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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the fiscal year ended December 31, 2005.
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the transition period from to .

Commission File Number 000-50438

Myogen, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		84-1348020
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7575 West 103rd Avenue, Suite 102

Westminster, Colorado 80021

(303) 410-6666

(Address, including zip code, and telephone number,

including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock $.001 Par Value

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of common stock held by non-affiliates of the Registrant (based upon the closing sale price of such shares on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the Nasdaq National Market) was $117,808,768. All executive officers and directors of the Registrant and all person filing a Schedule 13D with the Securities and Exchange Commission in respect to Registrant’s Common Stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the Registrant.

As of March 8, 2006 there were 42,175,313 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the 2006 Annual Meeting of Stockholders are incorporated by reference into Part III of this report on Form 10-K to the extent stated therein.

PART I

Unless the context requires otherwise, references in this report to “Myogen,” the “Company,” “we,” “us,” and “our” refer to Myogen, Inc.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements concerning our plans to continue development of our current product candidates; conduct clinical trials with respect to our product candidates; seek regulatory approvals; address certain markets; engage third-party manufacturers to supply our clinical trial and commercial requirements; hire sales and marketing personnel; and evaluate additional product candidates for subsequent clinical and commercial development. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties that may cause our or our industry’s results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among other things, those discussed under the captions “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements not specifically described above also may be found in these and other sections of this report.


ITEM 1.	*BUSINESS*

Overview

We are a biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapeutics for the treatment of cardiovascular disorders. We believe our advanced understanding of the biology of cardiovascular disease combined with our clinical development expertise in cardiovascular therapeutics provide us with the capability to discover novel therapies, as well as identify, license, acquire and develop products that address serious, debilitating cardiovascular disorders that are not adequately treated with existing therapies.

On March 3, 2006, we entered into a broad collaboration with GlaxoSmithKline in connection with which we licensed manufacturing, development and commercialization rights for ambrisentan to GlaxoSmithKline in all territories outside of the United States and, simultaneously, received rights to market and distribute Flolan^® (epoprostenol sodium) for a three year period in the United States. Flolan^® was approved by the FDA in 1995 and is indicated for the long term intravenous treatment of primary pulmonary hyptertension and pulmonary hypertension associated with the scleroderma spectrum of disease in NYHA Class III and Class IV patients who do not respond adequately to conventional therapy. We expect to commence distribution and marketing of Flolan^® in the second quarter of 2006. We also conduct a drug discovery research program in collaboration with the Novartis Institutes for BioMedical Research, Inc. (Novartis), through which we seek to discover and develop disease-modifying drugs for chronic heart failure and related disorders.

clinical development of, and obtain regulatory approvals for, ambrisentan and darusentan, (ii) discover and develop novel therapeutics which slow or reverse the progression of cardiovascular disease, and (iii) identify and acquire additional preclinical and clinical-stage compounds. In March 2006, we started to build our commercial capabilities in the United States, initially focused on the PAH market. We plan to further expand our commercial capabilities in targeted markets prior to approval, if any, of our product candidates. We may enter into additional co-promotion or licensing partnerships with larger pharmaceutical or biotechnology companies when necessary to reach selected larger or foreign markets. Similarly, we intend to selectively enter into strategic research and development collaborations with other pharmaceutical or biotechnology companies to advance our research program.

We are a development stage company. We have incurred losses each year since our inception and had an accumulated deficit of $239.2 million as of December 31, 2005. We incurred losses from continuing operations of $64.0 million, $59.0 million and $44.4 million for the years 2005, 2004 and 2003, respectively. Our research and development expenses have historically been much higher than our revenues. Our primary business activities have been focused on the development of enoximone capsules (a program which we discontinued in mid-2005), ambrisentan and darusentan. From inception to December 31, 2005, we have incurred expenses of approximately $96.6 million, $57.8 million and $14.7 million for the development of enoximone capsules, ambrisentan and darusentan, respectively. These expenses represent both clinical development costs and the costs associated with non-clinical support activities such as toxicological testing, manufacturing process development and regulatory consulting services. We also report the costs of product licenses in this category, including our milestone payment obligations associated with the licensing of our product candidates.

Our revenue from continuing operations for 2005 was derived from research and development contracts revenues from our agreement with Novartis signed in October 2003. We expect that our near-term revenues will be derived from research and development contracts revenue from Novartis and the marketing and distribution of Flolan^® in the United States, which we expect to commence in the second quarter of 2006. Except with respect to our collaboration relating to histone deacetylase inhibitors (HDACi), our collaboration agreement with Novartis will expire under its terms in October of this year unless renewed by Novartis.

Our on-going development programs for ambrisentan and darusentan will be lengthy and expensive. Even if clinical trials show our product candidates to be safe and effective in treating their target conditions, we do not expect to be able to record commercial sales of any of our product candidates until the second half of 2007 at the earliest. As a result of these development program expenses and the costs of preparing for the possible commercial launch of ambrisentan and darusentan, we expect to incur significant and growing losses for the foreseeable future. Although the size and timing of our future operating losses are subject to significant uncertainty, we expect them to continue to increase over the next several years as we continue to fund our development programs and prepare for potential commercial launch of our product candidates. Our primary source of working capital has been equity financings.

The pace and outcome of our clinical development programs and the progress of our discovery research program are difficult to predict. If we enter into additional third party collaborations or acquire new product candidates, the timing and amounts of any related licensing cash flows or expenses are likely to be highly variable. As a result, we anticipate that our quarterly results will fluctuate for the foreseeable future. In view of this variability and of our limited operating history, we believe that period-to-period comparisons of our operating results are not meaningful and you should not rely on them as indicative of our future performance.

We were incorporated in Colorado in June 1996 and we reincorporated in Delaware in May 1998. We operate as a single business segment. Our website address is www.myogen.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website, http://www.myogen.com, as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Additionally, you may read and copy materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by

calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.

The Cardiovascular Market

The term cardiovascular disease is used to describe a continuum of clinical conditions resulting primarily from three underlying chronic diseases: atherosclerosis, hypertension and diabetes. These underlying diseases cause permanent damage to the heart, blood vessels and kidneys, leading to progressively debilitating clinical conditions such as chronic heart failure, hypertension, chronic renal disease, heart attack and stroke.

Cardiovascular disease is the second leading cause of death and disability in the United States, accounting for 19% of all hospitalizations in short-stay, non-Federal hospitals and over 58% of total mortality in 2003. The American Heart Association estimates that the total direct and indirect costs of cardiovascular disease in the United States will be approximately $403 billion in 2006, including $50 billion in costs for drugs and related medical durables and $157 billion in hospitalization and nursing home costs. Despite improved treatments and increased awareness of preventative measures, approximately 71 million people in the United States currently suffer from one or more types of cardiovascular disease.

Over the past 25 years, a variety of drug classes such as beta-blockers, calcium channel blockers, diuretics, angiotensin converting enzyme (ACE) inhibitors, endothelin receptor antagonists (ERAs) and angiotensin receptor blockers (ARBs) have been used to treat various cardiovascular diseases. Several of these agents have helped to increase the survival times of patients who suffer from cardiovascular diseases. However, many current therapies do not adequately address the underlying molecular mechanisms of cardiovascular disease. Cardiovascular disease remains progressive in a large portion of patients, many of whom continue to deteriorate even when treated with multiple drugs simultaneously. We believe that recent advances in the understanding of the molecular biology of cardiovascular diseases provide an opportunity to improve on existing therapies and to discover and develop new therapeutics to ameliorate the symptoms and perhaps to slow or reverse the progression of these diseases.

Our Strategy

Our goal is to create an integrated biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics that address the fundamental mechanisms involved in cardiovascular disease, with an initial focus on PAH, resistant hypertension and chronic heart failure. The key elements of our strategy are to:


	•	Complete the clinical development of our late-stage clinical compounds. We are currently focused on developing and obtaining regulatory approval for two late-stage product candidates: ambrisentan and darusentan.

	•	Develop sales and marketing capabilities. We expect to retain significant commercial rights to our product candidates and plan to develop our own direct sales force focused on targeted geographic markets, including the United States. We also intend to establish co-promotion and licensing arrangements with larger pharmaceutical or biotechnology firms to address selected larger or foreign markets. We recently entered into a broad collaboration with GlaxoSmithKline in PAH to accelerate the development of our commercial capabilities.

	•	Discover and develop novel therapeutics for the treatment of cardiovascular diseases. We will continue to focus our target and drug discovery research programs and our collaborations on discovering and developing disease-modifying therapeutics for cardiovascular disease. We entered into a research collaboration with Novartis to support these programs.

	•	Establish and build upon strategic collaborations. We intend to continue to complement our internal capabilities by establishing and building upon collaborations with pharmaceutical and biotechnology companies, such as GlaxoSmithKline and Novartis, that improve our ability to move new compounds into the clinic and new products into the marketplace.


	•	Acquire additional product candidates. We intend to pursue attractive development-stage compounds through acquisition or in-licensing. We believe our expertise in cardiovascular medicine and understanding of the biological pathways associated with cardiovascular disorders makes us an attractive partner for companies seeking to out-license or divest product candidates.

Our Product Portfolio

Our staff and collaborators, along with our academic founders, Dr. Michael Bristow, Dr. Leslie Leinwand and Dr. Eric Olson, have made significant contributions to defining the molecular bases of cardiovascular disease and improving its treatment. We believe that our expertise enables us to discover and develop therapies that address cardiovascular disease and underlying disorders, evaluate and in-license product candidates and guide our clinical development efforts. We are currently developing two product candidates for distinct cardiovascular conditions and have sublicensed our rights to market another product in Europe. In addition, we expect to begin marketing and distributing Flolan^® in the United States in the second quarter of 2006.

Flolan^® (epoprostenol sodium)

We have the exclusive right to market, promote and distribute Flolan^® and the sterile diluent for Flolan^® in the United States for a three year period beginning after we commence certain commercial activities. Flolan^® was approved by the FDA in 1995 and is indicated for the long term intravenous treatment of primary pulmonary hypertension and pulmonary hypertension associated with the scleroderma spectrum of disease in NYHA Class III and Class IV patients who do not respond adequately to conventional therapy. We have started to expand our commercial infrastructure in anticipation of our distribution of Flolan^® and commencement of related sales and marketing activities beginning in the second quarter of 2006. We do not expect to generate significant profit, if any, from our marketing and distribution of Flolan^®. Rather, we believe that the Flolan^® distribution arrangement with GlaxoSmithKline will allow us to offset a portion of the cost associated with the initial expansion of our sales and marketing operations. In addition, we expect that the arrangement will allow us to obtain marketing and field selling expertise and recognition in PAH in the United States, well in advance of the potential launch of ambrisentan, and expand our understanding of customer needs, reimbursement opportunities and PAH market dynamics in general.

Selective Oral Endothelin Receptor Antagonists: Ambrisentan and Darusentan

Ambrisentan and darusentan are orally administered members of a class of therapeutic agents known as endothelin receptor antagonists, or ERAs. Endothelin is a small peptide hormone that is believed to play a critical role in the control of blood flow and cell growth. Elevated endothelin blood levels are associated with several cardiovascular disease conditions, including PAH, chronic kidney disease, hypertension, chronic heart failure, stroke and restenosis of arteries after balloon angioplasty or stent implantation. Therefore, many scientists believe that agents that block the detrimental effects of endothelin may provide significant benefits in the treatment of these conditions.

There are two classes of endothelin receptors, ETA and ETB, which play significantly different roles in regulating blood vessel diameter. The binding of endothelin to ETA receptors located on smooth muscle cells causes vasoconstriction, or narrowing of the blood vessels. However, the binding of endothelin to ETB receptors located on the vascular endothelium causes vasodilation through the production of nitric oxide and prostacyclin. The activity of the ETB receptor is thought to be counter-regulatory, protecting against excessive vasoconstriction.

We believe an opportunity exists for ERAs that bind selectively to the ETA receptor in preference to the ETB receptor. Such selective ETA antagonists may block the negative effects of endothelin by preventing the harmful effects of vasoconstriction and cell proliferation, while preserving the beneficial effects of the ETB receptor. We believe that the potential clinical benefits of selective ETA antagonists may position these compounds as the treatment of choice for PAH, resistant hypertension and potentially other cardiovascular disorders.

Ambrisentan and darusentan are ERAs that have demonstrated selectivity for the ETA receptor in preclinical studies. The compounds demonstrate high potency, high bioavailability and half-lives that we believe may be suitable for once daily dosing. We believe our ERAs may offer significant advantages over other ERAs, including greater selectivity and potency and enhanced and more durable efficacy, safety and ease of use (alone or in combination with other therapies).

Endothelin appears to be involved in the progression of several other conditions, including chronic heart failure, chronic renal disease, other forms of pulmonary hypertension and certain forms of cancer. We believe that ETA-selective ERAs, such as ambrisentan or darusentan, could have therapeutic potential in some of these conditions and we are currently evaluating whether to pursue any of these additional conditions.

Ambrisentan

PAH is a highly debilitating disease characterized by severe constriction of the blood vessels in the lungs leading to very high pulmonary arterial pressures. These high pressures make it difficult for the heart to pump blood through the lungs to be oxygenated. PAH can occur with no known underlying cause, or it can occur secondary to diseases like scleroderma (an autoimmune disease of the connective tissues), cirrhosis of the liver, congenital heart defects and HIV infection. Patients with PAH suffer from extreme shortness of breath as the heart struggles to pump against these high pressures causing such patients to ultimately die of heart failure. PAH afflicts approximately 200,000 patients in the United States and the European Union.

Mild to moderate PAH is currently treated with calcium channel blockers, diuretics and anticoagulants. As patients advance into more severe stages of disease, moderate to severe PAH, they are typically treated with one or more of the following medications: intravenous, subcutaneous or inhaled prostacyclin analogs; phosphodiesterase-5 inhibitors (PDE-5 inhibitors); and ERAs.

Ambrisentan is being developed as an oral therapy for patients with PAH. We completed a Phase 2 clinical trial of ambrisentan in September 2003 and ARIES-2, one of our two pivotal Phase 3 trials of ambrisentan, in December 2005. In addition, we completed patient enrollment in ARIES-1, our other pivotal Phase 3 trial of ambrisentan, on November 30, 2005 and expect to report top line results from the trial in April 2006. Ambrisentan has been granted orphan drug designation for the treatment of PAH in both the United States and the European Union.

To date, the results of our clinical studies of ambrisentan have indicated that ambrisentan may provide some or all of the following benefits to PAH patients:


	•	Improvement in exercise capacity that is significant, early in onset and durable;

	•	Significant improvement in time to clinical worsening;

	•	Comparable benefit in exercise capacity in patients with WHO functional class II and class III symptoms;

	•	An apparent survival benefit when compared with predicted survival based on the National Institutes of Health Registry formula;

	•	Effectiveness with once-daily dosing and the potential for dose flexibility;

	•	Low incidence and severity of liver function test abnormalities at all doses tested;

	•	Potential utility in resuming endothelin receptor antagonist (ERA) treatment in patients who have discontinued treatment with the alternative ERAs, bosentan or sitaxsentan, or both, due to liver function abnormalities; and

	•	No apparent drug-drug interactions with warfarin-type anticoagulants or sildenafil, a PDE-5 inhibitor.

