofsubleasedspacedatedJune
22,2004

DevelopmentAgreementbyandbetweenPARIGmbHandAbarisPharma,Inc.(aformerwhollyownedsubsidiary
ofCorus)datedApril3,2003

DevelopmentAgreementbyandbetweenPARIGmbHandSalusPharma,Inc.(aformerwhollyownedsubsidiary
ofCorus)datedFebruary20,2002

PharmaceuticalSupplyAgreementbetweenCorusandEuticalsSpAdatedJanuary24,2004

MasterServicesAgreementbyandbetweenInvereskResearchInternationalLimitedandAbarisPharma,Inc.(a
formerwhollyownedsubsidiaryofCorus)datedApril7,2003

MasterServicesAgreementbyandamongInvereskClinicalResearchLimited,InvereskResearchInternational
LimitedandSalusPharma,Inc.(aformerwhollyownedsubsidiaryofCorus)datedJuly24,2002

ServicesAgreementbyandbetweenInvereskResearchInternationalLimitedandAbarisPharma,Inc.(aformer
whollyownedsubsidiaryofCorus)datedJuly1,2003

EmployeeConfidentiality,Inventions,andNonCompetitionAgreementbyandbetweenA.BruceMontgomery,
M.D.andCorusdatedMay2001

TechnologyLicenseContractbetweenAbarisPharma,Inc.(aformerwhollyownedsubsidiaryofCorus)andMayo
FoundationforEducationandResearchdatedJanuary4,2002

FormofChangeinControlSeveranceAgreementbetweenCorusanditsexecutiveofficersandothersenior
employees

LetterAgreementbyandbetweenCysticFibrosisFoundationTherapeutics,Inc.andCorusdatedSeptember25,
2003

SettlementAgreementandGeneralReleasebyandamongCorus,A.BruceMontgomery,M.D.,JonathanP.Mow,
BioGeneticVentures,Inc.andPeterN.AllisondatedSeptember12,2002

EngagementAgreementbyandbetweenCorusandMontgomery&Co.,LLCdatedJanuary15,2004

10.11**
10.12**
10.13**
10.14**
10.15**
10.16**
10.17**
10.18**
10.19**
10.20**
10.21**
10.22**
10.23**
10.24**
10.25**
10.26**
10.27
10.28

LetterAmendmenttoEngagementAgreementbetweenCorusandMontgomery&Co.,LLCdatedSeptember2,
2004

23.1

ConsentofIndependentRegisteredPublicAccountingFirm

23.2*

ConsentofOrrick,Herrington&SutcliffeLLP

24.1**
*
**

PowerofAttorney

Tobesuppliedbyamendment.
Previouslyfiled.
Confidentialtreatmenthasbeenrequestedforportionsofthisexhibittheomittedmaterialhasbeenseparatelyfiledwiththe
SEC.

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TableofContents

(b)FinancialStatementSchedules

Schedulesnotlistedabovehavebeenomittedbecausetheinformationrequiredtobesetforththereinisnotapplicableor
isshowninthefinancialstatementsornotesthereto.

Item17.Undertakings

Theundersignedregistrantherebyundertakestoprovidetotheunderwritersattheclosingspecifiedintheunderwriting
agreementcertificatesinsuchdenominationsandregisteredinsuchnamesasrequiredbytheunderwriterstopermitprompt
deliverytoeachpurchaser.

InsofarasindemnificationforliabilitiesarisingundertheSecuritiesActmaybepermittedtodirectors,officersand
controllingpersonsoftheregistrantpursuanttotheforegoingprovisions,orotherwise,theregistranthasbeenadvisedthatinthe
opinionoftheSECsuchindemnificationisagainstpublicpolicyasexpressedintheSecuritiesAct,andis,therefore,
unenforceable.Intheeventthataclaimforindemnificationagainstsuchliabilities(otherthanthepaymentbytheregistrantof
expensesincurredorpaidbyadirector,officerorcontrollingpersonoftheregistrantinthesuccessfuldefenseofanyaction,suit
orproceeding)isassertedbysuchdirector,officerorcontrollingpersoninconnectionwiththesecuritiesbeingregistered,the
registrantwill,unlessintheopinionofitscounselthematterhasbeensettledbycontrollingprecedent,submittoacourtof
appropriatejurisdictionthequestionwhethersuchindemnificationbyitisagainstpublicpolicyasexpressedintheSecuritiesAct
andwillbegovernedbythefinaladjudicationofsuchissue.

Theundersignedregistrantherebyundertakesthat:

(1)ForpurposesofdetermininganyliabilityundertheSecuritiesAct,theinformationomittedfromtheformof
prospectusfiledaspartofthisregistrationstatementinrelianceuponRule430Aandcontainedinaformofprospectusfiledby
theregistrantpursuanttoRule424(b)(1)or(4)or497(h)undertheSecuritiesActshallbedeemedtobepartofthisregistration
statementasofthetimeitwasdeclaredeffective.

(2)ForthepurposeofdetermininganyliabilityundertheSecuritiesAct,eachposteffectiveamendmentthatcontainsa
formofprospectusshallbedeemedtobeanewregistrationstatementrelatingtothesecuritiesofferedtherein,andtheofferingof
suchsecuritiesatthattimeshallbedeemedtobetheinitialbonafideofferingthereof.

