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AsfiledwiththeSecuritiesandExchangeCommissiononOctober19,2004RegistrationNo.333118620

SECURITIESANDEXCHANGECOMMISSIONWashington,D.C.20549

AMENDMENTNO.2TO

FORMS1REGISTRATIONSTATEMENT

UNDERTHESECURITIESACTOF1933

CorusPharma,Inc.(ExactNameofRegistrantasSpecifiedinItsCharter)

Delaware 2834 912094307(Stateorotherjurisdictionofincorporationororganization)

(PrimaryStandardIndustrialClassificationCodeNumber)

(I.R.S.EmployerIdentificationNumber)

20251stAvenue,Suite800Seattle,Washington98121

(206)7285090(Address,includingzipcode,andtelephonenumber,includingareacode,ofregistrantsprincipalexecutiveoffices)

A.BRUCEMONTGOMERY,M.D.PRESIDENTANDCHIEFEXECUTIVEOFFICER

20251STAVENUE,SUITE800SEATTLE,WASHINGTON98121

(206)7285090(Name,address,includingzipcode,andtelephonenumber,includingareacode,ofagentforservice)

Copiesto:

StephenM.Graham MarkB.WeeksAlanC.Smith JohnW.Robertson

DennisE.Michaels JeffryA.ShelbyOrrick,Herrington&SutcliffeLLP HellerEhrmanWhite&McAuliffeLLP

7192ndAvenue,Suite900 7015thAvenue,Suite6100Seattle,Washington98104 Seattle,Washington98104

(206)8394300 (206)4470900 Approximatedateofcommencementofproposedsaletothepublic:

AssoonaspracticableafterthisRegistrationStatementbecomeseffective.IfanyofthesecuritiesbeingregisteredonthisFormaretobeofferedonadelayedorcontinuousbasispursuanttoRule

415undertheSecuritiesActof1933,checkthefollowingbox.IfthisFormisfiledtoregisteradditionalsecuritiesforanofferingpursuanttoRule462(b)undertheSecuritiesAct,

pleasecheckthefollowingboxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.

IfthisFormisaposteffectiveamendmentfiledpursuanttoRule462(c)undertheSecuritiesAct,checkthefollowingboxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.

IfthisFormisaposteffectiveamendmentfiledpursuanttoRule462(d)undertheSecuritiesAct,checkthefollowing

boxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.

IfdeliveryoftheprospectusisexpectedtobemadepursuanttoRule434,pleasecheckthefollowingbox.

TheregistrantherebyamendsthisRegistrationStatementonsuchdateordatesasmaybenecessarytodelayitseffectivedateuntiltheregistrantshallfileafurtheramendmentwhichspecificallystatesthatthisRegistrationStatementshallthereafterbecomeeffectiveinaccordancewithSection8(a)oftheSecuritiesActof1933oruntilthisRegistrationStatementshallbecomeeffectiveonsuchdateastheCommission,actingpursuanttosaidSection8(a),maydetermine.

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Theinformationinthispreliminaryprospectusisnotcompleteandmaybechanged.WemaynotsellthesesecuritiesuntiltheregistrationstatementfiledwiththeSecuritiesandExchangeCommissioniseffective.Thispreliminaryprospectusisnotanoffertosellthesesecuritiesanditisnotsolicitinganoffertobuythesesecuritiesinanystatewheretheofferorsaleisnotpermitted.

SubjecttoCompletionPreliminaryProspectusdatedOctober19,2004

PROSPECTUS

Shares

CommonStock

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

Weexpectthepublicofferingpricetobebetween$and$pershare.Currently,nopublicmarketexistsfor

theshares.WehaveappliedtohaveourcommonstockquotedontheNASDAQNationalMarketunderthesymbolCSPH.

InvestinginourcommonstockinvolvesrisksthataredescribedintheRiskFactorssectionbeginningonpage7ofthisprospectus.

PerShare

Total

Publicofferingprice $ $ Underwritingdiscount $ $ Proceeds,beforeexpenses,toCorusPharma,Inc. $ $

Theunderwritersmayalsopurchaseuptoanadditionalsharesatthepublicofferingprice,lesstheunderwriting

discount,within30daysfromthedateofthisprospectustocoveroverallotments.

NeithertheSecuritiesandExchangeCommissionnoranystatesecuritiescommissionhasapprovedordisapprovedofthesesecuritiesordeterminedifthisprospectusistruthfulorcomplete.Anyrepresentationtothecontraryisacriminaloffense.

Theshareswillbereadyfordeliveryonorabout,2004.

MerrillLynch&Co.

PacificGrowthEquities,LLC

SunTrustRobinsonHumphrey

JMPSecurities

Thedateofthisprospectusis,2004.

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ProspectusSummary 1RiskFactors 7SpecialNoteRegardingForwardLookingStatements 25UseofProceeds 26NoticestoInvestors 26DividendPolicy 26Capitalization 27Dilution 28SelectedConsolidatedFinancialData 30ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations 31Business 39Management 63CertainRelationshipsandRelatedPartyTransactions 75PrincipalStockholders 79DescriptionofCapitalStock 84SharesEligibleforFutureSale 88Underwriting 90LegalMatters 93Experts 93WhereYouCanFindMoreInformation 93IndextoConsolidatedFinancialStatements F1

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PROSPECTUSSUMMARY

Thissummaryhighlightsselectedinformationcontainedelsewhereinthisprospectus.Thissummarydoesnotcontainalloftheinformationthatyoushouldconsiderbeforeinvestinginourcommonstock.Youshouldreadtheentireprospectuscarefully,includingRiskFactorsandourconsolidatedfinancialstatementsandtherelatednotes,beforemakinganinvestmentdecision.

CorusPharma,Inc.Overview

Weareabiopharmaceuticalcompanyfocusedonthedevelopmentandcommercializationofnovelapplicationsandformulationsofknowntherapeuticstotreatsevererespiratorydiseases.AccordingtotheAmericanLungAssociation,respiratorydiseasesarethethirdmostcommoncauseofdeathintheUnitedStates,responsibleforoneinsevendeaths.Ourgoalistoproviderespiratorypatientsfacinglimitedtherapeuticoptionswithinnovativetreatmentsthatimprovetheirmedicalconditionandenhancetheirqualityoflife.Wecurrentlyhavetwoproductcandidatesinlatestageclinicaldevelopmentandseveralproprietaryprogramsinpreclinicaldevelopment.Ourtwomostadvancedproductcandidatesfocusoncysticfibrosis,orCF,andseverepersistentasthma,twoofthemostsevererespiratorydiseasesintheUnitedStates.

Ourmostadvancedproductcandidate,Corus1020,isdesignedtotreatrespiratoryinfectionssuchasPseudomonasaeuroginosa,orP.aeruginosa,inCFpatientsusinganinhalableformofanantibioticcalledaztreonam.AccordingtotheCysticFibrosisFoundation,orCFF,thereareapproximately30,000CFpatientsintheUnitedStatesand33,000CFpatientsthroughouttherestoftheworld.Approximately60%ofCFpatientsintheUnitedStatesareinfectedwithP.aeruginosa,thepredominantbacteriainfectingthelungsofCFpatients.Despiteimprovementsintherapiesandenhancedunderstandingofthediseaseinthelasttenyears,thereisstillnocureforCFand,accordingtotheCFF,thecurrentmedianlifeexpectancyofaCFpatientis33.4years.AccordingtotheCFF,morethan90%ofCFpatientsultimatelydiefromlungdestructionresultingfromtheinflammatoryresponsetochroniclunginfections.

WebelievethatCorus1020wouldbeanattractivetherapyforthemanagementofrespiratoryinfectionsinCFpatients,andmayoffersignificantadvantagesoverexistingtherapies.WehaverecentlycompletedaPhaseIIclinicaltrialofCorus1020andexpecttocompletetheanalysisofthestudydatainlate2004.WeanticipatethecommencementofPhaseIIIclinicaltrialsinearly2005,andweexpecttocompletethesetrialsbytheendof2005.Weplantosubmitanewdrugapplication,orNDA,forCorus1020in2006.Corus1020wasgrantedorphandrugstatusintheUnitedStatesinMarch2002andintheEuropeanUnion,orEU,inJune2004.Generally,theU.S.FoodandDrugAdministration,orFDA,orforeignregulatoryagenciesmaygrantorphandrugdesignationtodrugsintendedtotreatararediseaseorcondition.Ifapproved,orphandrugstatuswouldgiveCorus1020marketexclusivityforthesamedrugforthesameuseforsevenyearsintheUnitedStatesandtenyearsintheEU.WedonotexpecttoachievefinalapprovaloftheNDA,ifatall,untilatleast2007or,ifweareabletoobtainpriorityreviewfromtheFDA,thesecondhalfof2006.

Oursecondproductcandidate,Corus1030,isinhaledlidocaineforthetreatmentofpatientssufferingfromthemostseverepersistentformsofasthma.Basedonourinternalmarketingresearch,weestimatethatoftheapproximately700,000patientswhoareclassifiedbytheNationalInstitutesofHealthassufferingfromseverepersistentasthma,175,000dependontheuseoforalcorticosteroids,suchasprednisone,tocontroltheirdisease.Despitetheefficacyoforalcorticosteroidsintreatingseverepersistentasthma,whenusedchronically,theycanhaveseveresideeffects,includingosteoporosis,weightgain,adrenalsuppression,growthsuppression,dermalthinning,hypertension,diabetes,cataractsandmuscleweakness.Accordingtoa2003studyinJournalof

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AllergyandClinicalImmunology,patientswithseverepersistentasthmaspend$12,813ayear,ornearlyfivetimesmore,indirectandindirectcosts,thanthosewithmildpersistentasthmacaringfortheirdisease.

WebelievethatCorus1030wouldofferanattractivealternativetooralcorticosteroidsinthetreatmentofasthma,enablingthereductionoforalcorticosteroidusebypatientswithseverepersistentasthmawhilemaintainingorimprovingtheirlungfunction.WecurrentlyhaveanongoingPhaseIIclinicaltrialforCorus1030inpatientswithseverepersistentasthmawhoaredependentonthechronicuseoforalcorticosteroids.Wehavecompletedenrollmentinthistrialandexpectthedatatobeavailableinearly2005.WeanticipatethecommencementofpivotalPhaseIIIclinicaltrialsinlate2005,andweexpecttocompletethesetrialsbyearly2007.WeplantosubmitanNDAforCorus1030in2007.

Inadditiontothedevelopmentactivitiesforourtwoleadproductcandidates,wecontinuetodevelopadditionalclinicalprogramsforavarietyofrespiratorydiseases.OurmostpromisingpreclinicalproductcandidateisCorus1040,anovelbroadspectrumantibioticcombinationformulationforthetreatmentofrespiratoryinfections.WeexpecttocommencePhaseIclinicaltestingforCorus1040by2006.

WehaveenteredintotwoagreementswithPARIGmbH,orPARI,underwhichPARIhasagreedtoprovideitsproprietaryeFlowinhalationdeviceforCorus1020andCorus1030.WebelievethePARIeFlowinhalationdevice,whenusedwithournovelformulations,willprovideforfasterandmoreefficientdrugdelivery,resultingindecreaseddosingtimes.ThePARIeFlowinhalationdevicereceived510(k)clearancefromtheFDAinMay2004asahandheldnebulizertobeusedwithmedicationsforwhichadoctorhasprescribednebulization.

Weareledbyateamofexperiencedpharmaceuticalandbiotechnologyindustryexecutives.Theseindividualshaveplayedkeyleadershiprolesinthesuccessfuldevelopment,approvalandcommercializationofmultipletherapeuticproducts,includingthemostrecentlyapprovedproductforthetreatmentofrespiratoryinfectionsinCFpatients,TOBI,whichistobramycinsolutionforinhalation,marketedbyChironCorporation,aswellasseveralotherrespiratorytherapeutics.Strategy

Thekeyelementsofourstrategyareasfollows:

Continuetoadvanceourleadproductcandidatesinclinicaltrials.Wewillcontinuetodevelopourleadproduct

candidates,Corus1020andCorus1030,withtheintentionofsubmittingNDAsin2006,forCorus1020,and2007,forCorus1030.

Maximizecommercialpotentialofourtwoleadproductcandidates.WeplantobuildasalesorganizationintheUnitedStatestocommercializeCorus1020andCorus1030directlytopulmonologists.WebelievethatwecaninitiallydeveloptheCFmarketforCorus1020throughasalesforceof25salesrepresentatives.Later,inanticipationofthecommerciallaunchofCorus1030,weplantoexpandoursalesforcetoapproximately100salesrepresentativestocoverthemajorityofpulmonologiststreatingpatientswithseverepersistentasthma.WeintendtodeveloppartnershipswithmultinationalorregionalpharmaceuticalcompaniestocommercializeourproductsoutsidetheUnitedStates.