Based on results to date and the properties of ambrisentan, we believe that, if ambrisentan is ultimately approved, it may offer significant clinical benefit to PAH patients not provided by other PAH therapies.

Phase 3 Clinical Trials

We initiated two pivotal Phase 3 trials of ambrisentan, ARIES-1 & -2, in early 2004. We completed patient enrollment in ARIES-2 on July 21, 2005 and reported top line results from the trial in December 2005. In addition, we completed patient enrollment in ARIES-1 on November 30, 2005 and expect to report top line results in April 2006. These trials are randomized, double-blind, placebo-controlled trials of identical design except for the doses of ambrisentan studied and the geographic locations of the investigative sites. Both trials were designed to enroll 186 patients (62 patients per dose group). ARIES-1 will evaluate once-daily doses of 5 mg and 10 mg of ambrisentan. ARIES-2 evaluated once-daily doses of 2.5 mg and 5 mg of ambrisentan. The primary efficacy endpoint of these trials is exercise capacity, measured as the mean change from baseline at 12 weeks in the six-minute walk distance (6MWD) compared to placebo. Secondary endpoints include time to clinical worsening, WHO functional class, the SF-36^tm Health Survey, and Borg dyspnea index. ARIES-2 enrolled 192 patients primarily from Europe, while ARIES-1 enrolled 202 patients primarily from the United States. In addition, more than 400 patients continue ambrisentan treatment in long-term trials with maximum exposure of more than three years.

In December 2005, we reported positive top line results from our ARIES-2 trial. The trial met the primary efficacy endpoint of improved exercise capacity, the key secondary endpoint of time to clinical worsening and several other secondary efficacy endpoints. The primary efficacy endpoint of ARIES-2 was the placebo-corrected mean change in 6MWD at week 12 compared to baseline. Results of the trial demonstrated that with once-daily dosing, 5 mg of ambrisentan improved the placebo-corrected mean 6MWD by 59.4 meters (p=0.0002) and 2.5 mg of ambrisentan improved the placebo-corrected mean 6MWD by 32.3 meters (p=0.0219). For the placebo group, the mean 6MWD at week 12 decreased from baseline by 10.1 meters. Improvements in time to clinical worsening compared to placebo were observed for both the 5 mg dose group (p=0.0076) and the 2.5 mg dose group (p=0.0048). Additional results of the trial will be presented at ATS 2006 • San Diego, the annual International Conference of the American Thoracic Society to be held May 19-24, 2006 at the San Diego Convention Center in San Diego, California.

The trial safety results demonstrated ambrisentan was generally well tolerated. The most frequent adverse event in the ambrisentan group was headache, which occurred in 12.7% of patients in the 5 mg dose group and 7.8% in the 2.5 mg dose group, compared to 6.2% in the placebo group. No patient treated with ambrisentan developed serum aminotransferase concentrations greater than three-times the upper limit of the normal range, compared to one patient in the placebo group. Ambrisentan had no apparent effect on the activity or dosage of warfarin-type anticoagulants commonly prescribed for patients with PAH.

In March 2004, we initiated a long-term study of patients who have participated in our pivotal Phase 3 clinical trials of ambrisentan (ARIES-E). This study will examine the efficacy and safety of three blinded doses (2.5, 5, or 10 mg) of ambrisentan for a period of at least 24 weeks, followed by a long-term dose adjustment period. Patients who received placebo in the Phase 3 studies will receive one of three doses of ambrisentan.

Phase 2 Clinical Trials

In September 2003, we completed a randomized, double-blind, multi-center, dose-ranging Phase 2 study evaluating the effect of ambrisentan on exercise capacity of patients with mild to moderate PAH. Exercise capacity was the primary efficacy endpoint and was measured as the change from baseline in the six-minute walk test distance after 12 weeks of treatment. The secondary endpoints were World Health Organization (WHO) functional class, Borg dyspnea index, Patient Global Assessment, and time to clinical worsening, which are tests used by physicians to assess the severity of PAH. Cardiopulmonary hemodynamics (blood pressures and blood flow in the heart and lungs) were evaluated in a subset of patients.

A total of 64 patients were randomized to one of four ambrisentan dose groups (1, 2.5, 5 or 10 milligrams). Doses were administered orally, once-daily for 12 weeks. After 12 weeks of treatment, patients were allowed to enter an optional 12-week open-label extension period of the study where dose adjustment was allowed. This open-label extension period was followed by an optional long-term open-label safety study that is still ongoing. A total of 54 patients enrolled in the open-label study and, as of March 8, 2006,

42 patients continued to participate in the study and receive ambrisentan therapy. The results of these Phase 2 trials have demonstrated, among other things, a statistically significant, clinically meaningful and durable increase in exercise capacity as measured by the six-minute walk test for all ambrisentan dose groups tested.

Abnormal liver function test (LFT) results that are indicative of potential liver toxicity have previously been reported as complications in trials of other ERAs. LFT abnormalities were defined in our Phase 2 study as a confirmed serum aminotransferase level greater than three times the upper limit of the normal range. During the 12-week blinded treatment period of the Phase 2 trial, one patient was taken off ambrisentan due to an abnormally high LFT result (in excess of eight times the upper limit of the normal range). After halting treatment, the patient’s serum aminotransferase level returned to a normal level without apparent adverse effects on the patient’s health. During the second 12-week open-label extension period, another patient had their dose of ambrisentan reduced due to a confirmed abnormally high LFT result (in excess of three times the upper limit of the normal range). Two additional patients had LFT results that fluctuated above the normal range during the open-label extension period, and on one occasion each had an initial LFT result that was marginally above the threshold of three times the upper limit of the normal range, but upon repeat testing, the results were below the threshold. Detailed results of this trial were published in the August 2005 issue of the Journal of the American College of Cardiology by Dr. Nazzareno Galié et. al.

In February 2006, we announced positive top line results of the AMB-222 study, an open-label study of ambrisentan in patients with PAH who have previously discontinued bosentan and/or sitaxsentan treatment due to liver function abnormalities. The primary endpoint of the trial was the incidence of serum aminotransferase concentrations greater than 3xULN during the 12-week evaluation period that resulted in discontinuation of drug. None of the 36 patients enrolled in the study had a recurrence of liver function abnormalities that resulted in discontinuation of ambrisentan during the initial 12-week evaluation period. One patient had a transient serum aminotransferase test result greater than three-times the upper limit of the normal range (3xULN) at week 12 that resulted in dose reduction from 5 mg to 2.5 mg ambrisentan. This patient remains on ambrisentan therapy and has not had a recurrence of serum aminotransferases greater than 3xULN. Patients have continued to receive ambrisentan therapy for periods up to 10 months (mean exposure of 6 months) and no further occurrence of serum aminotransferase concentrations greater than 3xULN has been observed. Of the 36 patients enrolled in the study, 31 (86%) had discontinued bosentan, 2 (6%) had discontinued sitaxsentan and 3 (8%) had discontinued both bosentan and sitaxsentan, sequentially, due to serum aminotransferase abnormalities. Also, 17 (47%) of the patients were receiving concomitant sildenafil therapy.

Phase 1 Drug — drug Interaction Studies

We recently completed a Phase 1 study examining the potential for drug-drug interactions between ambrisentan and sildenafil. The study results demonstrated that multiple doses of ambrisentan had no significant interaction with sildenafil. Similarly, multiple doses of sildenafil did not alter the pharmacokinetics of ambrisentan. In addition, we recently completed a Phase 1 study examining the potential for drug-drug interactions between ambrisentan and warfarin. The study results demonstrated that multiple doses of ambrisentan had no significant effect on prothrombin time, international normalized ratio (INR) and/or the pharmacokinetics of warfarin. Full results of these studies will be submitted for presentation at future scientific conferences.

Long Term LFT Data

To date, the incidence of confirmed serum aminotransferase test results greater than three times the upper limit of the normal range (3xULN) in ARIES-E and our Phase 2 extension trial remains less than 1% in the aggregate.

Darusentan

Hypertension affects approximately 65 million individuals in the United States and approximately one billion worldwide. In the United States, approximately 60% of these individuals are diagnosed and prescribed anti-hypertensive therapy (e.g., diuretics, ACE inhibitors, angiotensin receptor blockers, beta-blockers, calcium

channel blockers, central alpha receptor agonists, peripheral alpha antagonists and vasodilators). Nonetheless, an estimated 10% to 30% of treated patients remain at risk for serious cardiovascular and renal complications because they are unable to achieve blood pressures within the recommended ranges despite taking multiple anti-hypertensive medications on a daily basis.

The “Seventh Report of the Joint National Committee on Prevention, Detection, Evaluation and Treatment of High Blood Pressure” (JNC7), issued in May 2003, has focused attention on this problem and defines resistant hypertension as “the failure to achieve goal blood pressure in patients who are adhering to full doses of an appropriate three-drug regimen that includes a diuretic.” According to JNC7, a systolic blood pressure of less than 140 mmHg and a diastolic blood pressure of less than 90 mmHg are recommended for patients with hypertension and no other serious conditions. For patients with diabetes or chronic renal disease, target systolic and diastolic blood pressures are more stringent — a systolic blood pressure goal of less than 130 mmHg and a diastolic blood pressure goal of less than 80 mmHg.

We believe there is a significant need for a therapeutic agent that, when used in combination with currently available medications, is capable of lowering blood pressure in patients with resistant hypertension. In addition, we believe this need cannot be adequately addressed simply by improving compliance or optimizing dosages of existing anti-hypertensive medications, but instead requires innovative new drugs with new mechanisms of action.

As an ERA, darusentan acts through a different mechanism of action than existing anti-hypertensive therapies. It also demonstrates high potency, high bioavailability and a half-life that we believe is suitable for once-daily dosing.

Recent Phase 2b Clinical Trial of Darusentan

In July 2004, we initiated a Phase 2b randomized, double-blind, placebo-controlled clinical trial to evaluate the safety and efficacy of darusentan in patients with resistant hypertension. Patients were eligible for enrollment in this trial if they had a systolic blood pressure greater than or equal to 140 mmHg despite treatment with full doses of three anti-hypertensive medications, one of which was a diuretic, and no other serious conditions. For patients with diabetes or chronic renal disease, the systolic blood pressure inclusion criteria was lower, namely a systolic blood pressure greater than 130 mmHg. A total of 115 patients were randomized to darusentan or placebo at approximately 30 investigative sites in the United States. Patients underwent forced titration every two weeks through 10, 50, 100 and 150 mg of darusentan or placebo until the target dose of 300 mg once daily was achieved. The treatment period was ten weeks followed by a two week drug withdrawal period.

On August 18, 2005, we reported positive top line results of the trial. The trial results achieved the primary endpoint and demonstrated that 300 mg of darusentan dosed once daily provided statistically significant, placebo-corrected reductions of 11.5 mmHg (p=0.015) in systolic blood pressure and 6.3 mmHg (p=0.004) in diastolic blood pressure. Clinically meaningful reductions in systolic and diastolic blood pressure were also observed at earlier time points, at lower doses and in the subset of patients being treated with full doses of four or more anti-hypertensive medications, one of which was a diuretic. Trial results demonstrated darusentan was generally well tolerated. The most common adverse event was peripheral edema. There were no observed serum aminotransferase concentrations above two times the upper limit of the normal range. Previous clinical trials with other ERAs in patients with hypertension demonstrated dose-dependent increases in serum aminotransferase concentrations, requiring withdrawal of therapy for safety reasons.

Phase 3 Clinical Development Program

Based on the results of the Phase 2b trial, we expect to initiate the darusentan Phase 3 clinical program for the treatment of resistant hypertension in 2006. The expected designs of the first two trials are described below. We expect to initiate the DAR-311 trial in the second quarter of 2006 and the DAR-312 trial in the second half of 2006. Upon completion of the initial 14-week assessment periods, patients will be eligible to enroll in a long-term safety study. Patients enrolled in the two long-term studies will be treated and followed for safety for at least six months with a mean exposure expected to be in excess of one year. We also expect

that we will undertake additional studies, including additional Phase 3 and Phase 4 studies, in this indication for commercial support and/or regulatory approval.


	•	DAR-311. The primary objective of this Phase 3 randomized, double-blind, placebo-controlled parallel group trial is to determine if darusentan is effective in reducing systolic blood pressure in resistant hypertension patients currently treated with full doses of four or more antihypertensive medications, one of which is a diuretic. Patients are eligible for enrollment in this trial if they have a systolic blood pressure greater than or equal to 140 mmHg and no other compelling conditions. For patients with diabetes or chronic kidney disease, the blood pressure inclusion criterion is a systolic blood pressure greater than 130 mmHg. Approximately 352 patients will be randomized to one of three doses of darusentan (50, 100, or 300 mg qd) versus placebo in a ratio of 7:7:7:11. The treatment period for the trial is 14 weeks. The primary endpoint of the trial is change from baseline to week 14 in trough sitting systolic blood pressure as compared to placebo.

	•	DAR-312. The primary objective of this Phase 3 randomized, double-blind, placebo-controlled trial is to determine if darusentan is effective in reducing systolic blood pressure in patients with resistant hypertension. Patients are eligible for enrollment in this trial if they have a systolic blood pressure greater than or equal to 140 mmHg despite treatment with full doses of three antihypertensive drugs, one of which is a diuretic, and no other compelling conditions. For patients with diabetes or chronic kidney disease, the blood pressure inclusion criterion is a systolic blood pressure greater than 130 mmHg. Approximately 770 patients will be randomized to darusentan, active control (guanfacine, an antihypertensive drug that acts as a central alpha agonist) or placebo, in a 3:3:1 ratio. The treatment period for the trial is 14 weeks. The efficacy analysis of the trial is change from baseline to week 14 in trough sitting systolic blood pressure compared to placebo and then compared to the active control.

Prior Darusentan Hypertension Clinical Results

In 2000, the original sponsor of darusentan evaluated the safety and efficacy of darusentan in 392 patients with moderate hypertension in a Phase 2/3 randomized, double-blind, placebo-controlled, dose-ranging trial. Unlike our Phase 2b trial, this study evaluated darusentan as monotherapy for hypertension and was conducted in a different patient population and under a different protocol. The primary endpoint of the trial was change in sitting diastolic blood pressure after six weeks of treatment. Changes in systolic blood pressure and heart rate were secondary endpoints.

The results of this study demonstrated that darusentan produced statistically significant and clinically meaningful reductions in diastolic and systolic blood pressures in a dose-dependent manner. The mean placebo-corrected change from baseline in systolic blood pressure was -6.0 mmHg on 10 mg, -7.3 mmHg on 30 mg and -11.3 mmHg on 100 mg darusentan after six weeks of treatment. Significant reductions in diastolic blood pressure were also observed (-3.7, -4.9 and -8.3 mmHg, for the three dose groups, respectively). Heart rate remained unchanged in all groups. Headache was the most commonly reported adverse event, with no relevant difference among placebo and active treatment groups. Flushing and peripheral edema were seen in a dose-dependent fashion in the darusentan treatment groups. There were no treatment-related elevations in liver function tests in the study.