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SIGNATURES

PursuanttotherequirementsoftheSecuritiesActof1933,asamended,theregistranthasdulycausedthisAmendment
No.2toregistrationstatementtobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized,inthecityofSeattle,state
ofWashingtononOctober18,2004.

CORUSPHARMA,INC.
By:

/s/A.BRUCEMONTGOMERY,M.D.
A.BruceMontgomery,M.D.
PresidentandChiefExecutiveOfficer

PursuanttotherequirementsoftheSecuritiesActof1933,asamended,thisAmendmentNo.2toregistrationstatement
hasbeensignedbythefollowingpersonsinthecapacitiesindicatedonOctober18,2004.

Signature

Title

*
KirbyL.Cramer

VicePresidentFinanceandChief
FinancialOfficer(Principal
FinancialOfficerandPrincipal
AccountingOfficer)

DonaldF.SeatonIII

*
FritzR.Bhler,M.D.

Director

Director

Director

*
SamuelP.Wertheimer,Ph.D.

*
UlrikSpork

Director

*
JohnH.Kim,M.D.

*
RodneyA.Ferguson,Ph.D.

Director

*
RobertT.deGavre

Director

*
RichardB.Brewer

President,ChiefExecutiveOfficerand
Director(PrincipalExecutive
Officer)

/s/DONALDF.SEATONIII

Director

DirectorandChairmanoftheBoard

/s/A.BRUCEMONTGOMERY,M.D.
A.BruceMontgomery,M.D.

*By:

/s/A.BRUCEMONTGOMERY,M.D.

A.BruceMontgomery,M.D.
AttorneyinFact

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TableofContents

EXHIBITINDEX

Number

Description

1.1*

FormofUnderwritingAgreement

3.1**

AmendedandRestatedCertificateofIncorporation

3.2**

FormofAmendedandRestatedCertificateofIncorporationtobeeffectiveuponclosing

3.3**

AmendedandRestatedBylaws

3.4**

FormofAmendedandRestatedBylawstobeeffectiveuponclosing

4.1**

AmendedandRestatedInformationandRegistrationRightsAgreementdatedApril9,2004

4.2*

SpecimenCommonStockCertificate

5.1*

OpinionofOrrick,Herrington&SutcliffeLLPregardingthelegalityofthecommonstockbeingregistered

10.1**

FormofIndemnificationAgreementbetweenCorusandeachofitsofficersanddirectors

10.2**

2001StockPlan

10.3*

2004StockIncentivePlan

10.4**

OfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdatedApril6,2001

FirstAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdated
February6,2002

SecondAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorus
datedSeptember23,2002

ThirdAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdated
July7,2003

FourthAmendmenttoOfficeLeasebyandbetweenConnecticutGeneralLifeInsuranceCompanyandCorusdated
June4,2004

ConsenttoSubleasebyandamongARE3005FirstAvenue,LLC,DendreonCorporationandCorusdatedasof
September10,2002

SubleasebyandbetweenDendreonCorporationandCorusdatedasofSeptember6,2002

ConsenttoAmendmenttoSubleasebyandamongARE3005FirstAvenue,LLC,DendreonCorporationand
CorusdatedDecember5,2002

AmendmenttoSubleasebyandbetweenDendreonCorporationandCorusdatedDecember19,2002

ConsenttoSecondAmendmenttoSubleasebyandamongARE3005FirstAvenue,LLC,DendreonCorporation
andCorusdatedAugust31,2003

SecondAmendmenttoSubleasebyandbetweenDendreonCorporationandCorusdatedJuly6,2003

LetterfromDendreonCorporationtoCorusPharma,Inc.regardingrelinquishmentofsubleasedspacedatedJune
22,2004

DevelopmentAgreementbyandbetweenPARIGmbHandAbarisPharma,Inc.(aformerwhollyownedsubsidiary
ofCorus)datedApril3,2003

DevelopmentAgreementbyandbetweenPARIGmbHandSalusPharma,Inc.(aformerwhollyownedsubsidiary
ofCorus)datedFebruary20,2002

PharmaceuticalSupplyAgreementbetweenCorusandEuticalsSpAdatedJanuary24,2004

MasterServicesAgreementbyandbetweenInvereskResearchInternationalLimitedandAbarisPharma,Inc.(a
formerwhollyownedsubsidiaryofCorus)datedApril7,2003

MasterServicesAgreementbyandamongInvereskClinicalResearchLimited,InvereskResearchInternational
LimitedandSalusPharma,Inc.(aformerwhollyownedsubsidiaryofCorus)datedJuly24,2002

10.5**
10.6**
10.7**
10.8**
10.9**
10.10**
10.11**
10.12**
10.13**
10.14**
10.15**
10.16**
10.17**
10.18**
10.19**
10.20**

TableofContents
Number

Description

10.21**

ServicesAgreementbyandbetweenInvereskResearchInternationalLimitedandAbarisPharma,Inc.(aformer
whollyownedsubsidiaryofCorus)datedJuly1,2003

EmployeeConfidentiality,Inventions,andNonCompetitionAgreementbyandbetweenA.BruceMontgomery,
M.D.andCorusdatedMay2001