Continuetodevelopnewproductcandidatesforrespiratorydisease.Webelieveourexpertiseinrespiratory

diseasewillenableustoidentifyadditionalproductcandidates,suchasCorus1040,forwhichthereisstrongexistingpreclinicalorclinicaldatafromwhichwecancontinuetobuildarobustpipelineofproductcandidates.

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Developnewproductcandidateswithdefensibleintellectualpropertyandthepotentialformarketingexclusivity.Wewillcontinuetobuildprotectionaroundourproductsbypursuingmethodofuse,formulationanddrugdeliverydevicepatentsorinlicensingcompositionofmatterorusepatents.Wewillalsocontinuetofileforpatentprotectionforthedruganddevicecombinationsandrelatednewchemicalentitiesthatwedevelop.Whereavailable,wewillpursuedesignationssuchasorphandrugstatusinanefforttoobtainmarketingexclusivityforourproductcandidates.

RisksAssociatedWithOurBusiness

Weareadevelopmentstagecompany.WearesubjecttonumerousrisksandobstaclesasdescribedintheRiskFactorssectionofthisprospectusbeginningonpage7.Theserisksincludethefollowing:

Wehavealimitedoperatinghistory.Wehavenotgeneratedanycashfromoperationssinceinception.Todate,we

havederivednorevenuefromproductsalesorroyaltiesanddonotexpecttodosoforanumberofyears.

Wehaveincurredsignificantoperatinglossessincewebeganoperationsin2001,andwemayneverbecomeprofitable.Ouroperatinglosseswillcontinuetoincreasesignificantlyoverthenextseveralyears.Inadditiontothenetproceedsfromthisoffering,wewillneedtoraisesubstantialadditionalcapitaltofundouroperationsandexecuteourstrategy.

Allofourproductsareindevelopmentandnonehavebeenapprovedforcommercialsale.Priortoanycommercial

sale,weneedtosuccessfullycompleteourclinicaltrialsandobtainregulatoryapprovals.Anydelaysorfailuresincompletingourclinicaltrialsorobtainingregulatoryapprovalswouldharmourbusinessandfutureprospects.

Oursuccessisheavilydependentonthesuccessfuldevelopmentandcommercializationofourleadproductcandidate,Corus1020.

OurCorporateInformation

WewereincorporatedinDelawareonJanuary2,2001.Ourprincipalexecutiveofficesarelocatedat20251stAvenue,Suite800,Seattle,Washington98121,andourtelephonenumberis(206)7285090.Youcanaccessourwebsiteatwww.coruspharma.com.Informationcontainedonourwebsiteisnotapartofthisprospectus.Referencesinthisprospectustowe,our,usandCorusrefertoCorusPharma,Inc.andoursubsidiariesonaconsolidatedbasisunlessthecontextmeansotherwise.

CorusPharmaisourtrademark.Eachoftheothertrademarks,tradenamesorservicemarksappearinginthisprospectusbelongtoitsrespectiveholder.

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TheOfferingCommonstockofferedbyCorus sharesSharestobeoutstandingafterthisoffering sharesRiskfactors SeeRiskFactorsandotherinformationincludedinthisprospectusfora

discussionoffactorsyoushouldconsidercarefullybeforedecidingtoinvestinsharesofourcommonstock.

Useofproceeds Weexpecttouseamajorityofthenetproceedsfromthisofferingtocontinueour

developmentandactivitiesinsupportofanticipatedcommercializationofourleadproductcandidates,Corus1020andCorus1030,aswellastofundcontinueddevelopmentofourotherresearchanddevelopmentactivitiesandforothergeneralcorporatepurposesandworkingcapital.Wemayalsouseaportionofthenetproceedstoacquireadditionaltechnologiesorproductcandidates,butwecurrentlydonothaveanyspecificacquisitionsplanned.

ProposedNASDAQNationalMarketsymbol

CSPH

Thenumberofsharesofourcommonstocktobeoutstandingafterthisofferingisbasedon122,188,301shares

outstandingasofJune30,2004.

Thenumberofsharesofcommonstocktobeoutstandingafterthisofferingdoesnottakeintoaccount:

6,089,350sharesofcommonstocksubjecttooutstandingoptionsatJune30,2004grantedunderour2001Stock

Planataweightedaverageexercisepriceof$0.33pershare

5,626,750sharesofcommonstockreservedforfutureissuanceunderour2001StockPlanandsharesreservedforfutureissuanceunderour2004StockIncentivePlan

82,325sharesofcommonstockissueduponexerciseofoptionsduringtheperiodJuly1,2004throughSeptember30,2004

219,725sharesofcommonstockreservedforfutureissuancepursuanttoanoutstandingwarrantatanexercisepriceof$1.64pershareand

211,207sharesofcommonstockissuedtoMontgomery&Co.,LLC,theplacementagentforourSeriesCPreferredStockfinancing,andthreeofitsprincipals.

Unlessotherwisenoted,theinformationinthisprospectusassumesthattheunderwritersdonotexercisetheir

overallotmentoptionandreflectstheautomaticconversionofalloutstandingsharesofourconvertiblepreferredstockintoanaggregateof112,600,145sharesofcommonstockuponthecompletionofthisoffering.

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SummaryConsolidatedFinancialInformation

Thefollowingtablepresentsasummaryofourhistoricalconsolidatedfinancialinformation.Youshouldreadthisinformationtogetherwithourconsolidatedfinancialstatementsandtherelatednotes,theinformationunderSelectedConsolidatedFinancialData,andManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsincludedelsewhereinthisprospectus.

Theproformanetlossattributabletocommonstockholderspershareinformationiscomputedusingtheweightedaveragenumberofcommonsharesoutstanding,aftergivingproformaeffecttotheautomaticconversionofalloutstandingsharesofourconvertiblepreferredstockintosharesofourcommonstock,effectiveuponthecompletionofthisoffering,asiftheconversionhadoccurredatthedateoftheoriginalissuance.Thisproformainformationdoesnotgiveeffecttotheissuanceofcommonstockuponexerciseofoutstandingstockoptionsoroutstandingwarrants.

Theproformabalancesheetinformationgiveseffecttotheautomaticconversionofalloutstandingsharesofourconvertiblepreferredstockintoanaggregateof112,600,145sharesofcommonstockuponthecompletionofthisoffering.Theproformaasadjustedbalancesheetinformationgivesfurthereffecttooursaleofsharesofcommonstockinthisofferingatanassumedinitialpublicofferingpriceof$pershare,afterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus.

PeriodfromJanuary2,2001(DateofInception)toDecember31,

2001

YearEndedDecember31,

SixMonthsEndedJune30,

2002

2003

2003

2004

(inthousands,exceptpersharedata) (unaudited) ConsolidatedStatementofOperationsData: Operatingexpenses:

Researchanddevelopment $ 1,171 $ 8,890 $ 21,754 $ 8,292 $ 9,225Generalandadministrative 1,613 2,878 3,662 1,616 2,510

Lossfromoperations (2,784) (11,768) (25,416) (9,908) (11,735)Interestincome 330 176 298 127 269 Netloss $ (2,454) $ (11,592) $ (25,118) $(9,781) $(11,466) Basicanddilutednetlosspershare $ (0.80) $ (2.50) $ (3.58) $ (1.54) $ (1.30) Sharesusedincomputationofbasicanddilutednet

losspershare 3,062 4,642 7,008 6,371 8,790 Proformabasicanddilutednetlosspershare $ (0.44) $ (0.12) Sharesusedincomputationofproformanetlossper

share 56,717 92,148

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AsofJune30,2004

Actual

ProFormaAsAdjusted(1)

(unaudited,inthousands)ConsolidatedBalanceSheetData: Cashandcashequivalents $ 1,087 $ Shortterminvestments 72,269 Workingcapital 70,865 Totalassets 75,012 Convertiblepreferredstock 120,478 Totalstockholdersequity/(deficit) (48,922)

(1) IntheProFormaAsAdjustedcolumn,wehaveadjustedthebalancesheetdataasofJune30,2004,toreflecttheconversionofconvertiblepreferredstockintocommonstockupontheclosingofthisofferingandtogiveeffecttoourreceiptoftheestimatednetproceedsof$millionfromthesaleofsharesofourcommonstockbyusunderthisprospectusatanassumedinitialpublicofferingpriceof$pershareafterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus.SeeUseofProceedsandCapitalization.

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RISKFACTORS

Thisofferinginvolvesahighdegreeofrisk.Youshouldconsidercarefullytherisksanduncertaintiesdescribedbelowandtheotherinformationinthisprospectus,includingtheconsolidatedfinancialstatementsandtherelatednotesappearingattheendofthisprospectus,beforedecidingtoinvestinsharesofourcommonstock.Ifanyofthefollowingrisksoruncertaintiesactuallyoccurs,ourbusiness,prospects,financialconditionandoperatingresultswouldlikelysuffer,possiblymaterially.Inthatevent,themarketpriceofourcommonstockcoulddeclineandyoucouldloseallorpartofyourinvestment.RisksRelatingtoOurBusiness

Weareatanearlystageofdevelopmentasacompany,weexpecttocontinuetoincursubstantiallosses,andwemaybeunabletoachieveprofitability.

Weareadevelopmentstagecompanywithlimitedoperatinghistory.Wehavenotgeneratedanycashfromoperationssinceinception.AsofJune30,2004,wehadanaccumulateddeficitof$50.6million.Wehaveincurredsignificantoperatinglossessincewebeganoperationsin2001,includingnetlossesof$11.5millionforthesixmonthsendedJune30,2004,andwemayneverbecomeprofitable.Ouroperatinglosseshaveresultedprincipallyfromcostsincurredinourresearchanddevelopmentprogramsandfromourgeneralandadministrativeexpenses.Allofourproductsareindevelopmentandnonehavebeenapprovedforcommercialsale.Todate,wehavederivednorevenuefromproductsalesorroyaltiesanddonotexpecttodosoforanumberofyears.Ouroperatinglosseshaveincreasedsteadilyeachyearsinceinception.Theywillcontinuetoincreasesignificantlyinthenextseveralyearsasweexpandourresearchanddevelopmentactivities,conductpreclinicalstudiesandclinicaltrials,acquireorlicensetechnologiesorproducts,seekregulatoryapprovalsandengageincommercializationactivitiesinanticipationofU.S.FoodandDrugAdministration,orFDA,approvalofourfirstproductcandidate,Corus1020,whichisaztreonamformulatedforthetreatmentofrespiratoryinfectionsinpatientswithcysticfibrosis,orCF.Becauseofthenumerousrisksanduncertaintiesassociatedwithourproductdevelopmentefforts,weareunabletopredictwhenwemaybegintogeneraterevenueorwhenwemaybecomeprofitable,ifatall.Ifweareunabletoachieveandmaintainprofitability,themarketvalueofourcommonstockwilllikelydecline.

Oursuccessisheavilydependentonthesuccessfuldevelopmentandcommercializationofourleadproductcandidate,Corus1020,and,ifweareunabletosuccessfullydevelopandcommercializeCorus1020,orexperiencesignificantdelaysindoingso,ourbusinesswillbeharmed.

Sinceinception,wehaveinvestedasignificantportionofourtimeandfinancialresourcesinthedevelopmentofourleadproductcandidate,Corus1020.WeanticipatethatintheneartermourabilitytogeneraterevenuewilldependsolelyonthesuccessfuldevelopmentandcommercializationofCorus1020,whichissubjecttosignificantuncertaintyandwilldependonseveralfactors,includingthefollowing: demonstrationinclinicaltrialsthatCorus1020issafeandeffective receiptofmarketingapprovalsfromtheFDAandsimilarforeignregulatoryagencies

acceptanceofCorus1020,includingitsdeliveryviathePARIGmbH,orPARI,eFlowinhalationdevice,whichisthenebulizerusedinourclinicaltrialstodate,byphysicians,patientsandthirdpartypayors

manufactureofthePARIeFlowinhalationdeviceincompliancewithFDArequirements supplyofthePARIeFlowinhalationdevicesufficienttomeetanticipatedfuturemarketdemandand

supplyoftheactivepharmaceuticalingredient,orAPI,forCorus1020anditsfinishedproductinqualityandquantitysufficienttomeetanticipatedfuturemarketdemand.

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Ifweareunabletoachieveanyofthesefactors,orexperiencesignificantdelaysindoingso,wemaybeunabletosuccessfullydevelopandcommercializeCorus1020.

Wewillneedtoraisesubstantialadditionalcapitaltofundouroperations,andourfailuretoobtainfundingwhenneededmayforceustodelay,reduceoreliminateoneormoreofourproductdevelopmentprograms.