Oral Enoximone and Perfan^® I.V.

On June 26, 2005, we announced top line results of ESSENTIAL I & II, our two Phase 3 trials of enoximone capsules in patients with advanced chronic heart failure. The trial results failed to demonstrate a statistically significant benefit for any of the three co-primary efficacy endpoints. Based on these results, we have discontinued funding of the development of enoximone capsules and will dedicate our resources to furthering the development of ambrisentan and darusentan and to our target and drug discovery program.

Perfan^® I.V. is the intravenous formulation of enoximone that is commercially available in several European countries and smaller foreign markets. We recorded sales of Perfan^® I.V. of $3.2 million in 2005. Additional financial information regarding our sales of Perfan^® I.V. by country for each of the past three fiscal years and our concentration of customers can be found in our financial statements beginning on page F-1. The

sales are included in discontinued operations, net of income taxes, as a result of the Perfan^® I.V. sublicense and sale transactions described below.

As a result of a detailed review of our strategic options, we sold Myogen GmbH, our wholly-owned European subsidiary, and sublicensed our rights to Perfan^® I.V. in markets outside North America to Wülfing Holding GmbH in January 2006. The sublicense agreement with Wülfing is subject to the terms of our license agreement with Aventis Pharmaceuticals, Inc. Under the terms of the sale and sublicense agreement with Wülfing, Wülfing paid us approximately $5.0 million in consideration of the transfer to Wülfing of our rights to certain Perfan^® trademarks, certain quantities of bulk enoximone compound and enoximone starter material, and our existing inventory of finished Perfan^® I.V. The sublicense also obligates Wülfing to pay us royalties based on net sales of Perfan^® I.V. outside North America. Such obligations are generally coterminous with our obligations to pay royalties to Aventis under the license agreement. In the event that a registration for Perfan^® I.V. is lost or suspended prior to December 31, 2009 in certain specified countries due to regulatory actions by the applicable regulatory authorities and Wülfing is in compliance with its obligations under the sublicense agreement, we are obligated to either reimburse up to an aggregate of $1.5 million to Wülfing or allow Wülfing to offset such amount against future royalty payments.

Under the terms of the stock purchase agreement with Wülfing, Wülfing purchased the outstanding capital stock of Myogen GmbH for an aggregate of approximately $1.1 million, including assumption of an intercompany account payable to us. The stock purchase agreement provides for customary representations and warranties regarding Myogen GmbH. Under the stock purchase agreement, we have agreed to indemnify Wülfing for breaches or inaccuracies of the representations and warranties as well as the payment of any taxes owed by Myogen GmbH through December 31, 2005. Our obligation to indemnify Wülfing for breaches of certain of the representations and warranties is subject to certain limitations and conditions.

Discovery Research

The goal of our target and drug discovery research is to discover and develop disease-modifying drugs for chronic heart failure and related disorders. Our drug discovery programs are scientifically based on the discoveries of three prominent academic scientists who are recognized experts in the field of cardiac hypertrophy and heart failure: Dr. Michael Bristow, professor of cardiology at the University of Colorado Health Sciences Center, Dr. Leslie Leinwand, chairperson of molecular, cellular and developmental biology at the University of Colorado, and Dr. Eric Olson, chairman of molecular biology at the University of Texas Southwestern Medical Center.

Through sponsored research programs with these investigators and licensing arrangements with their respective institutions, we have gained intellectual property rights to a series of cardiac molecular targets and signaling systems that we believe are of critical importance in cardiac muscle disease. In addition, our license agreement with the University of Colorado includes access to a human cardiac tissue library consisting of hundreds of failing and non-failing human hearts that we use to discover and validate targets for drug discovery. The rights to new discoveries can be licensed by us pursuant to our agreements with these investigators’ academic institutions, creating a source of novel molecular mechanisms and targets for our drug discovery operations.

We have built a drug discovery research team and infrastructure, which includes a compound library and high-throughput screening robotics. To date, we have advanced several targets through high-throughput screening and have identified a series of promising lead structures. We have established a collaboration agreement with Novartis to advance our drug discovery work.

We believe our advanced understanding of the biology of cardiovascular disease combined with our clinical development expertise in cardiovascular therapeutics allows us to better identify, license and acquire products. The Novartis collaboration presently covers nearly all of our discovery research projects. However, as we progress with projects that are not funded by this partner, we may enter into collaborations with other pharmaceutical and biotechnology companies that allow us to build upon our expertise in cardiovascular disease and/or leverage our current capabilities with additional capabilities that we do not have. We will seek

arrangements that improve our ability to move new compounds into the clinic and new products into the marketplace.

Drug Discovery Strategy

Many patients with chronic heart failure develop an abnormal enlargement of the heart called cardiac hypertrophy. The causes and effects of cardiac hypertrophy have been extensively documented, but the underlying molecular mechanisms that link the molecular signals to cell changes, or cardiac signaling pathways, remain poorly understood.

We believe that the fundamental drivers of pathological remodeling of the heart (abnormal growth, shape and function of the heart) are increases in ventricular wall stress and neurohormonal and growth factor stimulation of cardiac muscle. These processes are set in motion by primary insults to the heart, including myocardial infarction (heart attack) and chronic high blood pressure. Wall stress and associated growth promoting stimuli lead to changes in cardiomyocyte signaling pathways that ultimately produce pathological changes in gene expression in the heart.

One of the characteristic changes that occur in a failing heart is a change in gene expression wherein fetal genes that were turned off shortly after birth are reactivated in the disease process. Although this response may initially be beneficial to a patient with chronic heart failure, it becomes harmful as the disease progresses. Our scientists and academic collaborators at the University of Colorado and the University of Texas are focused on identifying the set of fetal genes that are reactivated in chronic heart failure, understanding the consequences of their reactivation and discovering the means to control their expression. This work has led to the discovery of several signaling pathways that appear to control the reexpression of fetal genes, down-regulation of adult genes, cardiac hypertrophy and its progression to dilated cardiomyopathy.

An essential component of our drug discovery strategy is to target the elements of gene expression regulation in the heart that are common to known cardiac remodeling and heart failure pathways. Of primary interest in this regard are the calcineurin, NFAT (Nuclear Factor of Activated T Cells) and MEF2 (Myocyte Enhancer Factor 2) signaling pathways and their regulation by Class II histone deacetylases (HDACs), enzymes that repress gene transcription, and other regulatory proteins. NFAT is a transcription factor (controls gene expression) that is regulated by the enzyme calcineurin in the heart and other tissues. MEF2 is a transcription factor regulated by Class II HDACs. In addition, we have discovered what we believe to be an important pathological role for Class I HDACs in pathological cardiac remodeling, and we have patented the use of HDAC inhibitors for treatment and prevention of cardiac disease.

We have developed a series of high-throughput screening assays based on these discoveries and have identified several lead compounds that appear to inhibit cardiomyocyte hypertrophy and/or reverse abnormal fetal gene expression. These compounds are currently being studied in our laboratories in cell and animal assays to examine safety and efficacy and optimization of lead structures is underway within our collaboration with Novartis.

Sales and Marketing

We expect that we will commence marketing and distributing Flolan^® in the United States in the second quarter of 2006. We plan to commercialize Flolan^® by building a focused sales and marketing organization. Assuming that we receive regulatory approval for our product candidates, we plan to commercialize them by expanding our sales and marketing organization complemented by co-promotion and licensing arrangements with pharmaceutical or biotechnology partners when necessary to reach larger markets. Our sales and marketing strategy is to:


	•	Build direct selling capability. We believe that a small- to moderately- sized sales force will effectively reach the specialists and medical institutions that treat a significant percentage of patients with conditions such as PAH and resistant hypertension. We recently started to build a sales force in the United States to prepare for the marketing and distribution of Flolan^®, which we expect to commence


		in the second quarter of 2006. We expect to increase the size of our sales force in the United States in 2007 to prepare for the launch of ambrisentan if it is ultimately approved.


	•	Build an internal marketing and sales support organization. Subsequent to the execution of our collaboration agreements with GlaxoSmithKline in March 2006, we started to build the necessary internal commercial organization to develop and implement product plans and support sales force activities in the United States. We do not expect to build a significant commercial organization outside of the United States in the near future.

	•	Establish partnership and co-promotion alliances. We intend to enter into co-promotion and licensing arrangements with pharmaceutical or biotechnology firms when necessary to reach larger markets. For example, we sublicensed our rights to ambrisentan outside of the United States to GlaxoSmithKline and we may explore co-development, co-promotion and geographic licensing arrangements for darusentan in the future.

Licensing Agreements and Collaborations

In October 2001, we entered into a license agreement with Abbott Laboratories, Inc. (Abbott) under which we received an exclusive worldwide license to develop and commercialize ambrisentan. In consideration for the license, we have paid Abbott initial license fees totaling $5.8 million, have paid a milestone fee of $1.5 million upon the initiation of the ARIES trials and have paid an additional $690,000 related to an additional feasibility and evaluation study performed on our behalf. If we successfully develop ambrisentan in PAH, we will be required to make additional milestone payments totaling $4.5 million as well as royalties based on net sales of ambrisentan. If we fail to commercialize ambrisentan in certain markets, Abbott may market the product on its own in the affected countries, paying us a royalty on its sales. We must use reasonable diligence to develop and commercialize ambrisentan and to meet milestones in completing certain clinical work. The agreement is of indefinite term, although either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other. We would be obligated to make additional milestone payments if we develop ambrisentan in additional indications. However, in no event would we be obligated to pay more than $25.5 million in total license and milestone fees excluding royalty obligations.

In June 2003, we entered into a license agreement with Abbott under which we received an exclusive worldwide license from Abbott to develop and commercialize darusentan for all conditions except oncology. In consideration for the license, we paid Abbott initial license fees of $5.0 million and are obligated to make future milestone payments totaling $25.0 million if we successfully commercialize the drug for a single condition. Additional milestone payments would be due if we commercialize darusentan for additional conditions. However, in no event would we be obligated to pay more than $50.0 million in total license and milestone fees. In addition, we will owe royalties based on net sales of darusentan. If we seek a co-promotion arrangement for darusentan in any country or group of countries, Abbott has the right of first negotiation. Abbott also has the option to negotiate to be our exclusive development and commercialization partner for darusentan in Japan, upon terms to be negotiated. If we do not commercialize darusentan in certain markets, Abbott may market the product on its own in the affected countries, paying us a royalty on its sales. We must use reasonable commercial diligence to develop and commercialize darusentan and to meet milestones in completing certain clinical work. The term of the agreement is indefinite, however, either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

On March 3, 2006, we entered into a License Agreement (the “GSK License Agreement”) with Glaxo Group Limited, a GlaxoSmithKline company, and a Distribution and Supply Agreement (the “Flolan Distribution Agreement”) with SmithKline Beecham Corporation, d/b/a GlaxoSmithKline (together with Glaxo Group Limited, “GlaxoSmithKline”). Under the terms of the GSK License Agreement, GlaxoSmithKline receives an exclusive sublicense to our rights to ambrisentan for therapeutic uses in humans for the prevention, palliation or treatment of pulmonary arterial hypertension and related etiologies outside of the United States. We received an upfront payment of $20 million and, subject to the achievement of specific milestones, will be eligible to receive up to an additional $80 million in milestone payments. In addition, we will receive tiered

royalties based on net commercial sales of ambrisentan in the GlaxoSmithKline territory with an estimated average royalty percentage in the mid-20’s range, prior to an industry standard step-down of the royalty payable to us after a specified period of time. GlaxoSmithKline will have an option to negotiate an exclusive sublicense for additional therapeutic uses for ambrisentan in the GlaxoSmithKline territory during the term of the GSK License Agreement. We will continue to conduct and bear the expense of all clinical development activities that we currently believe are required to obtain and maintain regulatory approvals for ambrisentan in the United States, Canada and the European Economic Area and each party may conduct additional development activities in its territory at its own expense. The parties may agree to jointly develop ambrisentan for new indications in the licensed field and each party will pay its pro rata share of external costs associated with such joint development. The parties will form a joint steering committee that will serve as a global oversight committee for the development and commercialization of ambrisentan under the terms of the GSK License Agreement, as well as project and brand committees to ensure coordination and alignment of activities.

Under the terms of the Flolan Distribution Agreement, we will receive exclusive rights to market, promote and distribute Flolan^® and the sterile diluent for Flolan^® in the United States for a three year period beginning after we commence certain distribution and related sales and marketing activities. GlaxoSmithKline will assign to Myogen its rights and responsibilities with respect to Flolan^® under certain agreements with specialty pharmacy distributors. To the extent our gross sales of Flolan^® in the United States exceed certain predefined targets, the supply price to be paid to GlaxoSmithKline for Flolan^® will decrease on a sliding scale. The Flolan Distribution Agreement contains standard termination provisions, including provisions which give GlaxoSmithKline the right to terminate the Flolan Distribution Agreement upon our material breach or for material patient safety issues. We expect to commence distribution and marketing of Flolan^® in the second quarter of 2006.

We sold Myogen GmbH, our wholly-owned European subsidiary, and sublicensed our rights to Perfan^® I.V., intravenous enoximone, in markets outside North America to Wülfing Holding GmbH in January 2006. The sublicense agreement with Wülfing is subject to the terms of our license agreement to enoximone with Aventis Pharmaceuticals, Inc. (“Aventis”). Under the terms of the sale and sublicense agreement with Wülfing, Wülfing paid us approximately $5.0 million in consideration of the transfer to Wülfing of our rights to certain Perfan^® trademarks, certain quantities of bulk enoximone compound and enoximone starter material, and our existing inventory of finished Perfan^® I.V. The sublicense also obligates Wülfing to pay us royalties based on net sales of Perfan^® I.V. outside North America. Such obligations are generally coterminous with our obligations to pay royalties to Aventis. In the event that a registration for Perfan^® I.V. is lost or suspended prior to December 31, 2009 in certain specified countries due to regulatory actions by the applicable regulatory authorities and Wülfing is in compliance with its obligations under the sublicense agreement, we are obligated to either reimburse up to an aggregate of $1.5 million to Wülfing or allow Wülfing to offset such amount against future royalty payments.

We also hold four other license agreements relating to intellectual property and patents. In September 1998, we entered into an exclusive license agreement, with the right to sublicense, with University License Equity Holdings, Inc., (formerly University Technology Corporation), or ULEHI, an affiliate of the University of Colorado, that allows us access to several different patents relating to the treatment of heart failure. This exclusive license may be subject to certain rights of the United States Government if any of the licensed subject matter is developed under a governmental funding agreement. We must use commercially reasonable efforts to bring one or more products to market and, in order to retain an exclusive license, must meet certain milestones, including providing forecast reports and selling a minimum amount of product. In consideration for the license, we paid ULEHI an initial fee of $5,900, and we are obligated to pay future license maintenance fees of $4,250 per annum, as well as royalties, which are based upon net sales of the licensed products. During 2005, we paid a $12,500 sublicense fee to ULEHI under this agreement. As of December 31, 2003, we incurred a $25,000 sublicense fee to ULEHI under this agreement, which was paid in February 2004. Under this license agreement, we also have the primary responsibility of applying for and maintaining any patent or intellectual property rights. ULEHI may only assume such responsibility in the event that we decide not to do so. We amended this agreement in November 2003 to modify the royalty payment timeline

and to include milestone payments for any drugs developed from the licensed technology, up to a maximum of $400,000 in the case of a drug for which an application for marketing approval is filed. This agreement may be terminated by either party upon breach of the agreement, or we may cancel the agreement upon six months notice to ULEHI.