TechnologyLicenseContractbetweenAbarisPharma,Inc.(aformerwhollyownedsubsidiaryofCorus)andMayo
FoundationforEducationandResearchdatedJanuary4,2002

FormofChangeinControlSeveranceAgreementbetweenCorusanditsexecutiveofficersandothersenior
employees

LetterAgreementbyandbetweenCysticFibrosisFoundationTherapeutics,Inc.andCorusdatedSeptember25,
2003

SettlementAgreementandGeneralReleasebyandamongCorus,A.BruceMontgomery,M.D.,JonathanP.Mow,
BioGeneticVentures,Inc.andPeterN.AllisondatedSeptember12,2002

EngagementAgreementbyandbetweenCorusandMontgomery&Co.,LLCdatedJanuary15,2004

10.22**
10.23**
10.24**
10.25**
10.26**
10.27
10.28

LetterAmendmenttoEngagementAgreementbetweenCorusandMontgomery&Co.,LLCdatedSeptember2,
2004

23.1

ConsentofIndependentRegisteredPublicAccountingFirm

23.2*

ConsentofOrrick,Herrington&SutcliffeLLP

24.1**

PowerofAttorney

*
**

Tobesuppliedbyamendment.
Previouslyfiled.
Confidentialtreatmenthasbeenrequestedforportionsofthisexhibittheomittedmaterialhasbeenseparatelyfiledwiththe
SEC.

Exhibit10.27

ENGAGEMENTAGREEMENT

ThisEngagementAgreement(thisAgreement)ismadeandenteredintoasofthe15thdayofJanuary,2004(the
EffectiveDate)byandbetweenMontgomery&Co.,LLC(MONTGOMERY)andCorusPharma,Inc.,aDelaware
corporation(Client).

WITNESSETH:

WHEREAS,MONTGOMERYprovides,amongotherservices,investmentbankingservicesand

WHEREAS,ClientdesirestoengageMONTGOMERYtoprovideinvestmentbankingservices.

NOW,THEREFORE,thepartiesagreeasfollows:

1.ENGAGEMENT.ClientherebyengagesMONTGOMERYtoadviseandassistClientduringtheTerm(asdefinedbelow)
inconnectionwitharrangingprivateequityfinancing(theFinancing)fromselectedpotentialaccreditedinvestors(the
FinancingTargets)andadvisingClientonproposedtermsinconnectionwithsuchFinancingonabesteffortsbasisonterms
satisfactorytoClientandincompliancewithSection4(2)oftheSecuritiesActof1933,asamended(theAct),andotherfederal
andstatesecuritieslaws.DuringtheTerm,ClientshallnotengageanyotherinvestmentbankingfirmotherthanMONTGOMERY
toactasarepresentativeofClientinconnectionwithaFinancing.

2.DUTIESOFMONTGOMERY.Inperformingitsserviceshereunder,MONTGOMERYshall:(a)familiarizeitselfwith
Client,itbeingunderstoodthatMONTGOMERYshallrelyentirelyuponinformationsuppliedbyClientwithoutindependent
investigation(b)assistClientinthepreparationofanofferingmemorandumandothermaterialstobeusedtodescribeClientand
theFinancing(theMaterials)(c)adviseandassistClientinidentifyingFinancingTargetsandshall,onbehalfofClient,
contactsuchFinancingTargetsasClientmaydesignate,andfurnishthem,onbehalfofClient,withcopiesoftheMaterials(d)
assistClientinmakingpresentationstoFinancingTargetsand(e)assistClientinstructuringaFinancing.Inperformingitsduties
hereunder,ClientandMONTGOMERYeachagreethatMONTGOMERYshallnotbeanagentorfiduciaryofClientandmaynot
bindorobligateClientinanyway.ClientfurtheragreesthatMONTGOMERYisbeingengagedhereundertoprovidetheservices
describedabovesolelytoClientandMONTGOMERYshallhavenodutyorliabilitytoanyotherpersoninconnectionwiththis
Agreement.

3.TERMOFAGREEMENTSURVIVAL.ThetermofthisAgreement(theTerm)shallcommenceuponreceiptby
MONTGOMERYoftheretainerdescribedinSection4(a)andshallterminateontheearlierof(a)thesixtiethdayafterthedateon
whicheitherpartytothisAgreementdeliversawrittennoticeofterminationtotheotherpartyand(b)theconsummationofa
FinancingoranIPO(asdefinedbelow).TheagreementsandstatementscontainedinSections3,4,6,7,8,9,11,12andAnnexA
to,thisAgreementshallremainoperativeandinfullforceandshallsurvivetheterminationoftheAgreement.

4.COMPENSATION.AsreasonablecompensationforservicestobeprovidedbyMONTGOMERYhereunder:

(a)Retainer:ClientshallpayMONTGOMERYanonrefundableretainerof$50,000.00,payableuponexecutionofthis
Agreement.ThefullretainerwillbecreditedtotheFinancingSuccessFeeorIPOBreakupFeedescribedbelow.