Developingproductsandconductingclinicaltrialsforthetreatmentofsevererespiratorydiseasesrequiresubstantialamountsofcapital.Sinceinception,wehaveraisednetproceedsof$121.6millionofcapitalthroughprivateequityfinancings.Inadditiontotheproceedsfromthisoffering,wewillneedtoraisesubstantialadditionalcapitaltofundouroperationsandexecuteourstrategy.Additionalfinancingmaybeunavailableinamountsorontermsacceptabletous,ifatall,particularlyifweexperiencedelaysinourdevelopmentorcommercializationefforts,areinvolvedinmateriallitigationorexperienceotherbusinesssetbacksatthesametimeorpriortowhenwearetryingtoraisecapital.Ifweareunabletoobtainadditionalfundinginatimelymanner,wemayhavetosignificantlydelay,scalebackordiscontinuedevelopmentorcommercializationofoneormoreofourcurrentorfutureproductcandidates,whichmayimpactourabilitytoobtainFDAorforeignregulatoryapprovalsorcommercializecurrentorfutureproductcandidatesinatimelymanner.Wemayalsoberequiredtoseekpartnersforourproductcandidatesorrelinquish,licenseorotherwisedisposeofrightstoourproductcandidatesifweareunabletoraiseadditionalcapital.

AsofJune30,2004,wehadcash,cashequivalentsandshortterminvestmentsof$73.4millionandcurrentliabilitiesof$3.0million.Weused$11.8millioninoperatingactivitiesforthesixmonthsendedJune30,2004,$22.7millioninoperatingactivitiesfortheyearendedDecember31,2003,and$10.1millioninoperatingactivitiesfortheyearendedDecember31,2002.Webelievethatthenetproceedsfromthisoffering,togetherwithourcash,cashequivalentsandshortterminvestments,willbesufficienttofundanticipatedlevelsofoperationsthroughatleastthenext24months.Changesinourbusinessmayoccurthatwould,however,consumeavailablecapitalresourcessoonerthanweexpect.Ourfuturefundingrequirementsandourabilitytoraiseadditionalcapitalwilldependonmanyfactors,including: thesuccessrateofourproductdevelopmentefforts thescope,progress,expansionandcostofourclinicaltrialsandresearchanddevelopmentactivities thedevelopmentofoursalesandmarketingactivities theemergenceofcompetingtechnologiesorotheradversemarketdevelopments thecostsofmanufacturingproductsandpotentialproductcandidates thecostofacquiringtherightstonewtechnologyorproductcandidates changesinorterminationsofoursupply,developmentormanufacturingarrangements thecostsofrecruitingandretainingourpersonnel thecostsofproductliabilityclaims,intellectualpropertyinfringementormisappropriationclaimsorotherlitigation

thecostsofpreparing,filing,prosecutingandmaintainingpatentsandenforcingpatentclaimsandotherintellectualpropertyrightsand

changesinregulatorypoliciesorlaws.

Ifadequatefundsarenotavailabletous,wemayhavetoliquidatesomeorallofourassetsordelay,reducethescopeof,oreliminateallorsomeportionofourresearchanddevelopmentprogramsorclinicaltrials.Wemayalsoberequiredtoseekpartnersforourproductcandidatesorrelinquish,licenseorotherwisedisposeofrightstoourproductcandidatesifweareunabletoraiseadditionalcapital.

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Futurefinancingsmayadverselyaffectourstockholdersorimposerestrictionsonourassetsoroperations,whichmayharmourbusiness.

Ifweraiseadditionalfundsbyissuingequitysecurities,furtherdilutiontostockholderswouldresultandnewinvestorscouldhaverightssuperiortotherightsofholdersofthesharesissuedinthisoffering.Ifweweretoissueequitysecuritieswithrightssuperiortothoseofthesharesissuedinthisoffering,thepriceofourcommonstockmaydecline.Ifweraiseadditionalfundsthroughdebtfinancing,theapplicabledebtinstrumentsmayincludeprovisionsthatrestrictouroperationalflexibilityorimposeliensorotherrestrictionsonourassets.Inaddition,thetermsoffuturefinancingsmayrestrictourabilitytoraiseadditionalcapital,whichwoulddelayorpreventthefurtherdevelopmentorcommercializationofourproductcandidates.

Ifourpreclinicalstudiesorclinicaltrialsaredelayed,wemaybeunabletodevelopourproductcandidatesonatimelybasis,whichmayincreaseourdevelopmentcostsandwoulddelaythepotentialcommercializationof,andsubsequentreceiptofrevenuefrom,productsales,ifany.

Wecannotpredictwhetherwewillencounterproblemswithanyofourcompleted,ongoingorplannedpreclinicalstudiesorclinicaltrialsthatwillcauseregulatoryagencies,institutionalreviewboardsorustodelay,suspendordelaytheanalysisofdatafromthosepreclinicalstudiesandclinicaltrials.Clinicaltrialscanbedelayedforavarietyofreasons,including:

theneedforunexpecteddiscussionswiththeFDAorcomparableforeignauthoritiesregardingthescopeordesignof

ourclinicaltrials

delaysortheinabilitytoobtainrequiredapprovalsfrominstitutionalreviewboardsorothergoverningentitiesatclinicalsitesselectedforparticipationinourclinicaltrials

lowerthananticipatedretentionratesofpatientsinclinicaltrials

theneedtorepeatclinicaltrialsasaresultofproblemssuchasinconclusiveornegativeresultsorpoorlyexecutedtesting

anunfavorableFDAinspectionorreviewofaclinicaltrialsiteorrecordsofanyclinicalorpreclinicalinvestigationoranunfavorableFDAinspectionofoursuppliersofproductcandidatecomponentsordeliverydevicesor

changesindrugformulationsordevicecharacteristics.

Iftheresultsofourclinicaltrialsarenotavailablewhenweexpectorifweencounteranydelayintheanalysisofdatafromourpreclinicalstudiesandclinicaltrials,wemaybeunabletofileforregulatoryapprovalorconductadditionalclinicaltrialsontheschedulewecurrentlyanticipate.Anydelaysincompletingourclinicaltrialsmayincreaseourdevelopmentcosts,wouldslowdownourproductdevelopmentandapprovalprocess,woulddelayourreceiptofproductrevenueandwouldmakeitdifficulttoraiseadditionalcapital.

Ifweareunabletocompletepatientenrollmentforourclinicaltrialsonatimelybasis,thedevelopmentandcommercializationofourproductcandidateswillbedelayedand,asaresult,ourbusinessmaybeharmed.

Ifweareunabletoenrollpatientsinourclinicaltrialsinsufficientnumbersandonatimelybasis,completionofthesetrialsandapprovalofourproductcandidateswillbedelayed.Successfulandtimelyenrollmentwilldependonanumberoffactors,includingthesizeofthepatientpopulation,thedesignofthetrial,theproximityofpatientstoclinicalsites,theavailabilityofeffectivetreatmentsorotherinvestigationalagentsfortherelevantdiseaseandtheeligibilitycriteriafortheclinicaltrials.Forexample,therearealimitednumberofCFpatients,andtheirparticipationincompetingtrialsmaymakethemineligibletoparticipateinourclinicaltrials.Delaysinpatientenrollmentcanresultinincreasedcostsandlongerdevelopmenttimes.Inaddition,subjectsmaydropoutofourclinicaltrials,andtherebyimpairthevalidityorstatisticalsignificanceofthetrials.

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WeexperienceddelaysinattainingfullenrollmentforourPhaseIIclinicaltrialforCorus1020becauseofrestrictiveentrycriteriaandothertrialscompetingforsimilarpatients.Inearly2005,weplantoinitiatePhaseIIIclinicaltrials,andsimilarcircumstancesorotherfactorscouldcausedelaysinourachievingfullenrollment.

ForCorus1030,weexpecttocompleteourPhaseIIclinicaltrialinthefourthquarterof2004andtobeginPhaseIIIclinicaltrialsinlate2005.ThePhaseIIIclinicaltrialsforCorus1030willrequiresubstantiallymorepatientsthanwereenrolledinthePhaseIIclinicaltrial.WemaybeunabletoachievesufficientenrollmentforourplannedPhaseIIIclinicaltrialsinatimelyfashion,ifatall.

Wedependonthirdpartyinvestigatorsintheconductofourpreclinicalstudiesandclinicaltrialsandanyfailureofthosepartiestofulfilltheirobligationscouldadverselyaffectourproductdevelopmentandcommercializationplans.

Werelyonacademicinstitutionstoconduct,andclinicalresearchorganizationstoconduct,superviseormonitor,someorallaspectsofthepreclinicalstudiesandclinicaltrialsforourproductcandidates,andwedonotcontrolmanyaspectsoftheiractivities.Accordingly,wehavelesscontroloverthetimingandotheraspectsofthesepreclinicalstudiesandclinicaltrialsthanifweconductedthementirelyonourown.Thirdpartyinvestigatorsmaynotcompleteactivitiesonschedule,ormaynotconductourpreclinicalstudiesorclinicaltrialsinaccordancewithregulatoryrequirementsorourtrialdesign.Forexample,werelyonInvereskResearchInternationalLimitedfortheconductofourPhaseIIclinicaltrialsforCorus1030andforotherservicesrelatedtothedevelopmentofourproductcandidates.Thefailureofthesethirdpartiestoperformtheirobligationscoulddelayorpreventthedevelopment,approvalandcommercializationofCorus1020,Corus1030orfutureproductcandidates.

Wemayberequiredtosuspendordiscontinueclinicaltrialsduetounexpectedsideeffectsorothersafetyrisksthatcouldprecludeapprovalofourproducts.

Ourclinicaltrialsmaybesuspendedatanytimeforanumberofsafetyrelatedreasons.Forexample,wemayvoluntarilysuspendorterminateourclinicaltrialsifatanytimewebelievethatourproductcandidatespresentanunacceptablerisktotheclinicaltrialpatients.Inaddition,institutionalreviewboardsorregulatoryagenciesmayorderthetemporaryorpermanentdiscontinuationofourclinicaltrialsatanytimeiftheybelievethattheclinicaltrialsarenotbeingconductedinaccordancewithapplicableregulatoryrequirements,includingiftheypresentanunacceptablesafetyrisktopatients.

Administeringanyproductcandidatetohumansmayproduceundesirablesideeffects.Forexample,specificsideeffectsassociatedwithaztreonam,theAPIinCorus1020,include,whenadministeredintravenouslyatdosageshigherthantherapeuticlevels,diarrhea,nausea,vomitingandrashreportedinapproximately1%to2%ofpatients.Specificsideeffectsassociatedwithlidocaine,theAPIinCorus1030,include,whenadministeredintravenouslyatdosageshigherthantherapeuticlevels,centralnervoussystemdepressionandcardiacarrhythmia.EventhoughaztreonamandlidocainehavebeenapprovedbytheFDAforotherindicationsandroutesofadministration,ournovelformulationsandadministrationofthemthroughinhalationinourproductcandidatesmayresultinharmfuleffectsnotyetobservedinotherindicationsorroutesofadministration.Theseorothersideeffectscouldinterrupt,delayorhaltclinicaltrialsofourproductcandidatesandcouldresultintheFDAorotherregulatoryagenciesdenyingfurtherdevelopmentorapprovalofourproductcandidatesforanyoralltargetedindications.

EventhoughwehavenotobservedsignificantharmfulsideeffectsinpriortestsofCorus1020orCorus1030,laterclinicaltrialsinalargerpatientpopulationcouldrevealsuchsideeffects.Wehavenotconductedstudiesonthelongtermeffectsassociatedwiththeuseofourproductcandidates.StudiesoftheselongtermeffectsmayberequiredforregulatoryapprovalandwoulddelayourintroductionofCorus1020orCorus1030orcouldberequiredatanytimeafterregulatoryapprovalofeitherproduct.Anyadverseeffectsobservedafter

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marketingcouldresultinthewithdrawalofanyapprovedproductsfromthemarketplace.Absenceoflongtermdatamayalsolimittheapprovedusesofourproducts,ifany,toshorttermuse.Ultimately,someorallofourproductcandidatesmayprovetobeunsafeforhumanuse.Evenifwebelieveourproductcandidatesaresafe,ourdataaresubjecttoreviewbytheFDA,whichmaydisagreewithourconclusionsandnotapproveourproducts.Moreover,webelieveCorus1020islikelytobeusedincombinationwithcomplementarytreatments,includingTOBI,whichistobramycinsolutionforinhalation,marketedbyChironCorporation.ThecombinationofthesetherapiescouldcauseharmfulsideeffectsthatcouldbeattributedtoCorus1020orcouldcausedruginteractionsthatresultinadverseeffectscausedbyoneormoredrugs,includingourown.Undersuchcircumstances,theFDAcouldrequirestudiesofCorus1020incombinationwithsuchcomplementarytreatmentsorotherwiserequirerestrictivelabelingthatwouldexcludeitsuseswithsuchothertreatments.Wecouldbesubjecttosignificantliabilityifanyvolunteerorpatientsuffers,orappearstosuffer,adversesideeffectsasaresultofparticipatinginourclinicaltrials.