In December 1999, we entered into a Patent and Technology License Agreement with the University of Texas System, or the University, which gives us exclusive rights, with the right to sublicense, to certain patents and technology relating to cardiac hypertrophy and heart failure. Concurrently, we entered into a Sponsored Research Agreement with the University to fund research at the University of Texas Southwestern Medical Center. Rights to inventions arising from the sponsored research are included within the exclusive license granted by the license agreement. This exclusive license, signed concurrently with a Sponsored Research Agreement, may be subject to certain rights of the United States Government if any of the licensed subject matter is developed under a governmental funding agreement. In consideration for the license, we paid an initial license fee of $50,000 and are obligated to pay future annual fees of $50,000 per year beginning the first year following termination of the Sponsored Research Agreement, a percentage of sublicense revenue and royalties based upon net sales. Additionally, we are obligated to make milestone payments for any drugs developed from the licensed technology, up to a maximum of $3.2 million in the case of a drug for which an application for marketing approval is filed. Patent prosecution and maintenance is carried out by a mutually agreed upon patent attorney, but we are obligated to reimburse the University for the associated patent costs. This license agreement will continue on a country by country basis in many cases until the last patent expires which currently is on September 26, 2022, based on patents issued to date, although this could be extended. There are also provisions that allow termination of the license agreement upon breach of the license, upon our insolvency, or upon written mutual agreement between Myogen and the University. We must diligently attempt to commercialize a licensed or identified product or the University has certain rights to cancel the exclusivity of the license agreement if we fail to provide written evidence within sixty days of our commercialization attempts. Similarly, the University can completely terminate the license agreement in the future if we fail to provide written evidence of our commercialization attempts within sixty days.

In January 2002, we entered into a second Patent and Technology License Agreement, which was amended in February 2004, and related Sponsored Research Agreement with the University. The license grants us exclusive rights, with the right to sublicense, to certain patents and technology relating to cardiac hypertrophy, heart disease, and heart failure, including inventions that arise during the conduct of the sponsored research. The patent and technology license is also subject to certain rights of the United States Government if any of the licensed subject matter is developed under a governmental funding agreement. In consideration for this license, we paid an initial license fee totaling $35,000 and have an obligation to pay milestone payments potentially totaling $400,000 plus a percentage of sublicense revenue and royalties based upon a percentage of net sales. Provided we maintain the Sponsored Research Agreement, we do not have annual fees on either this license or the 1999 license; otherwise we would be obligated to pay annual fees of $5,000 per year. In addition, we are obligated to reimburse the University for patent expenses. For most products, this agreement will terminate upon the expiration of the last patent to expire, which currently is on February 13, 2021 based on patents issued to date, although this could be extended. There are also provisions that allow termination upon breach of the license, upon insolvency of the licensee, or upon written mutual agreement between Myogen and the University. This license agreement is also subject to the terms of the Sponsored Research Agreement entered into concurrently with the Patent and Technology License Agreement, under which we currently pay $250,000 per annum through March 31, 2007. During 2005, we paid a $31,250 sublicense fee to the University under this agreement. In 2003, we incurred a $162,500 sublicense fee to the University under this agreement which was paid in January 2004.

We continue to maintain a close working relationship with three of our academic founders: Dr. Michael Bristow, professor of cardiology at the University of Colorado Health Sciences Center, Dr. Leslie Leinwand, chairperson of molecular, cellular and developmental biology at the University of Colorado and Dr. Eric Olson, chairman of molecular biology at the University of Texas Southwestern Medical Center. Dr. Bristow currently serves as a member of our Board of Directors and as a scientific advisor to the Company. Dr. Olson serves as an active consultant, frequently visiting our laboratories and collaborating closely both in research

areas and in our discussions with larger pharmaceutical firms. In the case of both laboratories, we have an option allowing us to acquire the rights to future cardiovascular discoveries. Both universities were issued shares of our common stock in connection with the execution of certain of our license and related agreements.

In October 2003, we entered into a research collaboration with Novartis for the discovery and development of novel drugs for the treatment of cardiovascular disease. We received signing fees totaling $5.0 million from Novartis under the October 2003 collaboration agreement. In addition, the collaboration agreement requires Novartis to provide research funding to us through October 2006. In May 2005, we expanded the collaboration to include our histone deacetylase inhibitor (HDACi) program. The expansion of the collaboration extends research funding with respect to the HDACi program for a minimum of three years and included signing fees. Since October 2003, proceeds received from our collaboration with Novartis have covered, and for 2006 are expected to cover, substantially all of our drug discovery expenses.

The collaboration agreement, as amended in May 2005, provides Novartis with the exclusive option to our discoveries, with limited exceptions, for a three year period ending October 2006 (relating to product candidates other than HDACi product candidates) and May 2008 (relating to HDACi product candidates). Thereafter, the collaboration can be extended by mutual agreement of the parties. The agreement also provides Novartis with the unilateral right to terminate or extend the collaboration at the end of the respective three year periods. In addition, Novartis has an early termination right which allows it to terminate the collaboration agreement with 60 days prior notice at any time (for product candidates other than HDACi product candidates) or at any time after November 23, 2006 (for HDACi product candidates). In addition, the collaboration may be terminated upon breach of applicable licenses, insolvency of either party, mutual written agreement or our sale to a competitor of Novartis. Novartis may choose to terminate or not renew the agreement with us, possibly delaying our development programs and increasing our operating loss.

Upon execution of a license for a product candidate, Novartis is obligated to fund all further development of that product candidate, make payments to us upon the achievement of certain milestones and pay us royalties for sales if the product is successfully commercialized. To date, Novartis has not licensed any drug targets or compounds under the terms of the collaboration. If Novartis enters into such a license in the future, upon the completion of Phase 2 clinical trials of any product candidates Novartis has licensed from us (with the exception of certain HDACi product candidates), we have the option to enter into a co-promotion and profit sharing agreement with them for that product candidate, subject to our reimbursement of a portion of the development expenses incurred up to that point plus a premium, our agreement to share the future development and marketing expenses, and elimination of the royalty payable to us.

We also intend to selectively enter into additional collaborations with other pharmaceutical or biotechnology companies that allow us to build upon our expertise in heart disease.

Intellectual Property and Market Exclusivity

Ambrisentan, Darusentan and Flolan^®

We have exclusively licensed the right to use ambrisentan and darusentan for therapeutic use in humans (except for cancer treatment in the case of darusentan) under certain patent rights owned by Abbott and BASF. These patent rights include issued United States patents and issued European patents having composition of matter claims covering ambrisentan and darusentan as well as methods of use, and combination and process claims. The primary patents covering ambrisentan and darusentan will expire in the fourth quarter of 2014 or in 2015 in the United States and most markets in Europe. We have filed and intend to file additional U.S. and foreign patent applications covering certain formulations and specific methods of using ambrisentan and darusentan. We believe that the claims in such additional patents, if issued, may provide additional limited intellectual property protection through 2015 and beyond. In addition, we believe that ambrisentan and darusentan may be eligible for patent term extension under 35 U.S.C. § 156.

The FDA has designated ambrisentan for PAH an orphan drug under the Orphan Drug Act. In addition, the Commission of the European Communities, with a favorable opinion of the Committee for Orphan Medicinal Products of the EMEA, has granted orphan drug designation to ambrisentan for PAH. The United

States and European orphan drug designations provide incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives marketing approval for an orphan drug to an exclusive marketing period (seven years in the United States and up to ten years in Europe) for that product. However, a drug that the FDA or EMEA considers to be different from or clinically superior to another approved orphan drug, even though for the same condition, may also obtain approval in the United States or the European Union during the exclusive marketing period. Ambrisentan was also granted Fast Track designation by the FDA on February 15, 2006 for the treatment of PAH in the United States.

Neither orphan drug designation nor fast track designation increases the likelihood of eventual regulatory approval for a product candidate, including ambrisentan, and orphan drug designation may be withdrawn by the FDA and the EMEA, or challenged by our competitors, in certain circumstances. In recent years, Congress and the EMEA have considered changes to the orphan drug regulations to shorten the period of automatic market exclusivity and to grant marketing rights to simultaneous developers of a drug. If the United States or European orphan drug regulations are amended in this manner, any approved drugs for which we have been granted orphan exclusive marketing rights may face increased competition, which may decrease the amount of revenue we may receive from these products.

Flolan’s patent and market exclusivity protection expires in the first half of 2006.

Other Intellectual Property

We have expanded the development of our intellectual property through our drug discovery research program. To date, our research and development program has led to the filing of provisional United States patent applications, a number of which have been converted to United States and Patent Cooperation Treaty applications.

In addition, we have licensed on an exclusive basis from the University of Colorado and the University of Texas Southwestern Medical Center numerous patents and patent applications covering technology for the diagnosis and treatment of heart failure, including issued United States Patents. Furthermore, under our licenses with the universities, and associated sponsored research agreements, we have been granted a right of first refusal to certain future discoveries in the field of heart disease and assumed responsibility for, or have significant input on, the prosecution of existing patent applications and applications covering future discoveries.

Competition

The pharmaceutical industry is highly competitive. We face significant competition from pharmaceutical companies and biotechnology companies that are researching and selling products designed to treat cardiovascular disorders. Many of these companies have significantly greater financial, manufacturing, marketing and product development resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do.

Several pharmaceutical and biotechnology companies have established themselves in the field of cardiovascular disease. In addition, many universities and private and public research institutes are active in cardiovascular research, some in direct competition with us. We also must compete with these organizations to recruit scientists and clinical development personnel. Significant competitors working on treatments for chronic heart failure, PAH and/or resistant hypertension are Actelion Ltd., Cardiome Pharma Corp., CoTherix, Inc., Encysive Pharmaceuticals, Inc., GlaxoSmithKline plc, InterMune, Inc., Novartis AG, Pfizer Inc., Speedel Group, United Therapeutics Corp., Vasogen Inc., most other major pharmaceutical companies and many other biotechnology and biopharmaceutical firms.

Ambrisentan and Flolan^®

The therapies commercially available to treat patients with PAH have increased significantly over the last few years, and there are a number of additional product candidates, including ambrisentan, in late stage clinical development for PAH.

Mild PAH is currently treated with calcium channel blockers, diuretics and anticoagulants. As patients advance into more severe stages of disease, moderate to severe PAH, therapeutic options traditionally became more invasive. Prior to 2001, only continuous intravenous infusion of prostacyclin, epoprostenol (Flolan^®), was available as a treatment for patients with more advanced stages of PAH. In mid-2002, a more stable form of prostacyclin that can be administered via continuous subcutaneous infusion, treprostinil, was approved by the FDA. In late 2004, the FDA approved an intravenous formulation of treprostinil and in December 2004 the FDA approved iloprost, an inhaled form of prostacyclin. United Therapeutics, the sponsor of treprostinil, is currently evaluating an inhaled form of treprostinil in Phase 2 clinical studies. Treprostinil and iloprost are direct competitors to Flolan^® and continued market adoption of treprostinil and iloprost may reduce Flolan^® sales despite our projected, future sales and marketing efforts. In addition, one or more generic pharmaceutical companies may launch, or attempt to launch, a generic version of Flolan^® in the United States subsequent to the expiration of Flolan^® patent and market exclusivity protection in the first half of 2006.

A significant therapeutic advance for patients with moderate to severe PAH, took place in December 2001 with the approval of a twice-a-day oral formulation of bosentan, an ERA. Bosentan was demonstrated in clinical trials to improve exercise capacity and time to clinical worsening and has now become first line therapy for patients with Class III PAH.

Pfizer Inc. completed clinical trials for an oral form of sildenafil for the treatment of PAH in 2004 and sildenafil was approved for the treatment of PAH in the United States and the European Union in 2005. In addition, ICOS Corporation and Eli Lilly and Co. are conducting clinical trials of oral tadalafil in PAH. We believe sildenafil and other PDE-5 inhibitors such as tadalafil are likely to become major therapeutics for the treatment of PAH and potential competitors to ambrisentan and other PAH products.

In February 2005, Encysive Pharmaceuticals, Inc. announced preliminary results of its second pivotal Phase 3 trial of oral sitaxsentan for PAH. Like ambrisentan, sitaxsentan is an ETA receptor selective antagonist compound. The top line results of the trial suggest sitaxsentan could also become a competitor to ambrisentan and other PAH products. Regulatory action on Encysive’s application for marketing approval for sitaxsentan in the United States is expected in March 2006.

Darusentan

There are multiple medications in each of several different drug classes (e.g., diuretics, ACE inhibitors, angiotensin receptor blockers, beta-blockers, calcium channel blockers, central alpha receptor agonists, peripheral alpha antagonists and vasodilators) commercially available and widely used to treat hypertension. Darusentan is being developed as a therapeutic agent that we believe could be used in combination with these agents to provide better control of a patient’s high blood pressure.

However, there are multiple ERAs in the clinical development portfolios of pharmaceutical and biotechnology companies. These ERAs may have potential benefits similar to that of darusentan. Encysive Pharmaceuticals recently announced that it has initiated a Phase 2 study of an ERA in resistant hypertension. In addition, Speedel Group announced positive Phase 2 results in 2005 relating to a once daily oral ERA used to treat patients with diabetic renal disease, many of whom are likely to have resistant hypertension. Speedel initiated a Phase 3 study relating to this compound for diabetic renal disease in the second half of 2005. In a potentially competitive development, Novartis is in the late stages of developing aliskiren, a renin inhibitor, for use as monotherapy or in combination with other anti-hypertensives.

Manufacturing

The production of ambrisentan and darusentan employ small molecule organic chemistry procedures standard for the pharmaceutical industry. We plan to continue to outsource manufacturing responsibilities for

these and any additional future products, and we intend to select and rely at least initially on a single third party to manufacture each of our product candidates. This manufacturing strategy allows us to direct our financial and managerial resources to the development and commercialization of products rather than to the establishment of a manufacturing infrastructure.

Pursuant to Flolan Distribution Agreement with GlaxoSmithKline, Flolan^® will be supplied to us by GlaxoSmithKline in finished form.

Governmental Regulation and Product Approval

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture, marketing and pricing of pharmaceutical products. These agencies and other national, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products.

Development of a product candidate for commercial marketing generally involves the following:


	•	pre-clinical laboratory and animal tests;

	•	adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use;

	•	submission to regulatory authorities of an application for commercial marketing approval;

	•	pre-approval inspection of manufacturing facilities and selected clinical investigators; and

	•	a thorough review by regulatory authorities and formal marketing approval or disapproval.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our products will be granted on a timely basis, if at all.