(b)FinancingSuccessFee:Subjecttotheconditionsprovidedbelow,ClientshallpayMONTGOMERYanonrefundable
cashfee(theFinancingFee)equaltothegreaterof(a)$750,000or(b)anamountequaltofivepercent(5.0%)ofthegross
proceedsofanyFinancing,excluding100%ofthegrossproceedsofanyFinancingprovidedbyexistingshareholdersofClient(
InsiderParticipation).Inaddition,subjecttotheconditionsprovidedbelow,ClientshallissuetoMONTGOMERYawarranta
numberofsharesofClientscommonstockequaltothegreaterof(a)$100,000dividedbythepersharepriceoftheClients
preferredstocksoldintheFinancing(theSeriesCPrice)or(b)onepercent(1%)ofthegrossproceedsofanyFinancing
(excludingthegrossproceedsattributabletoInsiderParticipation),dividedbytheSeriesCPrice(theWarrant),onthe
followinggeneraltermsandconditions:(i)thewarrantswillhaveanexercisepriceof$0.01perunderlyingshareofcommon
stock(ii)thewarrantswillbeexerciseableimmediatelyandwillhaveaseven(7)yearterm,butwillterminateimmediatelyupon
eitherachangeofcontroloranIPO,ifnotexercisedimmediatelypriortosucheventsand(iii)thewarrantswillbeexerciseable
onacashlessexercisebasis.TheFinancingFeeshallbepayable,andtheWarrantshallbeissuable,ifClientconsummatesa
Financing(a)duringtheTermor(b)withinthetwelvemonthperiodfollowingthelastdayoftheTermwithanyFinancingTarget
thathadanycommunicationduringtheTermwithMONTGOMERYorClientregardingaFinancingprovided,however,thatthe
FinancingFeeshallbepayablewithrespecttooneFinancingonlyandshallnotpayablewithrespecttosubsequentFinancingsby
thesameinvestors.

Inaddition,intheeventthat(a)theClientcompletesaninitialpublicoffering(IPO)duringtheTermorwithinsixmonths
followingthelastdayoftheTermand(b)ClienthasnotpreviouslycompletedaFinancing,MONTGOMERYshallreceiveanon
refundablefee(theIPOBreakupFee)of$500,000incash.

(c)ExpenseReimbursement:WithinfivebusinessdaysofreceiptofinvoicesfromMONTGOMERY,Clientshallreimburse
MONTGOMERYforallreasonableoutofpocketexpensesincurredbyMONTGOMERYinconnectionwiththisAgreement,
includingbutnotlimitedtoreasonableexpensesrelatedtolegalfees(nottoexceed$10,000),communications,printing,copying,
delivery,mealsandtravel.

TheFinancingFeeshallbepaidbywiretransfertoMONTGOMERYsbankaccountattheclosingofanyFinancing.Inaddition,
theWarrantshallbeissuedconcurrentwiththeclosingofanyFinancing.TheFinancingFeedueandpayabletoMONTGOMERY
shallnotbereducedoraffectedbyanyfeesorotheramountspayablebyClienttoanyotherrepresentativeoragentofClient.

5.COOPERATION.ClientshallfurnishMONTGOMERYwithallfinancialandotherinformationanddataas
MONTGOMERYreasonablybelievesappropriateandnecessary

inordertofulfillitsobligationsunderthisAgreement,andshallprovideMONTGOMERYreasonableaccesstotheofficers,
directors,employeesandprofessionaladvisorsofClient.DuringtheTerm,ClientagreestoforwardthenamesofFinancingTargets
toMONTGOMERYthatareorbecomeknowntoClient.ClientacknowledgesandagreesthatMONTGOMERY:(i)shallbe
entitledtorelywithoutinvestigationuponallinformationthatisavailablefrompublicsourcesand/orsuppliedtoitbyClientor
anyadvisorofClient(ii)shallnotberesponsiblefor,andneednotverify,theaccuracy,completenessorsufficiencyofthe
informationdescribedinclause(i)aboveand(iii)shallbeentitledtoassumethatallprojectionsmadeavailableto
MONTGOMERYshallhavebeenpreparedingoodfaithbaseduponreasonableassumptions.Clientagreestopromptlynotify
MONTGOMERYifitlearnsofanymaterialinaccuracyormisstatementin,ormaterialomissionfrom,anyinformationpreviously
deliveredtoMONTGOMERY.

6.CONFIDENTIALITY.Exceptasrequiredbyapplicablelaworpursuanttoanorderenteredorsubpoenaissuedbyacourt
ofcompetentjurisdictionorgovernmentregulator,(a)MONTGOMERYshallkeepconfidentialallmaterialnonpublic
informationprovidedtoitbyClient,andshallnotdisclosesuchinformationtoanythirdparty,otherthan:(i)suchofits
employeesandadvisorsasMONTGOMERYdetermineshaveaneedtoknowand(ii)FinancingTargetsthatexecuteacustomary
confidentialityagreementand(b)ClientshallnotdiscloseanyadviceprovidedtoClientbyMONTGOMERYtoanythirdparty
otherthansuchofitsemployeesandadvisorsasClientdetermineshaveaneedtoknow.

7.INDEMNIFICATION.ClientagreestotheindemnificationandotherobligationssetforthinAnnexAattachedhereto,
whichAnnexAformsanintegralpartofthisAgreementandisincorporatedbyreferenceherein.