Wemaybeunabletoobtainmarketingapprovalforanyoftheproductcandidatesresultingfromourdevelopmentefforts,includingCorus1020orCorus1030.

WeneedFDAapprovaltomarketourproductcandidatesintheUnitedStates.WehavenotreceivedregulatoryapprovaltomarketeitherCorus1020orCorus1030inanyjurisdictionanddonotexpecttoreceivesuchapproval,ifatall,untilatleast2007,inthecaseofCorus1020,andforseveralyears,inthecaseofCorus1030.Toobtainapproval,wemustdemonstratethesafetyandefficacyofourproductcandidatesforspecificindicationsofusethroughpreclinicalstudiesandclinicaltrials.Theclinicaltrialandregulatoryapprovalprocessislengthy,expensiveanduncertainandwemaybeunabletoobtainapprovalforCorus1020orCorus1030,foruseincombinationwiththePARIeFlowinhalationdeviceoranotherinhalationdevice,oranyfutureproductcandidate.

Onlytwoofourproductcandidates,Corus1020andCorus1030,haveadvancedtoclinicaltrialsandwemaybeunabletoadvanceadditionalproductcandidatesintoclinicaltrials.Evenifwedosuccessfullyenterintoclinicaltrialswithadditionalproductcandidates,theresultsfrompreclinicaltestingofaproductcandidatemaynotpredicttheresultsthatwillbeobtainedinclinicaltrials.Inaddition,therearepreclinicaltoxicologystudiestobecompletedforbothCorus1020andCorus1030thatcouldrevealsafetyproblemsthatmaypreventapprovalandcommercializationofourproductcandidates.Inaddition,positiveresultsdemonstratedinpreclinicalstudiesandclinicaltrialsthatwecompletemaynotbeindicativeofresultstobeobtainedinlaterclinicaltrials.Clinicaltrialsmaytakeseveralyearstocomplete,andfailurecanoccuratanystageoftesting.

Ultimately,suchclinicaltrialsmaynotprovethatourproductcandidatesaresafeandeffectivetotheextentnecessarytopermitustoobtainmarketingapprovalsfromregulatoryagencies.Thehistoricalfailureratefornewdrug,biologicanddevicecandidatesishigh.Adverseorinconclusiveclinicaltrialresultsconcerninganyofourproductcandidatescouldrequireustoconductadditionalclinicaltrials,couldresultinincreasedcostsandsignificantlydelaythefilingformarketingapprovalforsuchproductcandidateswiththeFDA,orcouldresultinafilingforamorenarrowlydefined,ordifferent,indicationorabandonmentofdevelopmenteffortsentirely.

Forexample,althoughweintendedtopursueapprovalofCorus1030onlyforthetreatmentofpatientswithseverepersistentasthmawhoaredependentonoralcorticosteroids,atapreinvestigationalnewdrugapplicationmeetingwiththeFDAinOctober2002,theFDAspecificallyaskedustoconductatrialinpatientswithmildtomoderatepersistentasthmawithabaselinelungfunctionnearnormal,whohadnotbeentreatedwithsteroids.Inthismildtomoderatepersistentpopulation,therewasnotasignificantimprovementofforcedexpiratoryvolumeofairfromthelungsduringthefirstsecondofexhalationafteradeepbreath,theprimaryefficacyendpointofthistrial.Subsequentlyandconsistentwithouroriginalintent,webeganaPhaseIIclinicaltrialinpatientswithseverepersistentasthmawhoaredependentonthechronicuseoforalcorticosteroids.Ifweareunabletoachievetheprimaryefficacyendpointinthisclinicaltrial,wemaybeforcedtorepeatthistrial,conductanalternativetrialorabandonthedevelopmentofCorus1030.

WehaveappliedforfasttrackdesignationfromtheFDAforCorus1020forthetreatmentoflunginfectionsinpatientswithCF.Thefasttrackdesignationisintendedtofacilitatethedevelopmentof,andto

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expeditethereviewof,newtherapiesintendedtotreatseriousorlifethreateningconditionsthatdemonstratethepotentialtoaddressunmetmedicalneeds.EvenifweobtainfasttrackdesignationforCorus1020orotherproductcandidates,wemaynotexperiencefasterdevelopmentprocesses,reviewsorapprovalscomparedtoconventionalFDAprocedures.AfasttrackdesignationmaybewithdrawnbytheFDA,forexample,ifitbelievesthatthedesignationisnolongersupportedbydatafromourclinicaldevelopmentprogram.

TheFDAandotherregulatoryagenciesmayapplynewstandardsforsafety,manufacturing,packaginganddistributionofdrugsadministeredbyinhalation,includingCorus1020andCorus1030.Itmaybetimeconsumingorexpensiveforusorourvendorstocomplywiththesenewstandards.TheFDAalsohassignificantdiscretionintheproductapprovalprocessandmaydisagreewithourinterpretationofdatasubmittedinourmarketingapplicationsorwithoursuppliersopinionsabouttheircompliancewithapplicableregulatoryrequirements.Thiscouldresultindelaysinobtainingmarketingapprovalforanyofourproductcandidates,orpossiblyprecludeusfromobtainingsuchapproval.

OurproductcandidatesaresubjecttocombinationproductregulationandwerelyonPARIGmbHasoursinglesourceofsupplyforthePARIeFlowinhalationdevice,availabilityofwhichiscriticaltothetimelydevelopmentandcommercializationofCorus1020andCorus1030.

WehaveintegratedthePARIeFlowinhalationdeviceintoourPhaseIIclinicaltrialsofCorus1020andCorus1030,includingmodificationstooptimizeitforusewiththeseproductcandidates,andanticipateusingit,asmodified,forourplannedPhaseIIIclinicaltrialsforthoseproductcandidates.TheplanneduseofourproductcandidatesinconjunctionwiththePARIeFlowinhalationdeviceoranyothersuchdeviceinvolvesadrugdevicecombinationproduct,whichsubjectstheseproductcandidatestocombinationproductregulation.Thismeans,forexample,thatswitchingtoanalternativedeliverysystemforCorus1020orCorus1030priortothecommencementofourPhaseIIIclinicaltrialswouldlikelydelayourinitiationofPhaseIIIclinicaltrials.SwitchingaftertheinitiationofPhaseIIIclinicaltrials,however,wouldlikelyrequireustoundertakeadditionalclinicaltrials,whichwouldsignificantlydelaythedevelopmentandcommercializationofCorus1020andCorus1030.

PARIisthesinglesourceofsupplyforthePARIeFlowinhalationdeviceandPARIhaslimitedmanufacturingcapacity.FuturesupplycommitmentsbyPARItousandothercustomerscouldstrainPARIsmanufacturingcapacity,possiblyresultingindelaysorinterruptionsinoursupplyofthedeviceoradegradationinitsquality.Inaddition,supplycouldbeinterruptedasaresultofanydisruptioninPARIsmanufacturingcapability.Qualityormanufacturingproblemscouldresultinregulatorycomplianceinfractionsthatinvolve,forexample,productrecalls,orotherwisedisruptPARIsabilitytocontinuetosupplytheeFlowinhalationdeviceforusewithourproductcandidates.AlthoughunderouragreementwithPARIwehavetherighttomanufacturethedevice,ortocausethedevicetobemanufacturedindependentlyofPARIundercertaincircumstances,thedeviceissophisticatedandtechnologicallycomplexandweorothersmaybeunwillingortechnicallyunabletoproduceitproperly.Inaddition,itwouldtakesignificanttimeandresourcestodevelopsuchmanufacturingexpertise,includingobtainingnecessaryFDAapprovalofthemanufacturingsitechange,whichwoulddelayourproductdevelopmentandcommercializationefforts.

PARIisinvolvedin,andmaybesubjecttoadditional,intellectualpropertydisputesrelatedtothePARIeFlowinhalationdevicethatmayrestrictourabilitytousethedevicewithCorus1020,Corus1030orourotherproductcandidates.InApril2003,PARIfiledsuitagainstAerogenInc.inGermanytoattempttoenforceaEuropeanpatentlicensedtoPARIbyTheTechnologyPartnership,orTTP.InAugust2004,AerogensecuredarulingnullifyingallclaimsoftheTTPEuropeanpatent.Webelievethatanappealisbeingpursued.InMarch2003,AerogenfiledsuitagainstPARIandTTPinU.S.federalcourtseekingadeclarationofinvalidityofaU.S.patentlicensedtoPARIbyTTP,andwhichwasallegedtobesubstantivelysimilartotheEuropeanpatentinvolvedintheGermanlitigation.InMarch2004,thecasewasvoluntarilydismissedwithoutprejudicebyAerogen.TheresolutionofanysuchdisputeswithAerogenorwithotherdevelopersofnebulizerinhalationtechnologymaypreventPARIandusfrommanufacturingorusingthedevice

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andmayrequirePARIorustoenterintoneworadditionallicensingagreements,whichmaybeunavailable,ormaybeavailableonlyontermsthatwouldmateriallyincreasethecostorrestricttheavailabilityofthedevicetousandthatwouldharmourbusiness.Basedonourcombinationproductcommercializationstrategy,weanticipatethatCorus1020andCorus1030willbeinitiallyapproved,ifatall,onlyforadministrationwiththePARIeFlowinhalationdevice.Aspartofacombinationproduct,anyfailureofthedevicetobeavailabletousafterapprovalofeitherofourproductcandidateswouldlikelyrequirethatweconductnewclinicaltrialsusingdifferentdevicestoadministerourproductcandidates,whichwouldrequireindependentdemonstrationsofsafetyandefficacy.NewdeliverydevicesmayhaveanegativeeffectonourcostofgoodsandcoulddiminishthecompetitiveadvantagesofCorus1020andCorus1030.

AlthoughouragreementswithPARIgiveustheexclusiverighttousethePARIeFlowinhalationdevicewithaztreonam,theAPIinCorus1020,andlidocaine,theAPIinCorus1030,theydonotprohibitPARIfromenteringintosimilaragreementstosupplyothercompanieswiththePARIeFlowinhalationdeviceforthedeliveryofotherdrugs,includingtreatmentsfordiseasesthatourproductcandidatesmaytarget.Asaresult,competitorscouldmarketotherdrugsfordeliverythroughthePARIeFlowinhalationdeviceforthesameorsimilarindicationswehavetargeted,whichcouldharmoursalesofCorus1020andCorus1030.Forexample,partofapetitiontotheFDAtoallowmarketingofagenericversionofTOBIseeksapprovalfortheuseofthePARIeFlowinhalationdevicewithtobramycin.

OuragreementswithPARIimposevariouscommercialization,milestonepayment,royalty,insurance,indemnificationandotherobligationsonus.Ifwefailtocomplywithsomeoralloftheseobligations,PARImayhavetherighttoterminatetheagreements,inwhicheventwemayberequiredtoundertakeadditionalclinicaltrialsforourproductswithanalternativedeliverysystem.

WerelyonsinglesourcevendorsforthesupplyofcriticalcomponentsofCorus1020.

WerelyonEuticalsSpA,orEuticals,asoursinglesourceofsupplyforaztreonam,theAPIforCorus1020.AnydisruptioninthesupplyofaztreonamwoulddelaythedevelopmentandcommercializationofCorus1020.Euticalsmaybeunabletosupplyaztreonamwithacceptablequality,quantityorcosttomeetourfuturedemands.Thenumberofsupplierswiththeexpertise,requiredregulatoryapprovalsandfacilitiestomanufactureaztreonamislimitedandestablishinganadditionalorreplacementsuppliercouldtakeasubstantialamountoftime.Ifwewererequiredtoswitchtoanewsupplier,thedevelopmentandcommercializationofCorus1020wouldbesignificantlydelayed.IfweobtainapprovalofCorus1020asanorphandrugandwecannotassuresufficientquantitiesofaztreonamduetosupplierproblems,anyorphandrugmarketexclusivityweobtainmaybelostbecause,undersuchcircumstances,theFDAcouldapproveanidenticalcompetitiveproduct.Additionally,oursuppliers,suchasEuticals,willlikelybesubjecttopreapprovalinspectionbytheFDA,andanyfailureofoursupplierstoprovecompliancewiththeFDAscurrentgoodmanufacturingpractices,orcGMP,orqualitysystemregulation,orQSRrequirements,coulddelayorpreventapprovalofourproductcandidates.