In the United States, before the first human clinical trial of a product candidate can begin, we must submit an Investigational New Drug application, or IND, to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial. In such a case, the study cannot be initiated until the IND sponsor and the FDA resolve any outstanding concerns. Our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development . An independent institutional review board for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center. Comparable laws in foreign countries require us to have a Clinical Trial Authorization and Institutional Ethics Committee approval, or similar, before we may enroll patients in our clinical trials for product candidates. In the conduct of human clinical trials, we must comply with federal, state and foreign regulations governing the privacy of medical records and individually identifiable health information, as applicable.

For purposes of New Drug Application, or NDA, approval in the U.S., or approval of comparable foreign applications for marketing of human prescription drug products, human clinical trials are typically conducted in three sequential phases that may overlap.


	•	Phase 1: The drug is initially given to healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.


	•	Phase 2: Studies are conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. In some cases, a sponsor may decide to run what is referred to as a “Phase 2b” evaluation, which is a second, confirmatory Phase 2 trial that could, if positive, serve as a pivotal trial in the approval of a drug.

	•	Phase 3: When Phase 2 evaluations demonstrate that a dosage range of the product candidate is effective and has an acceptable safety profile, Phase 3 trials are undertaken to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical study sites.

Clinical trials are designed and conducted in a variety of ways. A “placebo-controlled” trial is one in which the trial tests the results of a group of patients, referred to as an “arm” of the trial, receiving the product candidate being tested against those of an arm that receives a placebo, which is a substance that the researchers know is not therapeutic in a medical or chemical sense. In a “double-blind” study, neither the researcher nor the patient knows into which arm of the trial the patient has been placed, or whether the patient is receiving the drug or the placebo. “Randomized” means that upon enrollment patients are placed into one arm or the other at random by computer. “Parallel control” trials generally involve studying a patient population that is not exposed to the study medication (i.e., is either on placebo or standard treatment protocols). In such studies experimental subjects and control subjects are assigned to groups upon admission to the study and remain in those groups for the duration of the study. An “open label” study is one where the researcher and the patient know that the patient is receiving the product candidate. A trial is said to be “pivotal” if it is designed to meet statistical criteria with respect to pre-determined “endpoints,” or clinical objectives, that the sponsor believes, based usually on its interactions with the relevant regulatory authority, will be sufficient for regulatory approval. In most cases, two adequate and well-controlled “pivotal” clinical trials are necessary for approval.

Regulatory authorities, an institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The FDA or foreign regulatory authorities may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase 4 studies may be made a condition to be satisfied after a drug receives approval. Phase 4 studies, as well as earlier stage human clinical trials, are expected to be posted in public registries, such as clinicaltrials.gov, in order to permit greater public scrutiny of all human clinical trials of products or product candidates.

The results of product development, pre-clinical studies and clinical trials are submitted to the FDA as part of an NDA, or as part of an NDA supplement, for approval of a new indication if the product candidate is already approved for another indication. Comparable submissions to foreign regulatory agencies are required in order to seek commercial marketing outside the United States. The FDA may deny approval of an NDA or NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or clinical trials. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplement does not satisfy the criteria for approval. A pre-approval inspection of the proposed manufacturing facility may also be required prior to product approval. Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Typically, if a product candidate is intended to treat a chronic disease, as is the case with the product candidates we are developing, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more.

Government regulation may delay or prevent marketing of product candidates or new drugs for a considerable period of time and impose costly procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approvals for any indications for our product candidates on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain, regulatory approvals for ambrisentan or darusentan would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future United States or foreign governmental action.

Any products manufactured or distributed by us pursuant to FDA or foreign approvals are subject to continuing regulation , including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their contractors are required to register their establishments with regulatory agencies and are subject to periodic inspections for compliance with current Good Manufacturing Practices, or cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers in order to ensure that the product meets applicable specifications. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP and other regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA or foreign regulatory agencies may halt our clinical trials, require us to recall or withdraw a drug from distribution, seize marketed products, impose manufacturing or operating restrictions, withdraw approval of marketing authorization for that drug, and/or seek civil or criminal penalties.

The FDA closely regulates the marketing and promotion of drugs, including through the Prescription Drug Marketing Act. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. The U.S. Department of Health and Human Services and state attorneys general also carefully monitor drug promotional efforts for compliance with fraud and abuse statutes, including the False Claims Act. Various states, such as California, also have their own prescription drug marketing requirements that we will need to comply with. Foreign authorities, in addition to regulating drug promotion, may regulate drug pricing.

Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use.

The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our product candidates or approval of new diseases for our existing products. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Steps similar to those in the United States must be undertaken in most other countries comprising the potential markets for our products before any such product can be commercialized in those countries. The approval procedure and the time required for approval vary from country to country and may involve additional testing. There can be no assurance that approvals will be granted on a timely basis or at all.

Employees

As of March 8, 2006 we had approximately 110 employees.


ITEM 1A.	*RISK FACTORS*

Our business faces significant risks. These risks include those described below and may include additional risks of which we are not currently aware or which we currently do not believe material. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. These risks should be read in conjunction with the other information set forth in this report as well as in our current reports on Form 8-K.

Risks Related to Our Business

We are at an early stage of development as a company and we do not have, and may never have, any products that generate significant revenues.

We are at an early stage of development as a biopharmaceutical company, and we do not have any commercial products that generate significant revenues. Our existing product candidates will require extensive clinical evaluation, regulatory review and marketing efforts and substantial investment before they could provide us with any revenues. Our efforts may not lead to commercially successful drugs for a number of reasons, including:


	•	our product candidates may not prove to be safe and effective in clinical trials;

	•	we may not be able to obtain regulatory approvals for our product candidates, or approvals may take longer than anticipated, or approvals may be narrower than we seek;

	•	we may not have adequate financial or other resources to complete the development and commercialization of our product candidates; or

	•	any products that are approved may not be accepted in the marketplace.

Other than Flolan^®, which we expect to commence marketing and distributing in the second quarter of 2006, we do not expect to be able to market any of our product candidates for a number of years. If we are unable to develop, receive approval for, or successfully commercialize any of our product candidates, we will be unable to generate significant revenues. If our development programs are delayed, we may have to raise additional capital or reduce or cease our operations.

We have a history of operating losses and we may never become profitable.

We have experienced significant operating losses since our inception in 1996. At December 31, 2005, we had an accumulated deficit of $239.2 million. For the years ended December 31, 2005, 2004 and 2003, we had losses from continuing operations of $64.0 million, $59.0 million and $44.4 million, respectively. We do not expect that research and development revenue, which was $7.0 million, $6.6 million and $1.0 million in 2005, 2004 and 2003, respectively, or revenue received from our marketing and distribution of Flolan^® will become sufficient for us to achieve profitability. We have funded our operations principally from the sale of our equity securities. We expect to continue to incur substantial additional operating losses for the next several years as we pursue our clinical trials, research and development efforts and commercialization of our product candidates and Flolan^®. To become profitable, we, either alone or with our collaborators, must successfully develop, manufacture and market our product candidates, or continue to identify, develop, acquire, manufacture and market other new product candidates. We may never have any significant revenues or become profitable.

If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates or continue our research and development programs.

Our operations have consumed substantial amounts of cash since inception. To date, our sources of cash have been primarily limited to the sale of our equity securities. We expect to continue to spend substantial amounts on research and development, including amounts spent on conducting clinical trials for our product candidates, manufacturing clinical supplies, preparing for commencement of our marketing and distribution of

Flolan^® and launch of our product candidates and expanding our discovery research programs. In 2005, our operations consumed approximately $4.4 million of cash per month, compared to $4.0 million of cash per month in 2004. This rate of cash consumption would have increased by an average of $0.6 million and $0.5 million per month in 2005 and 2004, respectively, had research and development funding not been received. We expect that our monthly cash used by operations will continue to increase for the next several years. Based on current spending projections, we believe that our current cash, cash equivalents and investments are sufficient to fund operations through at least the end of 2007. We may elect or be required to raise additional capital to complete the development and commercialization of our current product candidates. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue one or more of our drug development or discovery research programs or our commercial development activities. We also may be required to:


	•	seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and

	•	relinquish, license or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available.

We may experience delays in our clinical development programs that could adversely affect our financial position and our commercial prospects.

With the exception of ARIES-1, we do not know when our current clinical trials will be completed, if at all. We also cannot accurately predict when other planned clinical trials will begin or be completed. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and other drugs approved for the conditions we are investigating. Other companies are conducting clinical trials and have announced plans for future trials that are seeking or likely to seek patients with the same diseases as those we are studying. Competition for patients in some cardiovascular disease trials is particularly intense because of the limited number of leading specialist physicians and the geographic concentration of major clinical centers.

A number of factors may affect the pace of enrollment of our planned Phase 3 trial of darusentan in patients with resistant hypertension, including the relatively small number of patients who meet the strict definition of resistant hypertension as compared to other types of hypertension and other trials which may seek to enroll patients that would otherwise be eligible to participate in our trial, such as the Phase 2 trial being conducted by Encysive Pharmaceuticals, Inc. in patients with resistant hypertension and the Phase 3 clinical trial being conducted by the Speedel Group of a once daily oral ERA in patients with diabetic renal disease. In addition, the entry criteria for one of our expected Phase 3 trials of darusentan are different from the entry criteria used in our Phase 2b trial and will further limit the number of patients eligible to participate in such trial.

As a result of the numerous factors which can affect the pace of progress of clinical trials, our trials may take longer to enroll patients than we anticipate, if they can be completed at all. Delays in patient enrollment in the trials may increase our costs and slow our product development and approval process. Our product development costs will also increase if we need to perform more or larger clinical trials than planned. If other companies’ product candidates show favorable results, we may conduct additional clinical trials. Any delays in completing our clinical trials or any need to conduct additional clinical trials will delay our ability to seek approval and potentially generate revenue from product sales, and we may have insufficient capital resources to support our operations. Even if we do have sufficient capital resources, our ability to become profitable will be delayed.

In addition, we may experience delays in closing out our clinical trials and analyzing clinical trial data after the patient treatment phase of a trial has been completed. This is of particular concern with large, international trials such as ARIES-1 and our planned Phase 3 trials of darusentan. It is also possible that we will be required to conduct additional trials beyond those currently envisioned, due to changing regulatory requirements or in response to the results of other clinical trials. Such additional trials could substantially

delay the possible launch of our products, adversely affecting our financial position and increasing the risk inherent in our programs.

Adverse events in our clinical trials may force us to stop development of our product candidates or prevent regulatory approval of our product candidates.

Our product candidates may produce serious adverse events in humans. These adverse events could cause us to interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying approval of our product candidates for any or all targeted conditions. An independent data safety monitoring board, institutional review board (IRB), the FDA, other regulatory authorities or we may suspend or terminate clinical trials at any time. We cannot assure you that any of our product candidates will be safe for human use.

Our applications for regulatory approval could be delayed or denied due to problems with studies conducted before we in-licensed our product candidates.

The product candidates we are currently developing, ambrisentan and darusentan, are in-licensed from another pharmaceutical company. Many of the preclinical studies and some of the clinical studies on these product candidates were conducted by other companies before we in-licensed the product candidates. In addition, the studies were conducted when regulatory requirements were different from today. We would incur unanticipated costs and experience delays if we were required to repeat some or all of those studies. Even if the previous studies are acceptable to regulatory authorities, we may have to spend additional time analyzing and presenting the results of the studies. Problems with or safety concerns relating to the previous studies, including prior clinical studies of our product candidates in indications other than PAH and resistant hypertension, could cause our regulatory applications to be delayed or rejected, particularly if we are required to conduct additional clinical studies.

If our product candidates do not meet safety or efficacy endpoints in clinical evaluations, they will not receive regulatory approval and we will be unable to market them.

Other than Flolan^®, which we expect to market and distribute beginning in the second quarter of 2006, our current product candidates, ambrisentan and darusentan, are in clinical development and have not received regulatory approval from the FDA or any foreign regulatory authority.

The regulatory approval process typically is extremely expensive, takes many years and the timing of any approval cannot be accurately predicted, if approval is granted at all. If we fail to obtain regulatory approval for our current or future product candidates, we will be unable to market and sell such products and therefore may never be profitable.

As part of the regulatory approval process, we must conduct preclinical studies and clinical trials for each product candidate to demonstrate safety and efficacy. The number and design of preclinical studies and clinical trials that will be required varies depending on the product candidate, the condition being evaluated, the trial results and regulations applicable to any particular product candidate.

Prior clinical trial program designs and results are not necessarily predictive of future clinical trial designs or results. Top line results may not be confirmed upon full analysis of the detailed results of a trial. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials, as was the case with our discontinued product candidate, enoximone capsules.

A number of other pharmaceutical and biotechnology companies have suffered significant setbacks in advanced hypertension clinical trials, even after achieving positive results in earlier trials. In prior clinical trials of certain anti-hypertensive product candidates, including our recent Phase 2b trial of darusentan, positive placebo effects were observed. There can be no assurance that we will not observe significant placebo effects in connection with our current trials of ambrisentan or our planned trials of darusentan. If our product candidates fail to show a clinically significant benefit compared to placebo, they will not be approved for

marketing. In addition, it is possible that our product candidates will not be approved for marketing in the United States or markets outside of the United States if they fail to show a clinically significant benefit compared to one or more active comparator drugs.

We cannot assure you that the data collected from the preclinical studies and clinical trials of our product candidates will be sufficient to support FDA or other regulatory approval. In addition, the continuation of a particular study after review by an independent data safety monitoring board does not necessarily indicate that our product candidate will achieve the clinical endpoint or prove to be safe.

There can be no assurance that our Phase 3 clinical development program for darusentan will be acceptable to the FDA, EMEA or other similar agencies for regulatory approval of the compound.

We are developing darusentan for a novel indication and there is no clear precedent established for the clinical development or the regulatory requirements for approvability of this drug. In October 2005, we participated in an End-of-Phase 2 meeting with the FDA regarding our proposed Phase 3 clinical development program. Since that time, we have continued discussions with the FDA regarding future development of darusentan. We expect to initiate the first of our pivotal Phase 3 clinical trials in the second quarter of 2006 and a second pivotal Phase 3 clinical trial in the second half of 2006. Over the next several months, we also expect to continue discussions regarding our Phase 3 clinical development program for darusentan with the FDA and begin discussions with the European Medicines Agency (EMEA). It is possible that these discussions could lead to the need to add additional Phase 3 or Phase 4 clinical trials to the program as a condition of approval.

Even if the data collected from the preclinical studies and clinical trials of darusentan, including our planned Phase 3 trials, is positive, it may not be sufficient to support FDA, EMEA or other regulatory approval. In addition, we may elect or be required to modify our Phase 3 clinical development plan. Any decision to modify the development plan could delay the development of, and increase the cost of developing, darusentan.

Our Phase 3 clinical trial designs for darusentan differ from the design of our prior Phase 2b trial of darusentan.