8.TOMBSTONES.ClientagreesthatMONTGOMERYmay,atitsownexpense,placeannouncementsandadvertisements
infinancialandothernewspapersandjournalsandonitsInternetwebsitedescribingMONTGOMERYsservicesinconnection
withthisAgreementprovided,however,thatClientshallhavetherighttoapproveinadvanceanysuchannouncementsand
advertisements,whichapprovalwillnotbeunreasonablywithheld.

9.CONFLICTS.ClientacknowledgesthatMONTGOMERYanditsaffiliatesmayhaveandmaycontinuetohave
investmentbankingand/orotherrelationshipswithpartiesotherthanClientpursuanttowhichMONTGOMERYmayacquire
informationofinteresttoClient.MONTGOMERYshallhavenoobligationtodisclosesuchinformationtoClient,ortousesuch
informationinconnectionwiththisAgreement.

10.REPRESENTATIONS.Clientrepresentsandwarrantsthat(a)ithasthepowerandauthoritytoexecute,deliverand
performthisAgreement(b)thisAgreementisabindingobligationofClient,enforceableagainstClientinaccordancewithits
termsand(c)theexecution,deliveryandperformanceofthisAgreementbyitshallnotviolateanyrightsof,agreementswith,or
obligationsto,anythirdparties.

11.ARBITRATION.Anycontroversies,claimsordisputesrelatingtothisAgreementshallberesolvedbyarbitrationunder
therulesoftheAmericanArbitrationAssociation(AAA),includingtheOptionalProceduresforLarge,ComplexCommercial

Disputes(theRules),exceptwheretheRulesconflictwiththeprovisionsofthisSection11,inwhicheventtheprovisionsof
thisSection11shallprevail.VenueofallarbitrationshallbeLosAngelesCounty,California.Arbitrationshallbeheldbeforeone
arbitrator(a)selectedbymutualagreementofthepartiesreachedfifteen(15)daysaftertheAAAhassentconfirmationofnoticeof
filingofthedemandforarbitration,or,(b)ifnomutualagreementcanbereachedwithinthattime,appointedbytheAAA.Such
arbitratorshallbeanattorneywhohaspracticedlawforatleastten(10)yearsineithergeneralcommerciallitigationorgeneral
corporateandcommercialmatters.Thearbitratorshallnotbeempoweredtoawardpunitivedamages,consequentialdamagesor
damagesinexcessofactualdamages.AnyawardofarbitrationshallbeinUnitedStatesDollars,shallbefinalandlegallybinding,
maybeenteredintojudgmentinanycourtofcompetentjurisdiction,andmaybeenforcedinanyjurisdictioninwhichtheparty
againstwhomenforcementissoughtmaintainsassets.

12.MISCELLANEOUS.

(a)AmendmentsandWaivers.Amendmentsto,orwaiversof,thisAgreementmustbewritingandsignedbybothparties.

(b)Assignment.ThisAgreementmaynotbeassignedbyeitherpartywithouttheconsentoftheotherparty.

(c)BindingEffectNoThirdPartyBeneficiaries.ThisAgreementbindsandinurestothesuccessorsandpermittedassigns
ofeachparty.ThisAgreementcreatesnorightsinorbenefitsforanythirdpartiesexcepttheIndemnifiedPersonsdescribedin
AnnexAheretowhoareexpresslymadethirdpartybeneficiariesofthisAgreement.

(d)ChoiceofLaw.ThisAgreementshallbeconstruedaccordingtothelawsoftheStateofCaliforniawithoutgivingeffect
toanyprovisionsrelatingtoconflictoflaws.

(e)Counterparts.ThisAgreementmaybeexecutedincounterpartsandbyfacsimilesignature.

(f)EntireAgreement.ThisAgreementsupersedesanyotheragreementsorunderstandings,oralorwritten,betweenthe
partiesrespectingthesubjectmatterhereof.

(g)Notices.Allnoticesandothercommunicationshereundershallbeinwriting,mailedbyregisteredorcertifiedmail,with
returnreceiptrequested,deliveredbyanationallyrecognizedovernightcourier,telecopiedorhanddelivered.Noticesandother
communicationsshallbeeffective:(i)ifgivenbymail,3daysafterdepositintheU.S.mails,postageprepaid,addressedtosuch
partyattheaddresssetforthbelowthesignatureofsuchpartytothisAgreement(orsuchotheraddressassuchpartymayspecify
inwritingtotheotherparty)(each,anAddress),(ii)ifgivenbycourierorbyhanddelivery,whendeliveredtotheAddressof
suchpartyor(iii)ifgivenbyfacsimile,whensenttothefacsimilenumberspecifiedintheAddressofsuchpartyandwhen
confirmedbytelephone.

(h)Severability.Ifanyprovisionhereofisunenforceableorinvalid,itshallbegiveneffecttothemaximumextentitmaybe
enforceableorvalid,andsuchunenforceabilityorinvalidityshallnotaffecttheenforceabilityorvalidityofanyotherprovision
ofthisAgreement

provided,however,thatthisAgreementshallterminateifanyprovisionofSection4isheldtobeillegalunenforceableor
invalid.