WehaveenteredintoalongtermsupplyagreementwithEuticalsforthesupplyofaztreonam.AlthoughwebelieveEuticalswillperformitsobligationsunderthisagreement,andthatsupplyunderthisagreementwillbesufficienttomeetcommercialrequirementsforourexpectedclinicalindications,therecanbenoguaranteethatEuticalswillbewillingorabletoperform,orthatsupplywillbeavailableinsufficientquantitywhenneeded.Inaddition,wecurrentlyhavenolongtermagreementwithBenVenueLaboratories,themanufactureroftheCorus1020finishedproductforourPhaseIIclinicaltrial,foritssupplyforourplannedPhaseIIIclinicaltrialsoranticipatedcommerciallaunch.

WehavenomanufacturingfacilitiesandifweorourthirdpartymanufacturersonwhomwerelyfailtocomplywithFDAorforeignregulatoryagencyregulationsinconnectionwiththemanufactureandpackagingofourproducts,ourproductdevelopmentandcommercializationeffortscouldbeharmed.

Wehavefewpersonnelwithexperiencein,andwedonotownfacilitiesfor,manufacturinganyproducts.WewilldependonthirdpartiestomanufactureCorus1020,Corus1030andpotentiallyanyfuture

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productcandidatesthatwemaydevelop.Relianceonthirdpartymanufacturersentailsriskstowhichwewouldnotbesubjectifwemanufacturedourproductsourselves,including: relianceonthesethirdpartiesforregulatorycompliance thepossiblebreachofanymanufacturingagreementbythesethirdpartiesand

thepossibilityofterminationornonrenewalofanyagreementbythesethirdparties,basedontheirownbusinesspriorities,atatimewhenitiscostlyorinconvenientforus.

Themanufactureandpackagingofpharmaceuticalproducts,suchasCorus1020,Corus1030andanyfutureproduct

candidatesforuseincombinationwithdevices,areregulatedbytheFDAandsimilarforeignregulatoryagenciesandmustbeconductedinaccordancewiththeFDAscGMPorQSRrequirementsandcomparablerequirementsofforeignregulatoryagencies.Failurebyusorourthirdpartymanufacturerstocomplywithapplicableregulations,requirementsorguidelinescouldresultinsanctionsbeingimposedonus,includingfines,injunctions,civilpenalties,failureofregulatoryagenciestograntmarketingapprovalofourproducts,delays,suspensionorwithdrawalofapprovals,licenserevocation,seizuresorrecallsofourproducts,operatingrestrictionsandcriminalprosecutions,anyofwhichcouldharmourbusiness.

ToobtainapprovalofourproductcandidatesbytheFDAorforeignregulatoryagencies,thirdpartiesonwhomwerelymustcomplywiththeFDAscGMP,includingcompletingtestingonboththeAPIandthefinishedproduct.Thisincludestestingofstability,identificationofimpuritiesandtestingofotherproductspecificationsbyvalidatedtestmethods.Inaddition,oursupplierswillberequiredtoconsistentlyproducetheAPIandthefinishedproductincommercialquantitiesandofspecifiedqualityonarepeatedbasis,anddocumenttheirabilitytodoso.Thisrequirementisreferredtoasprocessvalidation.WithrespecttoCorus1020,oursuppliers,includingEuticals,oursinglesourceofsupplyfortheAPIforCorus1020,havestarted,butnotyetcompleted,thisprocessvalidationrequirement.Iftherequiredtestingorprocessvalidationisdelayedorproducesunfavorableresults,wemaybeunabletoinitiateourPhaseIIIclinicaltrialsofCorus1020inatimelyfashion,whichmaydelayorpreventtheapprovalofCorus1020.SimilarconsiderationsapplywithregardtothePARIeFlowinhalationdeviceanddeviceQSRrequirements.

Furthermore,changesinthemanufacturingprocessorprocedure,includingachangeinthelocationwherethedrugordeviceproductismanufacturedorachangeofathirdpartymanufacturer,mayrequirepriorFDAreviewandapprovalinaccordancewiththeFDAscGMPorQSRrequirements.Therearecomparableforeignrequirements.Thisreviewmaybecostlyandtimeconsumingandcoulddelayorpreventthelaunchofaproduct.TheFDAorsimilarforeignregulatoryagenciesatanytimemayalsoimplementnewstandards,orchangetheirinterpretationandenforcementofexistingstandardsformanufacture,packagingortestingofproducts.Ifweareunabletocomply,wemaybesubjecttoregulatoryaction,civilactionsorpenalties.

WewillneedtosuccessfullyrecruitsalesandmarketingpersonnelandbuildasalesandmarketinginfrastructuretocommercializeCorus1020andotherproductsthatwedevelop,acquireorlicense.

Wehavenosalesorganizationorexperienceasacompanysellingormarketingproductsandcurrentlyhavenodistributioncapabilities.Aswebegintobuildoursalescapabilityinanticipationoftheapprovalandcommerciallaunchofourproducts,wemaybeunabletosuccessfullyrecruitanadequatenumberofqualifiedsalesrepresentativesontermsfavorabletous,ifatall.Ifwearenotsuccessfulinrecruitingsalespersonnelorinbuildingasalesandmarketinginfrastructure,wemaynotbeabletocommercializeourproducts.Ifweelecttorelyonthirdpartiestosellormarketourproductcandidates,wemayreceivelessrevenuethanifwesoldourproductsdirectly.

IfthecommerciallaunchofanyofourproductsisdelayedasaresultofactionsoftheFDA,foreignregulatoryagenciesorforotherreasons,wemayestablishoursalesandmarketingcapabilitiestoosoon.Ifwe

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areunabletoretainorrecruitsalesandmarketingpersonnelortomaintainourdistributionormarketingrelationshipsuntilweareabletocommerciallylaunchourproducts,ourinvestmentinoursalesandmarketinginfrastructuremaybelost.

Ourproductscouldbesubjecttorestrictionsorwithdrawalfromthemarketandwemaybesubjecttopenaltiesifwefailtocomplywithregulatoryrequirements,orifweexperienceunanticipatedproblemswithourproducts,ifandwhenanyofthemareapproved.

Anyproductforwhichweobtainmarketingapproval,togetherwiththemanufacturingprocesses,postapprovalclinicaldata,andadvertisingandpromotionalactivitiesforsuchproduct,willbesubjecttocontinuedregulationbytheFDAandotherregulatoryagencies.Evenifregulatoryapprovalofaproductisgranted,theapprovalmaybesubjecttolimitationsontheindicatedusesforwhichtheproductmaybemarketedortotheconditionsofapproval,orcontainrequirementsforcostlypostmarketingtestingandsurveillancetomonitorthesafetyorefficacyoftheproduct.Laterdiscoveryofpreviouslyunknownproblemswithourproductsortheirmanufacture,orfailuretocomplywithregulatoryrequirements,mayresultin: restrictionsonsuchproductsormanufacturingprocesses withdrawaloftheproductsfromthemarket voluntaryormandatoryrecalls fines suspensionofregulatoryapprovals productseizuresor injunctionsortheimpositionofcivilorcriminalpenalties.

Ifweareslowtoadapt,orunabletoadapt,tochangesinexistingregulatoryrequirementsoradoptionofnewregulatoryrequirementsorpolicies,wemaylosemarketingapprovalforthemwhenandifanyofthemareapproved.

Failuretoobtainregulatoryapprovalsinforeignjurisdictionswouldpreventusfrommarketingourproductsinternationally.

WeintendtohaveourproductcandidatesmarketedoutsidetheUnitedStates.InordertomarketourproductsintheEuropeanUnionandmanyothernonU.S.jurisdictions,wemustobtainseparateregulatoryapprovalsandcomplywithnumerousandvaryingregulatoryrequirements.Wemaybeunabletofileforregulatoryapprovalsandmaynotreceivenecessaryapprovalstocommercializeourproductsinanymarket.Theapprovalprocedurevariesamongcountriesandcaninvolveadditionaltestinganddatareview.ThetimerequiredtoobtainapprovalmaydifferfromthatrequiredtoobtainFDAapproval.TheforeignregulatoryapprovalprocessmayincludealloftherisksassociatedwithobtainingFDAapproval,includingapprovalofdeliverydevicesforourproductcandidates.Wemaynotobtainforeignregulatoryapprovalsonatimelybasis,ifatall.ApprovalbytheFDAdoesnotensureapprovalbyregulatoryagenciesinothercountries,andapprovalbyoneforeignregulatoryauthoritydoesnotensureapprovalbyregulatoryagenciesinotherforeigncountriesorbytheFDA.Thefailuretoobtaintheseapprovalscouldharmourbusiness.

Ourproductcandidatesmayneverachievemarketacceptanceevenifweobtainregulatoryapprovals.

EvenifwereceiveregulatoryapprovalsforthecommercialsaleofCorus1020,Corus1030orfutureproductcandidates,thecommercialsuccessoftheseproductswilldependon,amongotherthings,theiracceptancebyphysicians,patients,thirdpartypayorsandothermembersofthemedicalcommunityasa

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therapeuticandcosteffectivealternativetocompetingproductsandtreatments.Ifourproductsfailtogainmarketacceptance,wemaybeunabletoearnsufficientrevenuetocontinueourbusiness.Marketacceptanceof,anddemandfor,anyproductthatwemaydevelopandcommercializewilldependonmanyfactors,including: ourabilitytoprovideacceptableevidenceofsafetyandefficacy theprevalenceandseverityofadversesideeffects

theconvenienceandeaseofuse,includingthedeliverytimeweareabletoachievewiththePARIeFlowinhalationdeviceorotherapprovednebulizer,ifany

availability,relativecostandrelativeefficacyofalternativeandcompetingproductsandtreatments theeffectivenessofourmarketinganddistributionstrategy publicityconcerningourproductsorcompetingproductsandtreatmentsand ourabilitytoobtainsufficientthirdpartyinsurancecoverageorreimbursement.

Ifourproductcandidatesdonotbecomewidelyacceptedbyphysicians,patients,thirdpartypayorsandothermembersofthemedicalcommunity,itisunlikelythatwewilleverbecomeprofitable.

Ifanydrugswedevelopbecomesubjecttounfavorablepricingregulations,thirdpartyreimbursementpracticesorhealthcarereforminitiatives,ourbusinesscouldbeharmed.

Ourabilitytocommercializeanyproductsprofitablywilldependinpartontheextenttowhichreimbursementfortheseproductsandrelatedtreatmentswillbeavailablefromgovernmenthealthadministrationauthorities,privatehealthinsurers,orprivatepayors,andotherorganizationsintheUnitedStatesandinternationally.Evenifwesucceedinbringingoneormoreproductstomarket,theseproductsmaynotbeconsideredcosteffective,andtheamountreimbursedforanyproductsmaybeinsufficienttoallowustosellourproductsprofitably.Becauseourproductsareintheearlystagesofdevelopment,weareunableatthistimetodeterminetheircosteffectivenessandthelevelormethodofreimbursement.Theremaybesignificantdelaysinobtainingcoveragefornewlyapproveddrugs,andcoveragemaybemorelimitedthanthepurposesforwhichthedrugisapprovedbytheFDAorforeignregulatoryagencies.Moreover,eligibilityforcoveragedoesnotmeanthatanydrugwillbereimbursedinallcasesorataratethatcoversourcosts,includingresearch,development,manufacture,saleanddistribution.Increasingly,thethirdpartypayorswhoreimbursepatients,suchasgovernmentandprivatepayors,arerequiringthatcompaniesprovidethemwithpredetermineddiscountsfromlistprices,andarechallengingthepriceschargedformedicalproducts.Ifthereimbursementweareabletoobtainforanyproductwedevelopisinadequateinlightofourdevelopmentandothercosts,ourbusinesscouldbeharmed.

Currently,Corus1020mustbeadministeredthroughaspecificelectronicnebulizer,thePARIeFlowinhalationdevice.Somethirdpartypayorsrestrictcoverageofnonstandardnebulizers,suchasultrasonicorotherspecialtynebulizers,includingthePARIeFlowinhalationdevice,morestringentlythanforstandardnebulizers,andonlycoverspecialtynebulizersforadministrationofcertainmedicationsforpatientsmeetingspecificcriteria.ClinicaldatademonstratingthatthePARIeFlowinhalationdeviceisrequiredtoadministerCorus1020mayberequiredinordertoprovidecoverageforthedevice.Nebulizersaregenerallycoveredunderaninsuranceplansdurablemedicalequipmentbenefit,whichmaybelimited.Patientsmayhavehighcostsharingrequirements,andbesubjecttoannualmaximumsandhigherdeductiblesandcoinsuranceresponsibilitieswhencomparedwithmedicalandpharmacybenefits.RestrictedorunfavorablecoverageofthePARIeFlowinhalationdevicebythirdpartypayorswouldnegativelyimpactourabilitytogeneraterevenue.