We have designed two pivotal trials of darusentan in patients with resistant hypertension. The designs of these clinical trials differ from the design of our prior Phase 2b trial of darusentan in patients with resistant hypertension in material respects. Accordingly, the results of prior studies of darusentan in hypertension, including our Phase 2b study of darusentan in patients with resistant hypertension, are not necessarily predictive of future clinical trial results, including the results of our Phase 3 studies of darusentan.

In particular, we expect that one of the two pivotal trials of darusentan will evaluate the placebo-corrected change in systolic blood pressure in patients who have resistant hypertension despite treatment with full doses of four anti-hypertensive medications, one of which is a diuretic. Our Phase 2b clinical trial of darusentan evaluated the placebo-corrected change in systolic blood pressure in patients who have resistant hypertension despite treatment with full doses of three anti-hypertensive medications, one of which was a diuretic. There can be no assurance that darusentan will be effective compared to placebo in reducing the systolic blood pressure of patients on full doses of four anti-hypertensive medications or that darusentan will exhibit similar or greater efficacy or safety in such a patient population as compared to the patient population studied in our Phase 2b trial.

In addition, we expect that the second pivotal Phase 3 trial of darusentan will evaluate the efficacy and safety of darusentan against placebo and an active comparator drug in patients who have resistant hypertension despite treatment with full doses of three anti-hypertensive medications, one of which is a diuretic. Although the primary endpoint of this trial is nearly identical to the primary endpoint of our Phase 2b trial of darusentan, we have not previously tested darusentan against an active comparator drug and there can be no assurance that darusentan will exhibit equal or greater efficacy or safety than an active comparator drug in this trial. There can be no assurance that the EMEA or other regulatory agencies will agree with the design of this

trial, including the active comparator drug, guanfacine, we intend to use in the trial. In addition, there can be no assurance that the FDA, EMEA or other regulatory agencies will approve darusentan if it does not show superior efficacy or safety to one or more active comparator compounds even if it demonstrates efficacy that is superior to placebo.

Even if our products meet safety and efficacy endpoints in clinical trials, regulatory authorities may not approve them or we may face post-approval problems that require withdrawal of our products from the market.

The FDA, EMEA and other regulatory agencies can delay, limit or deny approval for many reasons, including:


	•	a product candidate may not be safe or effective;

	•	the risk profile of a product candidate (e.g., teratogenicity) may outweigh the potential or perceived benefits of the product candidate;

	•	the manufacturing processes or facilities we have selected may not meet the applicable requirements; and

	•	changes in their approval policies or adoption of new regulations may require additional work.

Any delay in, or failure to receive or maintain, approval for any of our products could prevent us from ever generating meaningful revenues or achieving profitability.

Our product candidates may not be approved even if they achieve their endpoints in clinical trials. Regulatory agencies, including the FDA, or their advisors may disagree with our trial design and our interpretations of data from preclinical studies and clinical trials. Regulatory agencies also may approve a product candidate for fewer or more limited conditions than requested or may grant approval subject to the performance of post-marketing studies for a product candidate or implementation of stringent risk management programs. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

Even if we receive regulatory approvals, our product candidates may later exhibit adverse effects that limit or prevent their widespread use or that force us to withdraw those product candidates from the market. In addition, a marketed product continues to be subject to strict regulation after approval and may be required to undergo post-approval studies. Any unforeseen problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market. Any delay in, or failure to receive or maintain regulatory approval for, any of our products could prevent us from ever generating meaningful revenues or achieving profitability.

Abnormal liver function test results have been reported as complications in trials of ERAs.

Abnormal liver function test (LFT) results, which are indicative of potential liver toxicity, have been reported as complications in trials of ERAs. If the results of any of our clinical trials, including the trials relating to ambrisentan and darusentan, indicate abnormal LFTs, we may not receive regulatory approval to market the product candidate and our product, if approved for marketing, may not be able to compete with other products. There can be no assurance that the lack of LFT abnormalities seen in ARIES-2 and our darusentan Phase 2b clinical trials will be confirmed by subsequent clinical trial results.

ERAs, including ambrisentan and darusentan, have demonstrated toxicity, including teratogenicity, in animals.

Prior to regulatory approval for a product candidate, we are required to conduct studies of our product candidates on animals to determine if they have the potential to cause toxic effects. The toxicology tests for ambrisentan and darusentan indicated that they both cause birth defects in rabbits and rats. Other toxicology tests indicated that ambrisentan and darusentan caused damage to the testes causing infertility in rats and that ambrisentan had the potential to cause damage to the testes in dogs. We assume that similar toxicities could

occur in humans. As a result, we will only seek approval for, and the FDA and EMEA will only consider approving ambrisentan and darusentan for, the treatment of severe diseases such as PAH or resistant hypertension. Approval of our product candidates may be delayed or ultimately blocked by such concerns. Neither ambrisentan nor darusentan should be taken by women who are pregnant, or are capable of getting pregnant and not practicing adequate forms of birth control; however, there can be no assurance that ambrisentan or darusentan will not be taken by such women. Additionally, there can be no assurance that a patient will not exceed the recommended dose of our products and suffer adverse consequences.

ERAs have been shown to increase peripheral edema and cardiovascular adverse events.

Prior clinical trials have indicated that ERAs as a class of drugs may cause peripheral edema (fluid retention) in some patients. In addition, some ERAs have been associated with increased cardiovascular adverse events, including arrhythmia, worsening heart failure, and mortality. For instance, recent Phase 3 studies of atrasentan, an ERA, in patients with metastatic prostatic cancer showed an imbalance in the incidence of arrhythmias, worsening heart failure, and worsening heart failure deaths between patients on placebo and patients receiving atrasentan. In each case, the differences observed with atrasentan were statistically significant. Prior studies of bosentan and enrasentan, both of which are ERAs, in patients with heart failure, have demonstrated trends of increased worsening heart failure. Prior studies of darusentan in patients with heart failure demonstrated small numerical increases in some cardiovascular adverse events, including peripheral edema, atrial arrhythmia, and bradycardia, but not worsening heart failure. There were no clear differences in the number of deaths in the darusentan treatment groups as compared to placebo. None of the above described differences observed with darusentan in heart failure were statistically significant. However, there can be no assurance that future trials will not demonstrate such differences in patients with heart failure.

Based on our review of prior clinical trial data and consultations with cardiovascular experts, we believe that the cardiovascular safety results from clinical studies of darusentan in essential hypertension and resistant hypertension and ambrisentan in PAH have demonstrated a propensity for our product candidates to cause peripheral edema. In these patient populations, however, we have not observed worsening heart failure, arrhythmias or other cardiovascular adverse events other than at levels generally seen in patients receiving placebo. However, ambrisentan and darusentan may cause similar cardiovascular complications. If the results of any of our clinical trials indicate that ambrisentan or darusentan worsen heart failure, cause other cardiovascular adverse events or increase mortality, or if the FDA, EMEA or other regulatory agencies determine that a product candidate may worsen heart failure, cause other cardiovascular adverse events or increase mortality, we may not receive regulatory approval to market the product candidate and our product, if approved for marketing, may not be able to compete with other products. There can be no assurance that the cardiovascular safety profiles observed in prior studies of our product candidates will be confirmed by subsequent clinical trial results.

If approved, our products may be subject to significant restrictions or we may be subject to stringent post-marketing commitments that could affect our ability to market our products.

The FDA, EMEA and other regulatory agencies will typically require a prominently displayed “black box” warning in the label of any product that may lead to death or serious injury. In addition, the FDA, EMEA and other regulatory agencies may require that such products are marketed subject to risk management programs, including distribution through a “closed” distribution system. Closed distribution systems seek to manage the post-marketing risk of an approved medication through: (i) limited access through a number of specialty distributor pharmacies; (ii) registration of all practitioners prescribing the medication; (iii) registration of all patients receiving the medication; (iv) written certification by the practitioner that the medication is being prescribed for a medically appropriate use; (v) review of safety warnings with the patient by the practitioner; (vi) an ongoing comprehensive program to monitor, collect, track, and report adverse event and other safety related information from patients receiving the medication; and (vii) distribution of a medication guide to patients that addresses concerns about possible adverse events and the actions patients should take to avoid them.

Ambrisentan and darusentan belong to a class of drugs called endothelin receptor antagonists (ERAs), which may cause damage to the liver, testes and fetus and which may cause cardiovascular adverse events. Bosentan, a product of Actelion, Inc., also belongs to this class of drugs, and the FDA, as a condition of the approval of bosentan, required Actelion to include a black box warning in its label and to distribute bosentan via a closed distribution system. Since ambrisentan and darusentan belong to the same class of drugs as bosentan, we expect that the FDA, EMEA and other regulatory agencies may require us to include black box warnings in ambrisentan’s and darusentan’s labels.

Flolan^® is distributed through a closed distribution system, which we expect will limit our flexibility in addressing market needs. In addition, we may elect or be required to distribute our product candidates through a closed distribution system that would increase distribution costs and make patient access and reimbursement more difficult. Currently, at least one such closed distribution system has been patented and there can be no assurance that we will be able to license the rights to this system. Development of a proprietary system may be time consuming and costly.

We may elect or be required to conduct larger or additional studies of our products or product candidates in order to increase the likelihood that any drug related adverse effects, such as worsening heart failure, are detected in the relevant patient populations. Such studies may be conducted prior to or after regulatory approval and would increase the cost of developing our product candidates.

Market size and market acceptance of our product candidates is uncertain.

Many factors influence the adoption of new pharmaceuticals, including market size, competition from other products, marketing and distribution restrictions, adverse publicity, product pricing and reimbursement by third-party payors. Even if our product candidates achieve market acceptance, the market may not be large enough and/or prevailing market pricing may not be high enough to result in significant revenues. If the markets for our product candidates are smaller than we anticipate or if our product candidates fail to achieve market acceptance, we may never generate meaningful product revenues.

We cannot assure you that physicians will prescribe or patients will use ambrisentan or darusentan, if they are approved. Physicians will prescribe our products only if they determine, based on experience, clinical data, side effect profiles and other factors, that they are preferable to other products then in use or beneficial in combination with other products. Recommendations and endorsements by influential physicians will be essential for market acceptance of our products and we may not be able to obtain these recommendations and endorsements. Physicians may not be willing to use ambrisentan and darusentan because of demonstrated adverse side effects such as damage to testes in some animal species. Additionally, market acceptance of ERAs will be limited because they are known to cause birth defects in animals and are believed to do the same in humans.

Ambrisentan for the treatment of PAH and darusentan for the treatment of resistant hypertension address highly competitive markets and the availability of other drugs and devices for the same conditions may slow or reduce market acceptance of our products. Drugs such as beta blockers, angiotensin converting enzyme inhibitors, angiotensin receptor blockers and diuretics have been on the market for a significant time, and physicians have experience with prescribing these products for the treatment of hypertension. Bosentan, an ERA, is a drug that has been approved for PAH, the same condition we intend for ambrisentan, and has been available in the United States since December 2001. Adoption of ambrisentan may be slow if physicians continue to prescribe bosentan. In addition, Pfizer Inc. has received approval to market sildenafil for the treatment of PAH in the United States and Europe. The approval and market adoption of sildenafil is likely to slow market adoption of ambrisentan in the event that ambrisentan is approved. Sitaxsentan, an ETA-selective ERA like ambrisentan, may be an alternative treatment for PAH based on the preliminary results of recent pivotal Phase 3 clinical trials. Sitaxsentan is at a more advanced stage of development than ambrisentan and is likely to be on the market before ambrisentan if it is approved. If sitaxsentan is approved and achieves market acceptance prior to ambrisentan, the adoption of ambrisentan may be slowed or reduced. In addition, a number of other companies, including Abbott Laboratories and Speedel, have ETA-selective ERAs in late-stage clinical development which could compete with ambrisentan and darusentan and a number of companies, including

Actelion, Merck, Novartis AG and Speedel, are developing renin inhibitors as a new class of agents for the treatment of hypertension.

Our attempts to distribute Flolan^® or to increase future sales of Flolan^® may be unsuccessful.

Prior to commencing the marketing and distribution of Flolan^®in the United States, we must complete a number of regulatory and commercial requirements, including obtaining licenses to dispense a prescription pharmaceutical product in certain states. There can be no assurance that we will commence distributing Flolan^® in the second quarter or at all. We may not be able to maintain or increase historical levels of Flolan^® sales in the United States as a result of, among other things, competition from other products or one or more generic epoprostenol sodium product introductions. If we do not maintain or increase Flolan^® sales in the United States, our operating loss will increase.

If we become subject to product liability claims, the damages may exceed our insurance.

It is impossible to predict from the results of animal studies all the potential adverse effects that a product candidate may have in humans. We face the risk that the use of Flolan^® and our product candidates in humans will result in adverse effects. If we complete clinical testing for our product candidates and receive regulatory approval to market our products, we will label our products with warnings that identify the known potential adverse effects and the patients who should not receive our product. We cannot assure that physicians and patients will comply with these warnings. In addition, unexpected adverse effects may occur even with use of our products that have received approval for commercial sale.

Flolan^® was approved by the FDA in 1995 and is indicated for the long term intravenous treatment of primary pulmonary hypertension and pulmonary hypertension associated with the scleroderma spectrum of disease in NYHA Class III and Class IV patients who do not respond adequately to conventional therapy. Use of Flolan^® is contraindicated in patients with congestive heart failure due to severe left ventricular systolic dysfunction. Flolan^® should not be used in patients who develop pulmonary edema during dose initiation. Flolan^® is also contraindicated in patients with known hypersensitivity to the drug or structurally-related compounds. Flolan^® should be used only by clinicians experienced in the diagnosis and treatment of pulmonary hypertension. The diagnosis of PPH or PH/SSD should be carefully established.

In preclinical testing, ambrisentan and darusentan caused birth defects in animals. Based on these results and similar results with other ERAs, we have concluded that ambrisentan and darusentan could cause birth defects in humans. Neither ambrisentan nor darusentan should be taken by women who are pregnant, or are capable of getting pregnant and not practicing adequate forms of birth control; however, there can be no assurance that ambrisentan or darusentan will not be taken by such women. Additionally, there can be no assurance that a patient will not exceed the recommended dose of our products and suffer adverse consequences.

If a patient suffers harm from one of our products or product candidates or a child is born with a birth defect resulting from one of our products or product candidates, we may be subject to product liability claims that exceed any insurance coverage that may be in effect at the time.

Regardless of their merit or eventual outcome, product liability claims may result in:


	•	decreased demand for our products and product candidates;

	•	negative publicity and injury to our reputation;

	•	withdrawal of clinical trial participants;

	•	costs of related litigation;

	•	substantial monetary awards to patients and others;

	•	loss of revenues; and

	•	the inability to commercialize our products and product candidates.