INWITNESSWHEREOF,eachofClientandMONTGOMERYhascauseditsauthorizedsignatorytoexecuteanddeliverthis
Agreementasofthedateindicatedabove.

MONTGOMERY

CLIENT

MONTGOMERY&CO.,LLC

BY:

/s/GeorgeG.Montgomery

NAME:GeorgeG.Montgomery
TITLE:ManagingDirector

BY:

/s/A.BruceMontgomery

NAME:A.BruceMontgomery
TITLE:PRESIDENTANDCEO

Address:

Address:

Montgomery&Co.,LLC
100WilshireBoulevard,Suite
SantaMonicaCA90401
Attention:GeorgeG.Montgomery
Phone:(415)9624561
Fax:(415)9624567

CorusPharma,Inc.
20251stAvenue,Suite800
Seattle,WA98121
Attention:A.BruceMontgomery
Phone:(206)7285090
Fax:(206)7285095

AnnexA

ThisAnnexAisapartofandisincorporatedintothatcertainengagementagreement(together,theAgreement)byand
betweenMontgomery&Co.,LLC(MONTGOMERY)andCorusPharma,Inc.(Client).Unlessotherwisedeemedherein,
capitalizedtermsusedinthisAnnexAanddeemedintheletteragreementdescribedaboveshallhavethesamemeaningwhen
usedinthisAnnexA.

ClientshallindemnifyandholdharmlessMONTGOMERY,anyaffiliateofMONTGOMERY,andeachperson,ifany,who
controlsMONTGOMERYorsuchaffiliatewithinthemeaningofSection15oftheSecuritiesActof1933,asamended(the1933
Act),orSection20oftheSecuritiesExchangeActof1934,asamended(the1934Act),andeachmember,director,officer,
partner,employee,agent,andcounselofMONTGOMERY,ofanysuchaffiliate,orofanysuchcontrollingperson(each,an
IndemnifiedPerson)inrespectofanyandalllosses,claims,damages,orliabilities,jointorseveral,towhichanysuch
IndemnifiedPersonmaybecomesubjectunderanystatute,undercommonlaw,orotherwise,andwhetherornotinvolvingathird
party,arisingoutof,basedupon,orinconnectionwiththeAgreementortheservicesortransactionscontemplatedthereby,
including,withoutlimitingthegeneralityoftheforegoing,Clientsuse,directlyorindirectly,ofanyMONTGOMERYAdviceor
anypartthereoforreferencethereto,anyactoromissionbyMONTGOMERYinconnectionwithitsacceptanceof,orthe
performanceornonperformanceof,MONTGOMERYsobligationsundertheAgreement,oranybreachbyClientofthe
Agreement,andtoreimburseeachIndemnifiedPersonasandwhenincurredforanyreasonablelegaloranyotherreasonable
expensesincurredbysuchIndemnifiedPersoninconnectionwithinvestigatingordefendingagainstanysuchloss,claim,
damage,orliabilityorprovidingevidence,producingdocuments,ortakinganyotheractioninrespectthereto(whetherornot
MONTGOMERYisitselfadefendantin,ortargetof,theaction,proceeding,orinvestigationinrespectofwhichindemnityor
reimbursementmaybesoughtandwhetherornotsuchaction,proceeding,orinvestigationinvolvesathirdparty)provided,
however,thatClientshallnotbeliableinanysuchcasetotheextentthatanysuchloss,claim,damage,orliabilityisfoundina
finaljudicialdetermination,notsubjecttofurtherappeal,tohaveresultedprimarilyanddirectlyfromthewillfulmisconductor
grossnegligenceofMONTGOMERY,inwhicheventanyreimbursementpreviouslymadetoMONTGOMERYwillbereturnedto
Client.TheforegoingindemnityshallbeinadditiontoanyliabilitythatClientmayotherwisehavetotheIndemnifiedPersons.
TheindemnityandreimbursementofexpensesprovidedforinthisParagraphandthecontributionrightsprovidedforbelowarein
additionto,andnotsubjecttothelimitationsof,theretainer,compensation,andreimbursementofexpensesprovidedforinthe
Agreement.ClientalsoagreesthatnoIndemnifiedPersonshallhaveanyobligation(whetherdirectorindirect,incontract,tort,or
otherwise)toClientoranyofitsdirectors,officers,employees,agents,counsel,orcontrollingpersons,arisingoutof,basedupon,
orinconnectionwiththemattersspecifiedintheprecedingsentence,exceptforanysuchobligationforlosses,claims,damages,
andliabilitiesthatarefoundinafinaljudicialdetermination,notsubjecttofurtherappeal,tohaveresultedprimarilyanddirectly
fromthewillfulmisconductorgrossnegligenceofsuchIndemnifiedPersonandexceptforthecontributionrightsprovidedfor
below.