Reimbursementratesmayvaryaccordingtotheuseofthedrugandtheclinicalsettinginwhichitisused,maybebasedonpaymentsallowedforlowercostdrugsthatarealreadyreimbursed,maybeincorporatedintoexistingpaymentsforotherservicesandmayreflectbudgetaryconstraintsorimperfectionsinMedicareorotherdata.Netpricesfordrugsmaybereducedbymandatorydiscountsorrebatesrequiredbygovernment

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healthcareprogramsorprivatepayorsandbyanyfuturerelaxationoflawsthatpresentlyrestrictimportsofdrugsfromcountrieswheretheymaybesoldatpriceslowerthanintheUnitedStates.IntheUnitedStates,thirdpartypayorsoftenrelyuponMedicarecoveragepolicyandpaymentlimitationsinsettingtheirownreimbursementrates.

TherecentMedicareprescriptiondrugcoveragelegislationandfuturelegislativeorregulatoryreformofthehealthcaresystemmayaffectourabilitytosellourproductsprofitably.

IntheUnitedStates,therehavebeenanumberoflegislativeandregulatoryproposals,atboththefederalandstategovernmentlevels,tochangethehealthcaresysteminwaysthatcouldaffectourabilitytosellourproductsprofitably.Forexample,inDecember2003,PresidentGeorgeW.BushsignedintolawnewMedicareprescriptiondrugcoveragelegislation.TheCentersforMedicare&MedicaidServices,orCMS,theagencywithintheDepartmentofHealthandHumanServicesthatadministersMedicareandwouldberesponsibleforreimbursementofthecostofCorus1020andCorus1030,hasassertedtheauthorityofMedicarenottocoverparticulardrugsifitdeterminesthattheyarenotreasonableandnecessaryforMedicarebeneficiariesortocoverthematalesserrate,comparabletothatfordrugsalreadyreimbursedthatCMSconsiderstobetherapeuticallycomparable.Furtherfederalandstateproposalsandhealthcarereformsarelikely.OurbusinesscouldbeharmedbytheMedicareprescriptiondrugcoveragelegislation,bythepossibleeffectofthislegislationonamountsthatprivatepayorswillpayandbyotherhealthcarereformsthatmaybeenactedoradoptedinthefuture.

Wefacesubstantialcompetitionandourcompetitorsmaydiscover,developorcommercializeproductsfasterormoresuccessfullythanus.

Thedevelopmentandcommercializationofnewdrugsishighlycompetitive.WewillfacecompetitionwithrespecttoCorus1020,Corus1030andanyproductswemaydeveloporcommercializeinthefuturefrommajorpharmaceuticalcompanies,specialtypharmaceuticalcompanies,compoundingpharmaciesandbiotechnologycompaniesworldwide.Ourcompetitorsmayhaveordevelopproducts,treatmentsorothernoveltechnologiesthataremoreeffective,saferorlesscostlythananythatwearedeveloping.Inaddition,significantunapproveduse,orofflabeluse,ofexistingdrugstotreatrespiratorydiseasestargetedbyourproductcandidatesorproductcompoundingofourproductcandidatesforwhichwedonothaveorareunabletoenforceourmethodofuseorformulationpatentscoulddiminishourpotentialsalesofthoseproductcandidates,ifapproved.

WeintendtofileSection505(b)(2)newdrugapplications,orNDAs,forCorus1020andCorus1030,whichcontainAPIspreviouslyapprovedbytheFDAinotherdrugproducts.Section505(b)(2)NDAsallowustoavoidrepeatingcertainsafetyandefficacystudiesthatwouldotherwiseberequiredforapprovalofafullSection505(b)(1)NDA.However,Section505(b)(2)NDAsmaybechallengedbythesponsororsponsorsoftheSection505(b)(1)referencelisteddrugsforwhichwearerelyingupontheFDAspriorfindingsofsafetyandefficacy.ThisisparticularlytrueifwearerelyingupontheFDAsfindingsthatarebasedonproprietarydataofthosesponsors.Ifsuchachallengeweresuccessful,wemayhavetoconductortootherwisesponsororobtainarightofreferencetoallofthepreclinicalandclinicalstudiesnecessarytoobtainapprovalofCorus1020orCorus1030,orotherproductcandidates.

EvenifwefileSection505(b)(2)NDAs,wewillstillberequiredtoconductsafetyandefficacystudiesonthedeliveryofourproductcandidatesthroughinhalationdevices.InthecaseofCorus1030,webelieveourclinicalstudieswillbeessentialtoFDAapprovaland,ifapproved,wewillbeabletoobtainthreeyearsofmarketexclusivityforourCorus1030productcandidate.Suchexclusivitywouldpreventtheapprovalofabbreviatednewdrugapplications,orANDAs,forgenericversionsandofSection505(b)(2)NDAsforourchangeddrugs,butnotforNDAsthatcontainallofthesafetyandefficacydatarequiredforapproval.SimilarexclusivityisnotavailableforCorus1020.

IfCorus1020receivesmarketingapproval,itwillcompeteagainstcurrentlyapprovedantimicrobialtherapiesforthetreatmentofrespiratoryinfectionsinCFpatients.Weareawareofonlyoneinhaledantibiotic

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approvedintheUnitedStatesforthetreatmentofPseudomonaaeruginosainfectionsinCFpatients,whichisTOBI,marketedbyChiron,whichacquiredtheproductwhenitacquiredPathoGenesisCorporationin2000.AlthoughinsevereCFpatients,weexpectCorus1020tobecomplementarytoTOBIbecauseTOBIisapprovedonlyforadministrationinalternating28daycycles,weexpectCorus1020tocompetedirectlywithTOBIformildtomoderateCFpatients.

TOBIsorphandrugmarketexclusivitywillexpireonDecember22,2004.AsuitabilitypetitionhasbeensubmittedtotheFDAtoallowanANDAforagenericversionofTOBIusingthePARIeFlowinhalationdeviceratherthanthePARILCPLUSreusablenebulizerandcertainotherdifferences.Chironhassubmittedoppositiontothispetition.IfanANDAispermittedandapproved,orifaSection505(b)(2)NDAissubmittedandapproved,foragenericversionofTOBIusingthePARIeFlowinhalationdevicethatdoesnotcontainallofthesafetyandefficacystudiesrequiredfortheapprovalofTOBI,theavailabilityofsuchaversionofTOBI,ifapproved,maycompetemoreeffectivelywithCorus1020,ifapproved.

TherearealsoanumberofcompaniesworkingtodevelopnewdrugstotreatrespiratoryinfectionsinCFpatientsorCFgenerally,includingChiron,PeninsulaPharmaceuticals,Inc.,DyaxCorp.,DebiopharmS.A.,TargetedGeneticsCorporation,InspirePharmaceuticalsInc.andSucampoPharmaceuticalsInc.Inaddition,thereareanumberofothercompaniesthataredevelopingantimicrobialproductcandidates,treatmentsandtechnologiesthatmayapplytoCF.

IfCorus1030receivesmarketingapproval,itwillcompeteagainstcurrentlyapprovedtherapiesforthetreatmentofseverepersistentasthma.Weareawareofonlyoneproductmarketedspecificallyasacorticosteroidsparingagentformoderatepersistentandseverepersistentasthma,Xolair(omalizumab,E25),marketedbyGenentech,Inc.intheUnitedStates.Wearealsoawareofanumberofcompaniesworkingtodevelopnewcorticosteroidalternativestotreatasthma,includingProteinDesignLabsInc.,EpigenesisPharmaceuticals,Inc.,RottaResearchLaboratorium,GlaxoSmithKlineplcandHoffmannLaRocheInc.

Manyofourcompetitorshavesubstantiallygreaterfinancial,manufacturing,marketing,productdevelopment,technicalandhumanresourcesthanwehave.Mergersandacquisitionsinthepharmaceuticalandbiotechnologyindustriesmayresultinincreasingconcentrationoftheseresourcesinourcompetitors.

Ifwefailtoobtainapprovalofoneofourproductcandidatesforanorphandrugindicationbeforeoneofourcompetitorsdoes,wemaybepreventedfromsellingtheseproductsforaperiodoftime.

Ourleadproductcandidate,Corus1020,hasbeendesignatedasanorphandrugbytheFDAforthetreatmentofrespiratoryinfectionsinCFpatients.AproductthathasorphandrugstatusandisthefirsttoreceiveFDAapprovalforthedesignatedindicationisentitled,subjecttocertainlimitedexceptions,tomarketexclusivityforaparticularindicationintheUnitedStatesforsevenyears.ThismeansthattheFDAcannotapprovethesameproductforthesameuseforaperiodofsevenyears.AdifferentproductmaystillbeapprovedbytheFDAforthesameorphanindicationordisease.Inaddition,ifotherinhalableaztreonamproductsareapprovedbytheFDAtotreatindicationsotherthanthosecoveredbyourorphandesignation,physiciansmayelecttoprescribeacompetitorsversiontotreatindicationsforwhichourproducthasreceivedapproval,whichisreferredtoasofflabeluse.Whileacompanyisnotpermittedtopromoteofflabeluseofitsproduct,theFDAdoesnotregulatethepracticeofmedicineandcannotpreventphysiciansfromprescribingproductsforofflabeluse.IfwearenotfirsttoreceiveFDAapprovalforourorphandrugindication,wewouldlikelybepreventedfromhavingourproductcandidateapprovedforthatorphandrugindicationforsevenyears.Inaddition,evenifwearefirsttoobtainapprovalforourorphandrugindication,cliniciansmaychoosetouseproductsthathavebeenapprovedforotherindications,ortheFDAmayapproveaclinicallysuperiorversionofourapprovedorphandesignateddrugforthatindication.

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Wemaybeunsuccessfulinoureffortstoexpandourportfolioofproductcandidatesthroughourinternalresearcheffortsoroureffortstoacquirenewproductcandidatesfromthirdparties.

AkeyelementofourstrategyistocommercializeaportfolioofnewdrugsfortreatmentofrespiratorydiseasesinadditiontoCorus1020andCorus1030.Weareseekingtodoso,inpart,throughourinternalresearchprogramsand,inpart,throughlicensingnewproductcandidatesfromthirdparties.

Asignificantportionoftheresearchthatweareconductinginvolvesnewandunprovenapplicationsofnewandexistingdrugs.Researchprogramstoidentifynewdiseasetargetsandproductcandidatesrequiresubstantialtechnical,financialandhumanresourceswhetherornotweultimatelyidentifyanycandidates.Ourresearchmayfailtoyieldproductcandidatesforclinicaldevelopmentforvariousreasons,includingthepossibilitythatthepotentialproductcandidatesmay,onfurtherstudy,beshowntohaveharmfulsideeffectsorothercharacteristicsthatwouldindicatetheywerenotlikelytobeeffectivedrugs.

Wemayalsoattempttolicenseoracquiretherightstopotentialnewtechnologiesorproductcandidatesbyinlicensingfromthirdparties,suchaswedidwithCorus1030.Wemaybeunabletofindsuitablecandidatesortoacquirerightstothemontermsfavorabletous,ifatall.Thelicensingandacquisitionoftechnologiesorpharmaceuticalproductsisahighlycompetitivearea.Anumberofmoreestablishedcompaniesarealsopursuingstrategiestolicenseoracquireproductsforthetreatmentofrespiratorydiseases.Theseestablishedcompaniesmayhaveacompetitiveadvantageoverusduetotheirsize,cashresourcesandgreaterclinicaldevelopmentandcommercializationcapabilities.

Ifweareunabletoidentifyanddevelopadditionaltechnologiesorproductcandidatesthroughourinternalresearcheffortsorbyobtainingrightstonoveltechnologiesorproductcandidatesfromthirdparties,thegrowthofourbusinessmaybelimited.

Ifwelosekeymanagementorscientificpersonnel,ourbusinesscouldsuffer.

Oursuccessdepends,toasignificantextent,ontheeffortsandabilitiesofA.BruceMontgomery,M.D.,ourPresidentandChiefExecutiveOfficer,andothermembersofourseniormanagementteamandourscientificpersonnel.WedonothaveemploymentagreementswithDr.Montgomeryoranyothermembersofourseniormanagement.Becausethepoolofemployeeswithrelevantexperienceinpulmonologyandbiotechnologyissmall,replacinganyofourseniormanagementorscientificpersonnelwouldlikelybecostlyandtimeconsuming.OtherthanDr.Montgomery,wedonotmaintainkeypersonlifeinsuranceonanyofourotherofficers,employeesorconsultants.ThelossofDr.Montgomeryoranyofourotherexecutiveofficerswouldresultinasignificantlossintheknowledgeandexperiencethatwe,asanorganization,possessandcouldcausesignificantdelaysin,orprevent,thedevelopmentandcommercializationofourproductcandidates.

Ifweareunabletohireandretainadditionalqualifiedscientificandothermanagementpersonnel,wemaybeunabletoachieveourgoals.