We have obtained liability insurance of $10 million for our product candidates in clinical trials. The recently completed agreement with GlaxoSmithKline obligates us to substantially increase this coverage, but there can be no assurance that the additional coverage will be available at an acceptable price or at all. We cannot predict all of the possible harms or side effects that may result and, therefore, the amount of insurance coverage we currently hold, or that we or our collaborators may obtain, may not be adequate to protect us from any liabilities. In addition, if any of our product candidates are approved for marketing, we may seek additional insurance coverage. We may be unable to obtain additional coverage on commercially reasonable terms, if at all. We may not have sufficient resources to pay for any liabilities resulting from a successful claim beyond the limit of our insurance coverage. If we cannot protect against potential liability claims, we or our collaborators may find it difficult or impossible to commercialize our products. We may not be able to renew or increase our insurance on reasonable terms, if at all.

If we are unable to develop adequate sales, marketing or distribution capabilities or enter into agreements with third parties to perform some of these functions, we will not be able to commercialize our products effectively.

We have limited experience in sales, marketing and distribution. To directly market and distribute any products, including Flolan^®, we must build a sales and marketing organization with appropriate technical expertise and distribution capabilities. We recently started to build a focused sales force in the United States to prepare for the marketing and distribution of Flolan^®, which we expect to commence in the second quarter of 2006. We expect to increase the size of our initial sales force in the United States in 2007 to prepare for the launch of ambrisentan if it is ultimately approved. For some market opportunities, we have or may need to enter into co-promotion or other licensing arrangements with larger pharmaceutical or biotechnology firms in order to increase the potential commercial success of our products. We may not be able to establish sales, marketing and distribution capabilities of our own or enter into such arrangements with third parties in a timely manner or on acceptable terms. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and some or all of the revenues we receive will depend upon the efforts of third parties, and these efforts may not be successful. For example, GlaxoSmithKline may not be successful in commercializing ambrisentan outside of the United States if it is ultimately approved. Additionally, building marketing and distribution capabilities may be more expensive than we anticipate, requiring us to divert capital from other intended purposes or preventing us from building our marketing and distribution capabilities to the desired levels. For example, we may experience unanticipated costs and risks associated with our recently-signed agreement to distribute and promote Flolan^®, and our revenues from Flolan^® are not expected to be adequate to yield an acceptable return or we may incur a loss on this business.

Since we will rely on third-party manufacturers, we may be unable to control the availability or cost of producing our products.

There can be no assurance that Flolan^® or our product candidates, if approved, can be manufactured in sufficient commercial quantities, in compliance with regulatory requirements and at an acceptable cost. Although there are several potential manufacturers capable of manufacturing our product candidates in both bulk and finished form, we intend to select and rely at least initially on a single third-party to manufacture the bulk drug and another single third-party to manufacture the drug product for each of our product candidates. In addition, GlaxoSmithKline is responsible for the manufacture of Flolan^® and relies on a single third-party to manufacture the active pharmaceutical ingredient required for Flolan^®. Establishing a replacement source for any of our products could require at least 12 months and significant additional expense. We or GlaxoSmithKline could be required to expand relationships with manufacturers we have used in the past or establish new relationships with different third-party manufacturers for our products. We may not be able to contract for manufacturing capabilities on acceptable terms, if at all. Furthermore, GlaxoSmithKline or third-party manufacturers may encounter manufacturing or quality control problems or may be unable to obtain or maintain the necessary governmental licenses and approvals to manufacture our products. Any such failure could delay or prevent us from receiving regulatory approvals or marketing our products, or could require us to recall or withdraw our products from the market if they are approved and marketed. Our dependence on

third parties may reduce our profit margins and delay or limit our ability to develop and commercialize our products on a timely and competitive basis.

Our third-party manufacturers and their manufacturing facilities and processes are subject to regulatory review, which may delay or disrupt our development and commercialization efforts.

Third-party manufacturers of our products or product candidates must ensure that all of the facilities, processes, methods and equipment are compliant with the current Good Manufacturing Practices (cGMPs) and conduct extensive audits of vendors, contract laboratories and suppliers. The cGMP requirements govern quality control of the manufacturing process and documentation policies and procedures. Compliance by third-party manufacturers with cGMPs requires record keeping and quality control to assure that the product meets applicable specifications and other requirements. Manufacturing facilities are subject to inspection by regulatory agencies at any time. If an inspection by regulatory authorities indicates that there are deficiencies, third-party manufacturers could be required to take remedial actions, stop production or close the facility, which would disrupt the manufacturing processes and limit the supplies of our products or product candidates. If they fail to comply with these requirements, we also may be required to curtail the marketing and distribution of Flolan^® in the United States or clinical trials of our product candidates, and may not be permitted to sell our products or may be limited in the jurisdictions in which we are permitted to sell them, or may be required to recall or withdraw from the market any affected approved and marketed products.

Due to our reliance on contract research organizations and other third parties to conduct clinical trials, we are unable to directly control the timing, conduct and expense of our clinical trials.

We rely primarily on third parties to conduct our clinical trials, including those for ambrisentan and darusentan. In addition, in certain countries outside of the United States, we rely on third parties to interact on our behalf with applicable regulatory authorities. As a result, we have had and will continue to have less control over the conduct of the clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials. We may experience unexpected cost increases that are beyond our control. Errors or omissions by third party providers may also create errors in publicly reported results, forcing us to revise our previous disclosures or having other adverse effects on our business or stock price. For example, the top line results originally announced for our darusentan Phase 2b trial included an error that had to be subsequently corrected. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay our trials, and contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner, at an acceptable cost and in the timeframe anticipated.

If we do not find development and commercialization collaborators for our product candidates, we may have to reduce or delay product development and commercialization and increase our expenditures.

Prior to March 3, 2006, our collaborations were solely with academic scientists and institutions for basic scientific research and with Novartis relating to targets and compounds identified in our discovery research program. On March 3, 2006, we entered into a broad collaboration with GlaxoSmithKline pursuant to which we licensed manufacturing, development and commercialization rights for ambrisentan to GlaxoSmithKline in all territories outside of the United States and, simultaneously, received the exclusive right to market and distribute Flolan^® (epoprostenol sodium) in the United States.

To date, we have not entered into any other collaboration agreements for the development or commercialization of our existing product candidates. We may enter into additional relationships with selected pharmaceutical or biotechnology companies to help develop and commercialize our product candidates. We may not be able to negotiate collaborations with these other companies for the development or commercialization of our

product candidates on acceptable terms. If we are not able to establish such collaborative arrangements, we may have to reduce or delay further development of some of our programs, significantly increase our planned expenditures and undertake development and commercialization activities at our own expense. If we increase our planned expenditures or undertake those activities at our own expense, we may be required to raise additional capital which may not be available on acceptable terms.

Any development or commercialization collaborations we have entered into or may enter into with pharmaceutical or biotechnology companies, including our research collaboration agreement with Novartis and our PAH Collaboration with GlaxoSmithKline, are or will be subject to a number of risks, including:


	•	collaborators may not pursue further development and commercialization of compounds resulting from collaborations or may elect to terminate or not to renew research and development or distribution programs;

	•	collaborators may delay, underfund or stop product development, including clinical trials or abandon a product candidate, repeat or conduct new clinical trials or require the development of a new formulation of a product candidate for clinical testing;

	•	a collaborator with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of these products; and

	•	disputes may arise delaying or terminating the research, development or commercialization of our product candidates, or resulting in significant legal proceedings.

Even if we receive regulatory approval for our product candidates, we will be subject to ongoing regulatory obligations and review.

Once we begin to distribute Flolan^®, we will be subject to continuing regulatory obligations such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of our promotion and marketing of the product. We will be subject to the same or similar regulatory obligations with respect to our product candidates if they are ultimately approved. In addition, we and our third-party manufacturers will be required to adhere to regulations setting forth cGMP. These regulations cover all aspects of the manufacturing, storage, testing, quality control distribution and record keeping relating to our product candidates. Furthermore, we or our third-party manufacturers will typically be required to pass a pre-approval inspection of manufacturing facilities by the FDA and foreign authorities before obtaining marketing approval and, if approved, will be subject to periodic inspection by these regulatory authorities. Such inspections may reveal compliance issues that could prevent or delay marketing approval, or require the expenditure of financial or other resources to address. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Our success depends on retention of our President and Chief Executive Officer and other key personnel.

We are highly dependent on our President, Chief Executive Officer and Chairman, J. William Freytag, Ph.D., and other members of our management team. We are named as the beneficiary on a term life insurance policy covering Dr. Freytag in the amount of $2.0 million. We also depend on academic collaborators for each of our research and development programs. The loss of any of our key employees or academic collaborators could delay our discovery research program and the development and commercialization of our product candidates or result in termination of them in their entirety. Dr. Freytag, as well as others on our executive management team, has a severance agreement with us, but the agreement provides for “at-will” employment with no specified term. Our future success also will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, governmental regulation and commercialization. We face competition for personnel from other companies, universities, public and private research institutions, government

entities and other organizations. If we are unsuccessful in our recruitment and retention efforts, our business will be harmed.

We also rely on consultants, collaborators and advisors to assist us in formulating and conducting our research. All of our consultants, collaborators and advisors are employed by other employers or are self-employed and may have commitments to or consulting contracts with other entities that may limit their ability to contribute to our company.

If our discovery research program is not successful, we may be unable to develop additional product candidates.

We have devoted and expect to continue to devote significant resources to our discovery research program. For the years ended December 31, 2005, 2004 and 2003, we spent $7.1 million, $5.2 million and $3.3 million, respectively, on our discovery research program. We are obligated under sponsored research agreements to make annual payments of $250,000 to the University of Texas Southwestern Medical Center. However, this program may not succeed in identifying additional therapeutic targets, product candidates or products. If we do not develop new products, or if product candidates developed through our discovery research program do not receive regulatory approval or achieve commercial success, we would have no other way to achieve any meaningful revenue through this program.

The collaboration agreement we entered into with Novartis in October 2003, as amended in May 2005, provides Novartis with an exclusive option to our discoveries, with limited exceptions, for three year periods ending October 2006 (relating to product candidates other than HDACi product candidates) and May 2008 (relating to HDACi product candidates). The collaboration agreement provides Novartis with the unilateral right to terminate or extend the collaboration at the end of the respective three year periods. In addition, Novartis has an early termination right which allows it to terminate the collaboration agreement with 60 days prior notice at any time (for product candidates other than HDACi product candidates) or at any time after November 23, 2006 (for HDACi product candidates). Novartis may choose to terminate or not renew the agreement with us, possibly delaying our development programs and increasing our operating loss.

Our operations may be impaired unless we can successfully manage our growth.

As a result of our collaboration with GlaxoSmithKline and our expected marketing and distribution of Flolan^® in the United States beginning in the second quarter of 2006, we expect to significantly accelerate the expansion of our sales and marketing and administrative operations in the near term. In addition, we expect to continue to expand our research and development, medical and regulatory affairs, and product development operations. Our number of employees and operational spending have increased significantly each year since inception. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. To manage further growth, we will be required to improve existing, and implement additional, operational and financial systems, procedures and controls and hire, train and manage additional employees. We cannot assure that (i) our current and planned personnel, systems, procedures and controls will be adequate to support our anticipated growth, (ii) management will be able to hire, train, retain, motivate and manage required personnel or (iii) management will be able to successfully identify, manage and exploit existing and potential market opportunities. Our failure to manage growth effectively could limit our ability to achieve our research and development and commercialization goals.

If we engage in any acquisition, we will incur a variety of costs, and we may never realize the anticipated benefits of the acquisition.

Since our inception, we have acquired three product candidates through in-licensing, two of which remain in development, and one product through a distribution arrangement. One of our strategies for business expansion is the acquisition of additional products and product candidates. We may attempt to acquire these products or product candidates, or other potentially beneficial technologies, through in-licensing or the acquisition of businesses, services or products that we believe are a strategic fit with our business. Although we currently have no commitments or agreements with respect to any acquisitions, if we undertake an

acquisition, the process of integrating the acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may divert significant management attention from our ongoing business operations. We may need to expand existing capabilities and add new functions, leading to unexpected difficulties and delays. Moreover, we may fail to realize the anticipated benefits of any acquisition for a variety of reasons, such as an acquired product candidate proving to not be safe or effective in later clinical trials. We may fund any future acquisition by issuing equity or debt securities, which could dilute the ownership percentages of our existing stockholders. Acquisition efforts can consume significant management attention and require substantial expenditures, which could detract from our other programs. In addition, we may devote resources to potential acquisitions that are never completed.

Following the sublicense of Perfan^® I.V., our operating losses have increased and will continue to increase.

As a result of a detailed review of our strategic options, we sublicensed Perfan^® I.V. to Wülfing, depriving us of commercialization and sales experience and contacts which could otherwise augment our efforts to successfully launch the commercial sale of any of our product candidates that receive regulatory approval. Prior to sublicensing our rights to Perfan^® I.V. to Wülfing, our product sales revenue was derived solely from sales of Perfan^® I.V. and we recorded $3.2 million and $3.3 million in sales of this product in 2005 and 2004, respectively, which is included in discontinued operations, net of income taxes in our statement of operations. Following the sublicense of Perfan^® I.V. to Wülfing, any revenue derived from sales of Perfan^® I.V. will be in the form of royalty payments from Wülfing and will not be material to our overall business. The amount of the royalties we receive is dependent upon the ability of Wülfing to successfully market and sell Perfan^® I.V. Based upon our past sales of Perfan^® I.V., we do not expect the royalty payments from Wülfing, net of our royalty obligations to Aventis, to provide us with a material revenue stream. We believe that sales of Perfan^® I.V. could decline over time due to the lack of patent protection for Perfan^® I.V., competition from other drugs sold for the same condition as Perfan^® I.V., some of which sell for significantly lower prices, and changes in foreign exchange rates. Under certain circumstances involving an interruption of sales of Perfan^® I.V. in Europe, we may be required to refund up to $1.5 million to Wülfing.

Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable regulations.

The development, manufacturing, distribution, pricing, advertising, promotion, sales, and reimbursement of our products, together with our general operations, are subject to extensive regulation by federal, state and other authorities within the United States and numerous entities outside of the United States. We are a relatively small company with approximately 110 employees, many of whom have joined us in the last 12 months. We also have significantly fewer employees than many other companies that have the same or fewer product candidates in late stage clinical development and we rely heavily on third parties to conduct many important functions.

As a publicly traded company we are subject to significant regulations, including the Sarbanes-Oxley Act of 2002, some of which have only recently been adopted, and all of which are subject to change. While we have developed and instituted a corporate compliance program based on what we believe are the current best practices and continue to update the program in response to newly implemented or changing regulatory requirements, we cannot assure that we are or will be in compliance with all potentially applicable regulations. For example, in connection with our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, and the corresponding audit of the assessment by our independent registered public accounting firm, we identified deficiencies in our internal controls over financial reporting. Although none of the deficiencies identified as of December 31, 2005 were determined to be “significant deficiencies” or a “material weakness” as defined by the Public Company Accounting Oversight Board, we cannot assure you that we will not find material weaknesses in the future. We also cannot assure that we could correct any material weakness to allow our management to conclude that our internal controls over financial reporting are effective in time to enable our independent registered public accounting firm to attest that such assessment will have been fairly stated in any report to be filed with the SEC or attest that we have maintained

effective internal control over financial reporting. If we fail to comply with the Sarbanes-Oxley Act or any other regulations we could be subject to a range of consequences, including restrictions on our ability to sell equity or otherwise raise capital funds, suspension or termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, withdrawal of products from the market, significant fines, or other sanctions or litigation.