PromptlyafterreceiptbyMONTGOMERY(oranyotherIndemnifiedPerson)ofnoticeofthecommencementofanyaction,
proceeding,orinvestigationinrespectofwhichindemnity

A1

orreimbursementmaybesoughtasprovidedabove,MONTGOMERY(orsuchIndemnifiedPerson)shallnotifyClientinwriting
ofthereceiptorcommencementthereof,butthefailureofMONTGOMERY(orsuchIndemnifiedPerson)tonotifyClientwith
respecttoaparticularaction,proceedingorinvestigationshallnotrelieveClientfromanyobligationorliabilitywhichitmay
havepursuanttotheAgreementwithrespecttosuchaction,proceedingorinvestigation,orwhichitmayhavepursuanttothe
Agreementwithrespecttoanyotheraction,proceeding,orinvestigation,orwhichitmayhaveotherwisethanpursuanttothe
Agreementwithrespecttoanyaction,proceeding,orinvestigation.Notwithstandingtheprecedingsentence,intheeventthe
failureofMONTGOMERY(orsuchIndemnifiedPerson)tonotifyClientwithrespecttoaparticularaction,proceedingor
investigationresultsinsubstantialprejudicetoClient,Clientsindemnificationandreimbursementobligationsshallbereduced
totheextentofsuchprejudice.

Clientshallbeentitledatitsownexpensetoassumethedefenseofanysuchaction,proceedingorinvestigationwith
counselreasonablysatisfactorytosuchIndemnifiedPerson.Notwithstandingtheprecedingsentence,theIndemnifiedPersonshall
beentitledtoemploycounselseparatefromcounselforClientandfromanyotherpartyinsuchaction,proceedingor
investigationandtoparticipateintheaction,proceeding,orinvestigation,andClientshallbearthereasonablefeesand
reasonableexpensesofsuchseparatecounsel(andshallpaysuchreasonablefeesandreasonableexpensesasandwhenincurred),
onlyifeither(i)theIndemnifiedPersonshallhavereasonablyconcludedthatrepresentationoftheCompanyandsuch
IndemnifiedPersonbythesamecounselorexpertswouldbeinappropriateduetoactualorpotentialdifferinginterestsbetween
theCompanyandanysuchIndemnifiedPerson,(ii)Clientshallnothaveemployedcounselreasonablysatisfactorytothe
IndemnifiedPersontorepresenttheIndemnifiedPersonwithinareasonabletimeafterClientshallhavenoticeoftheinstitutionof
anysuchaction,proceedingorinvestigation,or(iii)Clientshallauthorize,inwriting,theIndemnifiedPersontoemployseparate
counselattheexpenseofClient.CounselforMONTGOMERYandcounselforClientshallcooperatewithoneanotherinthe
defenseofanyaction,proceedingorinvestigationtotheextentconsistentwithprofessionalresponsibilities.Clientshallnotbe
liableforthesettlementbyanyIndemnifiedPersonofanyaction,proceedingorinvestigationeffectedwithoutitsconsent,which
consentshallnotbeunreasonablyoruntimelywithheld.Clientshallnot,withoutthepriorwrittenconsentofMONTGOMERY,
settleorcompromiseanyaction,proceedingorinvestigation,orpermitadefaultorconsenttotheentryofanyjudgmentwith
respectthereto,unlesssuchsettlement,compromise,defaultorconsentincludes,asanunconditionaltermthereof,thegivingby
thepartyotherthanClienttheretoofanunconditionalgeneralreleasetoallIndemnifiedPersonsfromallliabilityinrespectof
suchaction,proceeding,orinvestigation.

Inordertoprovideforjustandequitablecontribution,if(a)aclaimforindemnificationpursuanttotheAgreement(subject
tothelimitationshereof)ismadebyanIndemnifiedPersonbutitisfoundinafinaljudicialdetermination,notsubjecttofurther
appeal,thatsuchindemnificationmaynotbeenforcedinsuchcase,eventhoughtheexpressprovisionsoftheAgreementprovide
forindemnificationinsuchcase,or(b)contributionunderthe1933Act,the1934ActorotherwisemaybesoughtbyClient,
MONTGOMERYoranotherIndemnifiedPerson,thenClientontheonehand,andMONTGOMERYandtheotherIndemnified
Personscollectivelyontheotherhand,shallcontributetothelosses,claims,damagesorliabilitiestowhichtheymaybesubject
(whichshall,forallpurposesofthissentence,includebutnotbelimitedtoreasonablelegalandanyotherreasonableexpenses
incurredinconnectionwith