Oursuccessandstrategywilldepend,inlargepart,onourabilitytoattractandretainadditionalqualifiedscientific,commercial,administrativeandmanagementpersonnel.Thereisintensecompetitionfromnumerouspharmaceuticalandbiotechnologycompanies,universities,governmentalentitiesandotherresearchinstitutionsforhumanresources,includingmanagement,inthetechnicalfieldsandgeographicregionsinwhichweoperate,andwemaybeunabletoattractandretainqualifiedpersonnelnecessaryforthesuccessfuldevelopmentandcommercializationofourproductcandidates.Thefailuretoattractandretainpersonnelortodevelopsuchexpertisecouldsignificantlydelayorpreventtheresearch,developmentandcommercializationofourproductcandidates.

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Asweevolvefromacompanyprimarilyinvolvedindrugresearchanddevelopmentintoonethatisalsoinvolvedinthecommercializationofdrugproducts,wemayhavedifficultymanagingourgrowthandexpandingouroperationssuccessfully.

Asthedevelopmentofourproductcandidatesadvances,wewillneedtoexpandourdevelopment,regulatory,manufacturing,salesandmarketingcapabilitiesorcontractwithotherorganizationstoprovidethesecapabilitiesforus.Asouroperationsexpand,weexpectthatwewillneedtomanageadditionalrelationshipswithvarioussuppliersandotherorganizations.Ourabilitytomanageouroperationsandgrowthrequiresustocontinuetoimproveouroperational,financialandmanagementcontrols,reportingsystemsandprocedures.Thisgrowthcouldplaceastrainonouradministrativeandoperationalinfrastructure.Wemaynotbeabletomakeimprovementstoourmanagementinformationandcontrolsystemsinanefficientortimelymannerandmaydiscoverdeficienciesinexistingsystemsandcontrols.

Wemaybesubjecttopotentialproductliabilitysuitsandotherclaims,whichmayrequireustoengageinexpensiveandtimeconsuminglitigationorpaysubstantialdamagesandmayharmourreputationandreducethedemandforourproducts.

Productliabilityrisksareinherentinthetesting,manufacturing,marketingandsaleofbiopharmaceuticalproducts.OurriskofproductliabilitywillincreaseifweobtainapprovalforandcommercializeCorus1020,Corus1030oranyotherproductcandidatethatwemaycommercialize.Productliabilityclaimscoulddelayorpreventcompletionofourotherdevelopmentprograms,clinicalorotherwise.Ifwesucceedinmarketingproducts,suchclaimscouldresultinarecallofourproductsorachangeintheindicationsforwhichtheymaybeused.Anindividualmaybringaproductliabilityclaimagainstusifanyproductwedevelopcauses,ormerelyappearstohavecaused,aninjury.Regardlessofmeritoreventualoutcome,productliabilityorotherclaimsmay,amongotherthings,resultin:

injurytoourreputationanddecreaseddemandforCorus1020,Corus1030orotherproductcandidatesthatwemay

commercialize withdrawalofclinicaltrialvolunteersorpatients distractionofourmanagementanddiversionofourresources litigationcostsand substantialmonetaryawardstoplaintiffs.

Wecurrentlyhaveproductliabilityinsurancethatcoversourclinicaltrialsuptoa$5millionaggregatelimit,andintendtoobtainadditionalproductliabilitycoverageinthefuture.Anyinsuranceweobtainmaynotprovidesufficientcoverageagainstpotentialliabilities.Furthermore,clinicaltrialandproductliabilityinsuranceisbecomingincreasinglyexpensive.Asaresult,wemaybeunabletoobtainsufficientinsuranceatareasonablecosttoprotectusagainstlossesthatcouldhaveamaterialadverseeffectonourbusiness.Theseliabilitiescouldpreventorinterferewithourproductdevelopmentandcommercializationefforts.

Weusehazardousmaterialsandmustcomplywithenvironmental,healthandsafetylawsandregulations,whichcanbeexpensiveandrestricthowwedobusiness.

Ourresearchanddevelopmentprocessesinvolvethecontrolleduse,handling,storageanddisposalofhazardousmaterials,includingbiologicalhazardousmaterials.Wearesubjecttofederal,stateandlocalregulationsgoverningtheuse,storage,handlinganddisposalofmaterialsandwasteproducts.Althoughwebelievethatoursafetyproceduresforhandlinganddisposingofthesehazardousmaterialscomplywiththestandardsprescribedbylawandregulation,wecannotcompletelyeliminatetheriskofaccidentalcontaminationorinjuryfromhazardousmaterials.Intheeventofanaccident,wecouldbeheldliableforanydamagesthatresult,andanyliabilitycouldexceedthelimitsorfalloutsidethecoverageofourinsurance.Inaddition,wemay

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beunabletoobtaininsuranceonacceptableterms,ifatall.Wecouldalsoincursignificantcoststocomplywithcurrentorfutureenvironmentallawsandregulations.RisksRelatingtoOurIntellectualProperty

Ifweareunabletoobtainandmaintainprotectionfortheintellectualpropertyincorporatedintoourproducts,ourbusinesswillbeharmed.

OursuccesswilldependinlargepartonourabilityortheabilityofourlicensorstoobtainandmaintainprotectionintheUnitedStatesandothercountriesfortheintellectualpropertyincorporatedintoourproducts.Thepatentsituationinthefieldofbiotechnologyandpharmaceuticalsgenerallyishighlyuncertainandinvolvescomplexlegalandscientificquestions.Neitherwenorourlicensorsmaybeabletoobtainadditionalissuedpatentsrelatingtoourtechnology.Evenifissued,patentsmaybechallenged,narrowed,invalidatedorcircumvented,whichcouldlimitourabilitytostopcompetitorsfrommarketingsimilarproductsorlimitthelengthoftermofpatentprotectionwemayhaveforourproducts.Inaddition,ourpatentsandourlicensorspatentsalsomaynotaffordusprotectionagainstcompetitorswithsimilartechnology.Also,theavailabilityofAPIthatisnotprotectedbycompositionofmatterpatentsmayleadtothepossibilityofpharmacycompoundingofformulationsforaerosoluse.Methodofuseandformulationpatentsmayprovideprotectionforourproductcandidateshowever,widespreadcompoundingbypharmaciesmaymakeenforcementcostlyandtimeconsuming.

BecausepatentapplicationsintheUnitedStatesandmanyforeignjurisdictionsaretypicallynotpublisheduntil18monthsafterfilingor,insomecases,notatall,andbecausepublicationsofdiscoveriesinthescientificliteratureoftenlagbehindactualdiscoveries,neitherwenorourlicensorscanbecertainthatweortheywerethefirsttomaketheinventionsclaimedinpatentsorpendingpatentapplications,orthatweortheywerethefirsttofileforprotectionoftheinventionssetforthinthesepatentapplications.

Ifwefailtocomplywithourobligationsintheagreementsunderwhichwelicensedevelopmentorcommercializationrightstoproductsortechnologyfromthirdparties,wecouldloselicenserightsthatareimportanttoourbusiness.

Weareapartytothreetechnologylicensesthatareimportanttoourbusiness,andexpecttoenterintoadditionallicensesinthefuture.WeholdlicensesfromPARIrelatingtoCorus1020andCorus1030andMayoFoundationforMedicalEducationandResearchrelatingtoCorus1030.Theselicensesimposevariouscommercialization,milestonepayment,royalty,insurance,indemnificationandotherobligationsonus.Ifwefailtocomplywiththeseobligations,thelicensormayhavetherighttoterminatethelicense,inwhicheventwewouldbeunabletomarketCorus1020orCorus1030.

Ifweareunabletoprotectourtradesecrets,wemaybeunabletoprotectourinterestsinproprietaryknowhowthatisnotpatentableorforwhichwehaveelectednottoseekpatentprotection.

Oursuccessdependsinpartonourabilitytoprotecttradesecretsthatarenotpatentableorforwhichwehaveelectednottoseekpatentprotection.Weseektoprotectthisinformationinpartbyenteringintoconfidentialityagreementswithemployees,consultants,scientificadvisors,contractorsandotherthirdparties,andprotectivecontractualprovisionssuchasthosecontainedinlicenseagreementsandresearchagreements.Thesepartiesmaybreachtheseconfidentialityagreementsandotherprotectivecontractswehaveenteredinto,andwemaynotbecomeawareof,orhaveadequateremediesintheeventof,anybreach.Inaddition,otherpartiesmaydevelopsimilaroralternativetechnologiesorduplicateourtechnologiesthatarenotprotectedbypatents,orotherwiseobtainanduseinformationthatweregardasproprietary.Anyunauthorizeddisclosureofconfidentialdataintothepublicdomainortothirdpartiescouldharmourcompetitiveposition.

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Litigationregardingintellectualpropertyrightsownedorusedbyusmaybecostlyandtimeconsuming.

Litigation,interferences,oppositionproceedingsandotheradministrativeproceedingsconcerningintellectualpropertyrightsinwhichwemaybecomeinvolvedmaycauseustoincursubstantialexpenseanddiverttheattentionofourtechnicalandmanagementpersonnel.Thecomplexityoftheintellectualpropertyinvolvedandtheuncertaintyoflitigationincreasetheserisks.Inaddition,manyofourcompetitorsarehighlylitigiousandthebiotechnologyindustryhastraditionallyexperiencedasignificantamountofintellectualpropertylitigation,sometimesregardlessofthemeritsoftheclaims.Someofourcompetitorsmaybeabletosustainthecostsofsuchproceedingsmoreeffectivelythanwecanbecauseoftheirsubstantiallygreaterfinancialresources.Anadversedeterminationintheseproceedingsorlitigationcouldsubjectustosignificantliabilities,requireustostoptheinfringingactivity,allowourcompetitorstointroduceormarketcompetitiveproductswithoutobtainingalicensefromus,orrequireustoseeklicensesfromthirdpartiesthatmaynotbeavailableoncommerciallyreasonableterms,ifatall.Ifwecannotobtainsuchlicenses,wemayberestrictedorpreventedfromdevelopingandcommercializingourproductcandidates.Ultimately,wemaybeunabletosellsomeofourproductsormayhavetoceasecertainbusinessoperations,whichwouldhaveamaterialadverseeffectonourrevenue.Evenifwearesuccessfulindefendingagainsttheseproceedingsorlitigation,theproceedingsorlitigationitselfcouldresultinsubstantialcostsorbedistractingtomanagement.

Manyofouremployeeswerepreviouslyemployedatuniversitiesorotherbiotechnologyorpharmaceuticalcompanies,includingourcompetitorsorpotentialcompetitors.Wemaybesubjecttoclaimsthattheseemployeesorwehaveinadvertentlyorotherwiseusedordisclosedintellectualproperty,tradesecretsorotherproprietaryinformationoftheirformeremployers.Litigationmaybenecessarytodefendagainsttheseclaimsand,evenifwearesuccessfulindefendingourselves,couldresultinsubstantialcostsorbedistractingtomanagement.Ifwefailindefendingsuchclaims,inadditiontopayingmonetarydamages,wemaylosevaluableintellectualpropertyrightsorpersonnel.Alossofkeypersonnelortheirworkproductcouldhamperorpreventourabilitytocommercializeaproductcandidate.RisksRelatingtoThisOfferingandOwnershipofOurCommonStock

Ourcommonstockhasnotbeenpubliclytraded,anactivetradingmarketforourcommonstockmaynotdevelop,andweexpectthatthepriceofourcommonstockmayfluctuatesubstantially.

Priortothisoffering,ourcommonstockhasnotbeentradedonapublicmarket.Wecannotpredictwhetheranactivepublictradingmarketforourcommonstockwilldevelopfollowingthisoffering,orwhethersuchamarketwillbesustained.Wewillnegotiatewiththeunderwriterstodeterminethepriceofthesharesofcommonstocksoldinthisoffering,butthispricewillnotnecessarilyreflectthemarketpriceofthecommonstockfollowingthisoffering.Anumberoffactorswillinfluencethemarketpriceforthecommonstockfollowingthisoffering,including: theresultsofongoingandfutureclinicaltrialsofourproductcandidates theresultsofregulatoryreviewsrelatingtotheapprovalofourproductcandidates theannouncementandintroductionofnewproductsorproductenhancementsbyusorourcompetitors ourabilitytodevelopandmarketnewandenhancedproducts quarterlyvariationsinourorourcompetitorsresultsofoperations changesingovernmentalregulationsorinthestatusofourregulatoryapprovalsorapplications

thedevelopmentofourintellectualpropertyandanydisputesorlitigationrelatingtoourorourcompetitorsintellectualproperty

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productliabilityclaimsorotherlitigation

initiation,maintenanceorterminationofcoverageofourcompanyby,orchangesinestimatesorrecommendationsby,securitiesanalystsand

generalmarketconditionsandotherfactorsthatmaybeunrelatedtoouroperatingperformanceortheoperatingperformanceofourcompetitors.

Futuresalesofourcommonstockmaycauseourstockpricetodecline.

Ourcurrentstockholdersholdasubstantialnumberofsharesofourcommonstockthattheywillbeabletosellinthe

publicmarketinthenearfuture.Significantportionsofthesesharesareheldbyasmallnumberofstockholders.Salesbyourcurrentstockholdersofasubstantialnumberofsharesafterthisoffering,ortheexpectationthatsuchsalesmayoccur,couldsignificantlyreducethemarketpriceofourcommonstock.Moreover,afterthisoffering,theholdersofapproximately112,600,145sharesofcommonstock,includingsharesissueduponconversionofourconvertiblepreferredstock,willhaverights,subjecttosomeconditions,torequireustofileregistrationstatementstopermittheresaleoftheirsharesinthepublicmarketortoincludetheirsharesinregistrationstatementsthatwemayfileforourselvesorotherstockholders.Allofourdirectorsandofficershaveenteredintolockupagreementsinconnectionwiththisoffering,andweareseekingsimilaragreementsfromallofourstockholdersandoptionholders.AsofOctober18,2004,holdersof121,260,499shares,onanasconvertedbasis,ofouroutstandingcapitalstock,or99.0%,haveenteredintolockupagreementsinconnectionwiththisoffering.Unlessextendedinaccordancewiththeirterms,theseagreementsterminate180daysfromthedateofourpurchaseagreementwithMerrillLynch,Pierce,Fenner&SmithIncorporated,orMerrillLynch.MerrillLynch,atitsdiscretion,canwaivetherestrictionsofthelockupagreementatanearliertimewithoutpriornoticeorannouncementandallowourstockholderstoselltheirsharesofourcommonstockinthepublicmarket.Iftherestrictionsofthelockupagreementarewaived,sharesofourcommonstockwillbeavailableforsaleintothemarket,subjectonlytoapplicablesecuritiesrulesandregulations,whichmaycauseourstockpricetodecline.

Wealsointendtoregisterallcommonstockthatwemayissueunderourstockcompensationplans.Onceweregistertheseshares,theycanbefreelysoldinthepublicmarketuponissuance,subjecttorestrictionsunderthesecuritieslawsandthelockupagreementsdescribedabove.Ifanyofthesestockholderscausealargenumberofsecuritiestobesoldinthepublicmarket,thesalecouldreducethetradingpriceofourcommonstock.Thesesalesalsocouldimpedeourabilitytoraisefuturecapital.

Purchasersinthisofferingwillexperienceimmediateandsubstantialdilution.

Weexpectthepriceofoursharesinthisofferingtobesubstantiallyhigherthantheproformanettangiblebookvaluepershareofouroutstandingcommonstockafterthisoffering.Accordingly,investorspurchasingsharesofcommonstockinthisofferingwillpayapricepersharesubstantiallyhigherthanthevalueofourassetslessliabilities.Assumingthesaleofsharesofourcommonstockinthisofferingatanassumedinitialpublicofferingpriceof$pershare,theinvestorsinthisofferingwillcontribute%ofthetotalgrossamountinvestedtodateinourcompany,butwillownonly%ofthesharesofcommonstockoutstanding.Theexerciseofoutstandingstockoptionsandwarrants,ortheissuanceofnewshares,willfurtherdilutenewinvestors.

Wehavebroaddiscretioninhowweusethenetproceedsofthisoffering,andwemaynotusetheseproceedsinamannerdesiredbyourstockholders.

Ourmanagementwillhavebroaddiscretioninhowtousethenetproceedsofthisoffering.Wecurrentlyintendtousethenetproceedsfromthisofferingtocontinueourdevelopmentandactivitiesinsupportofanticipatedcommercializationofourleadproductcandidates,Corus1020andCorus1030,aswellastofundcontinueddevelopmentofourotherresearchanddevelopmentactivities,andforothergeneralcorporatepurposes

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andworkingcapital.Wemayalsouseaportionofthenetproceedstoacquireadditionaltechnologiesorproductcandidates,butcurrentlywedonothaveanyspecificacquisitionsplanned.Untilweneedtousethenetproceedsofthisoffering,weintendtoinvestthenetproceedsininterestbearing,shortterm,investmentgradesecurities,certificatesofdepositorgovernmentsecurities,buttheseinvestmentsmaynotproduceincomeormaylosevalue.

Ourprincipalstockholders,executiveofficersanddirectorsownasignificantpercentageofourstockand,asaresult,thetradingpriceforoursharesmaybedepressedandthesestockholderscantakeactionsthatmaybeadversetoyourinterests.

Ourexecutiveofficersanddirectors,andentitiesaffiliatedwithdirectors,willbeneficiallyownatotalofapproximately%ofourcommonstockfollowingthisoffering.Thesestockholders,actingtogether,willhavetheabilitytodecideallmattersrequiringapprovalbyourstockholders,includingtheelectionandremovalofdirectors,andanyproposedmerger,consolidationorsaleofallorsubstantiallyallofourassets.Inaddition,theycoulddictatethemanagementofourbusinessandaffairs.Asignificantconcentrationofshareownershipcanadverselyaffectthetradingpriceofourcommonstockbecauseinvestorsoftendiscountthevalueofstockincompaniesthathavecontrollingstockholders.Further,theconcentrationofownershipinourcompanycoulddelay,deferorpreventamerger,consolidation,takeoverorotherbusinesscombinationthatcouldbefavorabletoyou.

AntitakeoverprovisionsinourcharterdocumentsandunderDelawareandWashingtonlawcouldpreventapotentialacquirerfrombuyingourstockandcouldpreventorfrustrateanyattemptbystockholderstochangethedirectionofourbusinessorourmanagement.

Provisionsofourrestatedcertificateofincorporationandbylaws,aswellasprovisionsofDelawareandWashingtonlaw,maymakeitmoredifficultforathirdpartytoacquireus,evenifdoingsowouldbebeneficialforourstockholders.Thiscouldpreventorfrustrateanyattemptbystockholderstochangethedirectionofourbusinessorourmanagement,andcouldlimitthepricethatcertaininvestorsmightbewillingtopayinthefutureforourcommonstock.Forexample,certainprovisionsofourrestatedcertificateofincorporationorbylawsinclude: allowingourboardofdirectorstoissuepreferredstockwithoutanyvoteorfurtheractionbythestockholders prohibitingtherightofstockholderstoactwithoutameeting prohibitingtherightofstockholderstocallaspecialmeeting prohibitingcumulativevotingintheelectionofdirectors specifyingrestrictiveproceduresfordirectornominationsbystockholders specifyingthatdirectorsmayberemovedonlywithcauseand specifyasupermajorityrequirementforstockholderstochangethenumberofdirectors.

WearesubjecttocertainprovisionsofDelawareandWashingtonlawthatcouldalsodelayormakemoredifficultamerger,tenderofferorproxycontestinvolvingus.Inparticular,Section203oftheDelawareGeneralCorporationLawprohibitsaDelawarecorporationfromengagingincertainbusinesscombinationswithanyinterestedstockholderforaperiodofthreeyears,unlessspecificconditionsaremet.Similarly,Chapter23B.19oftheWashingtonBusinessCorporationActprohibitscorporationsbasedinWashingtonfromengagingincertainbusinesscombinationswithanyinterestedstockholderforaperiodoffiveyearsunlessspecificconditionsaremet.

Inaddition,certainprovisionsofDelawareandWashingtonlawcouldhavetheeffectofdelaying,deferringorpreventingachangeincontrolofCorus,including,withoutlimitation,discouragingaproxycontestormakingmoredifficulttheacquisitionofasubstantialblockofourcommonstock.Theprovisionscouldalsolimitthepricethatinvestorsmightbewillingtopayinthefutureforsharesofourcommonstock.

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SPECIALNOTEREGARDINGFORWARDLOOKINGSTATEMENTS

Thisprospectuscontainsforwardlookingstatements,whichprovideourcurrentexpectationsorforecastsoffutureevents.Forwardlookingstatementsinclude,withoutlimitation:

informationconcerningpossibleorassumedfutureresultsofoperations,trendsinfinancialresultsandbusiness

plans statementsaboutthelevelofourcostsandoperatingexpenses statementsaboutourexpectationsforregulatoryapprovalofanyofourproductcandidates statementsaboutourproductdevelopmentactivitiesandschedules statementsaboutoursuppliersabilitiestoperformtheirsupplyobligations statementsaboutourpotentialorprospectsforfutureproductsales

statementsaboutourfuturecapitalrequirementsandthesufficiencyofourcash,cashequivalents,investmentsandothersourcesoffundstomeettheserequirements

statementsabouttheindicationsforwhichourproductcandidateswillbeused

statementsaboutourabilitytoprotectourintellectualpropertyandoperateourbusinesswithoutinfringingonthe

intellectualpropertyrightsofothers,includingstatementsaboutthecostsinvolvedinenforcingordefendingpatentclaims

otherstatementsaboutourplans,objectives,expectationsandintentionsand otherstatementsthatarenothistoricalfacts.

Wordssuchasbelieves,anticipates,expectsandintendsmayidentifyforwardlookingstatements,buttheabsenceofthesewordsdoesnotnecessarilymeanthatastatementisnotforwardlooking.Forwardlookingstatementsaresubjecttoknownandunknownrisksanduncertaintiesandarebasedonpotentiallyinaccurateassumptionsthatcouldcauseactualresultstodiffermateriallyfromthoseexpectedorimpliedbytheforwardlookingstatements.Ouractualresultscoulddiffermateriallyfromthoseanticipatedintheforwardlookingstatementsformanyreasons,includingthefactorsdescribedintheRiskFactorssectionofthisprospectus.Otherfactorsbesidesthosedescribedinthisprospectuscouldalsoaffectactualresults.YoushouldcarefullyconsiderthefactorsdescribedinthesectionentitledRiskFactorsinevaluatingourforwardlookingstatements.

Theseforwardlookingstatementsspeakonlyasofthedateofthisprospectus.Weundertakenoobligationtopubliclyreviseanyforwardlookingstatementtoreflectcircumstancesoreventsafterthedateofthisprospectusortoreflecttheoccurrenceofunanticipatedevents.

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USEOFPROCEEDS

Weestimatethatthenetproceedsfromoursaleofsharesofcommonstockinthisofferingwillbeapproximately$million,orapproximately$millioniftheunderwritersexercisetheiroverallotmentoptioninfull.Thisestimateisbasedonanassumedinitialpublicofferingpriceof$pershare,lesstheunderwritingdiscountandestimatedofferingexpensespayablebyus.

Theprincipalpurposesofthisofferingaretoobtainadditionalcapital,tocreateapublicmarketforourcommonstockandtofacilitateourfutureaccesstopublicequitymarkets.

Weexpecttouseamajorityofthenetproceedsfromthisofferingtocontinueourdevelopmentandactivitiesinsupportofanticipatedcommercializationofourleadproductcandidates,Corus1020andCorus1030,aswellastofundcontinueddevelopmentofourotherresearchanddevelopmentactivitiesandforothergeneralcorporatepurposesandworkingcapital.Duetotheuncertaintiesinherentintheproductdevelopmentprocess,itisdifficulttoestimatetheexactamountsofthenetproceedsofthisofferingthatmaybeusedforthefurtherdevelopmentofCorus1020,Corus1030orourotherresearchanddevelopmentactivities.Wemayalsouseaportionofthenetproceedstoacquireadditionaltechnologiesorproductcandidates,butwecurrentlydonothaveanyspecificacquisitionsplanned.Ourboardofdirectorsretainsbroaddiscretioninhowthenetproceedsofthisofferingmaybeused.Untilweneedtousethenetproceedsofthisoffering,weintendtoinvestthenetproceedsininterestbearing,shortterm,investmentgradesecurities,certificatesofdepositorgovernmentsecurities.

NOTICESTOINVESTORS

Youshouldrelyonlyontheinformationcontainedinthisprospectus.Wehavenot,andtheunderwritershavenot,authorizedanyonetoprovideyouwithinformationdifferentfromthatcontainedinthisprospectus.Weareofferingtosellsharesofcommonstockandseekingofferstobuysharesofcommonstockonlyinjurisdictionswhereoffersandsalesarepermitted.Theinformationcontainedinthisprospectusisaccurateonlyasofthedateonthefrontcoverofthisprospectus,regardlessofthetimeofdeliveryofthisprospectusoranysaleofthecommonstock.

ForinvestorsoutsidetheUnitedStates:Neitherwenoranyoftheunderwritershavedoneanythingthatwouldpermitthisofferingorpossessionordistributionofthisprospectusinanyjurisdictionwhereactionforthatpurposeisrequired,otherthanintheUnitedStates.Youarerequiredtoinformyourselvesaboutandtoobserveanyrestrictionsrelatingtothisofferingandthedistributionofthisprospectus.

DIVIDENDPOLICY

Wehaveneverdeclar