A2

investigatingordefendingagainstsuchlosses,claims,damages,orliabilities,orprovidingevidence,producingdocumentsor
takinganyotheractioninrespectthereto(whetherornottheIndemnifiedPersonisitselfadefendantin,ortargetof,suchaction,
proceeding,orinvestigationandwhetherornotsuchaction,proceeding,orinvestigationinvolvesathirdparty))ineithersuch
case(aftercontributionfromothers)inaccordancewith(i)therelativebenefitsreceivedbyClientontheonehandand
MONTGOMERYontheotherhand,(ii)therelativefaultofClientontheonehandandMONTGOMERYontheotherhandin
connectionwiththestatement,actoromissionwhichresultedinsuchlosses,claims,damagesorliabilitiesand(iii)relevant
equitableconsiderationsprovided,however,thatnopaymentshallbemadetoClientpursuanttotheprovisionsofthis
Paragraphifsuchpaymentinanyway,directlyorindirectly,inwholeorinpart,limitsordefeatstherightsofanyofthe
IndemnifiedPersonspursuanttoanyvalididentificationprovisionwhetherornotcontainedintheAgreement.Forthepurposeof
determiningtheextenttowhichMONTGOMERYandtheIndemnifiedPersonsontheonehand,andClientontheotherhand,
havesatisfiedtherespectiveobligationstocontributeunderthisParagraph,amountspaidbyMONTGOMERYandthe
IndemnifiedPersonsshallincludeamountspaidbyanypersonwhoactuallyorallegedlycontrolsorisanaffiliateof
MONTGOMERYoranyIndemnifiedPerson,andamountspaidbyClientshallincludeamountspaidbyanypersonwhoactually
orallegedlycontrolsClient,ineachcasewithinthemeaningofSection15ofthe1933ActorSection20ofthe1934Act.No
personfoundliableforafraudulentmisrepresentationshallbeentitledtocontributionfromanypersonwhoisnotalsofound
liableforsuchfraudulentmisrepresentation.Notwithstandingtheforegoing,theIndemnifiedPersonsintheaggregateshallnotbe
obligatedtocontributeanyamountthatexceedsthefeesthenpreviouslyreceivedbyMONTGOMERYpursuanttothe
Agreement.Theforegoingcontributionagreementshall,totheextentpermittedbylaw,supersedethecontributionliabilitiesof
anypersonshavingliabilityunderthe1933Act,the1934Actorotherwise.Ifthelawdoesnotpermitthefullamountofthe
contributionspecifiedinthisParagraphtobemade,thenthepartyseekingcontributionandeachpersonwhocontrolssuchparty
shallbeentitledtocontributionhereundertothefullestextentpermittedbylaw.

A3

Exhibit10.28

A.BruceMontgomery,M.D.
ChiefExecutiveOfficer

September2,2004

Montgomery&Co.,LLC
100WilshireBoulevard
SantaMonica,CA90401
Attention:GeorgeG.Montgomery

Re: IssuanceofCommonStocktoMontgomery&Co.,LLC

ReferenceisherebymadetotheEngagementAgreement(theAgreement),datedJanuary15,2004,byandbetweenMontgomery
&Co.,LLC(Montgomery)andCorusPharma,Inc.,aDelawarecorporation(Corus).

PursuanttoSection4(b)oftheAgreement,CorusagreedtoissueMontgomeryawarrantforanumberofsharesofcommonstockof
Corus(CommonStock)tobecalculatedassetforthinSection4(b)oftheAgreement.MontgomeryandCoruseachdesireto
amendthetermsoftheAgreementtoprovidethatCorusshallissueCommonStockdirectlytocertaindesigneesofMontgomery,
eachofwhichisanaccreditedinvestorwithinthemeaningoftheSecuritiesActof1933,asamended,inthenamesandinthe
amountssetforthinScheduleAattachedhereto,ratherthanissueMontgomeryawarrantforsuchshares.Theconsiderationfor
suchsharesshallbeservicesprovidedbyMontgomerytoCoruspursuanttotheAgreement.MontgomeryandCorusagreethatthe
aggregatenumberofsharesofCommonStocktobeissuedtodesigneesofMontgomeryshallbe211,207.

Inconsiderationoftheforegoingandothergoodandvaluableconsideration,thereceiptofwhichareherebyacknowledged,the
partiesagreeasfollows:

1.

ThefirstparagraphofSection4(b)oftheAgreementisherebyamendedtoreadinitsentiretyasfollows:
FinancingSuccessFee:Subjecttotheconditionsprovidedbelow,ClientshallpayMONTGOMERYanonrefundable
cashfee(theFinancingFee)equaltothegreaterof(a)$750,000or(b)anamountequaltofivepercent(5.0%)ofthe
grossproceedsofanyFinancing,excluding100%ofthegrossproceedsofanyFinancingprovidedbyexisting
shareholdersofClient(InsiderParticipation).Inaddition,subjecttotheconditionsprovidedbelow,Clientshall
issuetocertaindesigneesofMONTGOMERYanumberofsharesofClientscommonstockassetforthbesideeach
suchdesigneesnameonScheduleAattachedhereto.

2.

Exceptasexpresslymodifiedhereby,theAgreementshallcontinueinfullforceandeffect.

September2,2004
Page2

Toconfirmtheforegoingagreementbetweentheparties,MontgomeryandCorusshouldsoindicatebysigningbelowwhere
provided.

Verytrulyyours,

CORUSPHARMA,INC.

By/s/A.BruceMontgomeryMD
A.BruceMontgomery
PresidentandCEO

AcknowledgedandAgreed,

MONTGOMERY&CO.,LLC

By:/s/GeorgeG.Montgomery
Name:GeorgeG.Montgomery
Title:ManagingDirector

September2,2004
Page3

ScheduleA

Montgomery&Co.,LLC
GeorgeG.Montgomery
KeithW.Marshall
DavidR.Horn

105,603
52,802
26,401
26,401

Exhibit23.1

CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM

WeconsenttothereferencetoourfirmunderthecaptionExpertsandtotheuseofourreportdatedFebruary26,2004
inAmendmentNo.2totheRegistrationStatement(FormS1No.333118620)andrelatedProspectusofCorusPharma,Inc.for
theregistrationofsharesofitscommonstock.

/s/ERNST&YOUNGLLP

Seattle,Washington
October14,2004