Pharmaceutical and biotechnology companies have faced lawsuits and investigations pertaining to violations of health care “fraud and abuse” laws, such as the federal false claims act, the federal anti-kickback statute, and other state and federal laws and regulations. While we have developed and implemented a corporate compliance program based upon what we believe are current best practices, we cannot guarantee that this program will protect us from future lawsuits or investigations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Our operations involve hazardous materials, and compliance with environmental laws and regulations is expensive.

Our research and development activities involve the controlled use of hazardous materials, including chemicals that cause cancer, volatile solvents, radioactive materials including tritium and phosphorus-32 and biological materials including human tissue samples that have the potential to transmit diseases. Our operations also produce hazardous waste and our use and production of hazardous waste have increased in recent periods and are expected to increase further in future periods as the scale of our research and development activities grow. We are subject to a variety of federal, state and local regulations relating to the use, handling and disposal of these materials. We generally contract with third parties for the disposal of such substances and store certain low level radioactive waste at our facility until the materials are no longer considered radioactive. While we believe that we comply with current regulatory requirements, we cannot eliminate the risk of accidental contamination or injury from these materials. We may be required to incur substantial costs to comply with current or future environmental and safety regulations. If an accident or contamination occurred, we would likely incur significant costs associated with civil penalties or criminal fines and in complying with environmental laws and regulations. Although we currently carry a $2.0 million pollution and remediation insurance policy, we cannot assure that this would be sufficient to cover our potential liability if we experienced a loss or that such insurance will continue to be available to us in the future on commercially reasonable terms, if at all.

Changes in the economic, political, legal and business environments in foreign countries in which we do business could limit or disrupt our current and future international sales and operations.

We have sublicensed the rights to sell Perfan^® I.V. in Europe and also expect to commercialize other products outside the United States and, as a result, our operations and financial results could be limited or disrupted by any of the following:


	•	economic problems that disrupt foreign healthcare payment systems;

	•	the imposition of governmental controls, including price controls, and changes in regulatory requirements;

	•	less favorable intellectual property or other applicable laws;

	•	the inability to obtain any necessary foreign regulatory approvals of products in a timely manner, if at all;

	•	import and export license requirements;

	•	economic weakness, including inflation, or political instability in particular foreign economies and markets;

	•	business interruptions resulting from geo-political actions, including war and terrorism;


	•	difficulties complying with foreign tax, employment, immigration and labor laws and pharmaceutical regulations;

	•	unexpected changes in tariffs, trade barriers and regulatory requirements;

	•	difficulties in staffing and managing international operations; and

	•	slower collection experience outside the United States.

Currency fluctuations may negatively affect our financial condition.

We incur significant expenses, including for clinical trials, outside the United States. As a result, our business is affected by fluctuations in exchange rates between the United States dollar and foreign currencies. Our reporting currency is the United States dollar and, therefore, financial positions are translated into United States dollars at the applicable foreign exchange rates. Exchange rate fluctuations may adversely affect our revenues, results of operations, financial position and cash flows. If we are successful in establishing additional international sales, these sales may also be denominated in foreign currencies and hence subject to volatility due to changes in foreign exchange rates.

Risks Related to Our Industry

Our competitors may develop and market drugs that are less expensive, more effective or safer than our product candidates.

The pharmaceutical market is highly competitive. Many pharmaceutical and biotechnology companies have developed or are developing products that will compete with the product we distribute or the product candidates we are developing. Several significant competitors are working on, or already have approval for, drugs for the same indications as ambrisentan and darusentan. In addition, it is possible that competitors are working on, or already have approval for, generic versions of Flolan^®. It is also possible that our competitors will develop and market products that are less expensive, more effective or safer than our future products or that will render our products obsolete. Some of these products are in late-stage clinical trials. It is also possible that our competitors will commercialize competing products before any of our product candidates are approved and marketed.

Actelion, Ltd. received FDA approval in December 2001 for bosentan (Tracleer^®), an ERA for the treatment of PAH. United Therapeutics Corp. received FDA approval in May 2002 for treprostinil (Remodulin^®) for the treatment of PAH. In addition, Schering AG and CoTherix, Inc. market iloprost (Ventavis^®) for the treatment of PAH. Encysive Pharmaceuticals, Inc. is developing sitaxsentan (Thelin^tm), an ETA selective ERA which has demonstrated efficacy in a Phase 3 study and may be approved for the treatment of PAH earlier than ambrisentan. Pfizer, Inc. received approval for the use of sildenafil (Revatio^®) for the treatment of PAH in the United States and Europe, and if ambrisentan is approved, sildenafil is likely to be a major competitor. ICOS Corporation and Eli Lilly and Co. have initiated clinical trials to evaluate oral tadalafil (Cialis^®) for the treatment of PAH. Recently, a published case report indicated that a single PAH patient responded to treatment with Gleevec^®, a cancer drug marketed by Novartis. The author of the case report indicated that he and other investigators intend to conduct further studies of the drug in PAH patients. In addition, Predix Pharmaceuticals Holdings, Inc. is in early stages of clinical development of a compound with a novel mechanism of action for the possible treatment of PAH. A number of other companies, including Abbott Laboratories and Speedel, have ETA selective ERAs in late-stage clinical development that could compete with ambrisentan and darusentan. In addition, Actelion, Merck, Novartis AG and Speedel Group, among other companies, are developing renin inhibitors as a new class of agents for the treatment of hypertension.

We expect that competition from pharmaceutical and biotechnology companies, universities and public and private research institutions will increase. Many of these competitors have substantially greater financial, technical, research and other resources than we do. We may not have the financial resources, technical and research expertise or marketing, distribution or support capabilities to compete successfully.

Our products may face significant price pressures due to competition from similar products.

It is expected that we could experience pressures on the pricing of our product and, if approved, our product candidates. Competition from manufacturers of competing drugs and generic drugs is a major challenge in the United States and is increasing internationally. Upon the expiration or loss of patent protection for a product, or upon the “at-risk” launch (while patent infringement litigation against the generic product is pending) by a generic manufacturer of a generic version of a product, we could lose the major portion of sales of that product in a very short period of time.

We cannot predict with accuracy the timing or impact of the introduction of competitive products or their possible effect on our sales. Products that will likely compete with our product candidates are already approved and additional potentially competitive products are in various stages of development, some of which have been filed for approval with the FDA, EMEA and with regulatory authorities in other countries. In addition, there are currently approved products and product candidates under development that could be used “off-label” by physicians to attempt to treat indications for which our product candidates are being investigated. To the extent “off-label” use of an approved drug product is cheaper than a product approved for the indication of use, we may face additional pricing pressures, which could materially and adversely affect our operating results.

The status of reimbursement from third-party payors for newly approved health care drugs is uncertain and failure to obtain adequate reimbursement could limit our ability to generate revenue.

Our ability to commercialize pharmaceutical products may depend, in part, on the extent to which reimbursement for the products will be available from:


	•	government and health administration authorities;

	•	private health insurers;

	•	managed care programs; and

	•	other third-party payors.

Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors, including Medicare and Medicaid, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for diseases or conditions for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for our products. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our products, their market acceptance may be reduced.

Health care reform measures could adversely affect our business.

The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the United States and in foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory efforts aimed at changing the health care system. For example, in some countries other than the United States, pricing of prescription drugs is subject to government control, and we expect proposals to implement similar controls in the United States to continue. There can be no assurance that prevailing market or government controlled prices will be sufficient to generate an acceptable return on our investment in our product candidates.

Pricing pressures may also increase as the result of the 2003 Medicare Act. In addition, managed care organizations (MCOs) as well as Medicaid and other government agencies continue to seek price discounts. Government efforts to reduce Medicaid expenses may continue to increase the use of MCOs. This may result in MCOs influencing prescription decisions for a larger segment of the population. In addition, some states have implemented and other states are considering price controls or patient-access constraints under the

Medicaid program and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid eligible.

Another example of proposed reform that could affect our business is the discussion of drug reimportation into the United States. In 2000, Congress directed the FDA to adopt regulations allowing the reimportation of approved drugs originally manufactured in the United States back into the United States from other countries where the drugs were sold at a lower price. Although the Secretary of Health and Human Services has refused to implement this directive, in July 2003 the House of Representatives passed a similar bill that does not require the Secretary of Health and Human Services to act. The reimportation bills have not yet resulted in any new laws or regulations; however, these and other initiatives remain subject to active debate both on the federal and state levels and could decrease the price we or any potential collaborators receive for our products, adversely affecting our profitability.

We are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business. Outside the United States certain countries set prices in connection with the regulatory process. We cannot be sure that such prices will be acceptable to us or our collaborative partners. The pendency or approval of such proposals or reforms could result in a decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships or licenses.

Failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our products abroad.

We intend to market or have our products marketed outside of the United States. In order to market our products in the European Union and many other foreign jurisdictions, we or our collaborators must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. If we enter into a collaboration, we expect that a collaborator may have responsibility to obtain regulatory approvals outside of the United States, and we may depend on such collaborators to obtain these approvals. For example, we will rely upon GlaxoSmithKline to obtain approvals to market ambrisentan outside of the United States. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include risks in addition to those associated with obtaining FDA approval. For instance, active comparator trials could be required for the approval of ambrisentan. We or our collaborators may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other foreign countries or jurisdictions. We and our collaborators may not be able to file for regulatory approvals and may not receive the approvals required to commercialize our product candidates in any markets.

Ambrisentan’s orphan drug designation may be challenged by competitors or withdrawn by the FDA or the EMEA.

The FDA has designated ambrisentan for PAH as an orphan drug under the Orphan Drug Act. In addition, the Commission of the European Communities, with a favorable opinion of the Committee for Orphan Medicinal Products of the EMEA, has granted orphan drug designation to ambrisentan for PAH. The United States and European orphan drug designations provide incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives marketing approval for an orphan drug to an exclusive marketing period (seven years in the United States and up to ten years in Europe) for that product.

Orphan drug designation does not increase the likelihood of eventual regulatory approval for a product candidate, including ambrisentan, and orphan drug designation may be withdrawn by the FDA and the EMEA, or challenged by our competitors, in certain circumstances. In recent years, Congress and the EMEA have considered changes to the orphan drug regulations to shorten the period of automatic market exclusivity and to grant marketing rights to simultaneous developers of a drug. If the United States or European orphan drug regulations are amended in this manner, any approved drugs for which we have been granted orphan exclusive

marketing rights may face increased competition, which may decrease the amount of revenue we may receive from these products.

In order to obtain orphan drug marketing registration for ambrisentan in Europe, we expect that the EMEA will require GlaxoSmithKline to demonstrate that ambrisentan is not “similar” to bosentan and, potentially, sitaxsentan, and that ambrisentan meets other criteria. The EMEA’s assessment of similarity is different than the standard used by the FDA. Although we believe that ambrisentan is not similar to bosentan or sitaxsentan and that it meets other criteria for differentiation, the EMEA may consider ambrisentan to be similar, in which case, in order to receive marketing approval in Europe, GlaxoSmithKline would then be required to demonstrate that ambrisentan is “clinically superior” to bosentan and, potentially, sitaxsentan. In this scenario, if GlaxoSmithKline is unable to demonstrate that ambrisentan is clinically superior, ambrisentan would not be approved for marketing in Europe. Even if GlaxoSmithKline is able to demonstrate that ambrisentan is clinically superior, it could be required to share the remaining 10-year orphan exclusivity and compete with the similar approved orphan medicinal product.

Changes in or interpretations of accounting rules and regulations, including recently enacted changes relating to the expensing of stock options, could result in unfavorable accounting charges or require us to change our compensation policies.

Accounting methods and policies for business and market practices of biopharmaceutical companies are subject to further review, interpretation and guidance from relevant accounting authorities, including the SEC. The Financial Accounting Standards Board, or FASB, issued SFAS No. 123 (Revised 2004, SFAS No. 123(R)) and its related implementation guidance in December 2004. SFAS No. 123(R) focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions and will require us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. We are required to implement SFAS No. 123(R) as of the beginning of the first annual reporting period that begins after June 15, 2005 and we adopted the standard as of January 1, 2006.

Prior to our implementation of SFAS No. 123(R), we were not required to record stock-based compensation charges if the employee’s stock option exercise price was greater than or equal to the fair value of our common stock at the date of grant. In addition we were previously not required to record compensation expense related to our employee stock purchase plan. As a result of our implementation of SFAS No. 123(R), our future operating expenses will increase. We rely heavily on stock options to compensate existing employees and attract new employees. We may choose to reduce our reliance on stock options as a compensation tool as a result of the impact of SFAS No. 123(R). If we reduce our use of stock options, it may be more difficult for us to attract, motivate and retain qualified employees. If we do not reduce our reliance on stock options or modify our employee stock purchase plan, our reported losses will increase. In addition, our use of cash to compensate employees may increase.

Although we believe that our accounting practices are consistent with current accounting pronouncements, changes to or new interpretations of accounting methods or policies in the future may require us to reclassify, restate or otherwise change or revise our financial statements.

Risks Related to Our Intellectual Property

We rely on compounds and technology licensed from third parties and termination of any of those licenses would result in the loss of significant rights.

We have exclusively licensed worldwide rights under certain patent rights owned by Abbott and BASF to use ambrisentan for all therapeutic uses in humans and to use darusentan for all therapeutic uses in humans other than treatment of cancer. We also have the right to market and distribute Flolan^® in the United States for a three year period which is expected to commence in the second quarter of 2006. In addition, we have the worldwide exclusive rights to certain patents and patent applications licensed from the University of Colorado and the University of Texas Southwestern Medical Center and rights to license future technology and patent

applications arising out of research sponsored at those institutions related to heart failure. Key financial and other terms for future technology would still need to be negotiated with the research institutions, and it may not be possible to obtain any such license on terms that are satisfactory to us.

Our licenses and our distribution agreement relating to Flolan^® generally may be terminated by the respective licensors if we fail to perform our obligations, including obligations to develop and commercialize the compounds and technologies under the license agreements and obligations to market and distribute Flolan^® under the distribution agreement. The license agreements also generally require us to meet specified milestones or show commercially reasonable diligence in the development and commercialization of the compounds or technology under the license. If our agreements are terminated, we would lose the rights to the products or product candidates, reducing our potential revenues.

If we are unable to protect our proprietary technology, we may not be able to compete effectively.

Our success depends in part on our ability to obtain and enforce patent protection for our products and product candidates, both in the United States and other countries, to prevent competitors from developing, manufacturing and marketing products based on our technology. The scope and extent of patent protection for our product candidates is uncertain and frequently involves complex legal, scientific and factual questions. To date, there has emerged no consistent policy regarding breadth of claims allowed for patents of pharmaceutical and biotechnology companies. We cannot predict the breadth of claims that will be allowed and issued in patents related to biotechnology or pharmaceutical applications. Once such patents have issued, we cannot predict how the claims will be construed or enforced or whether applicable statutes, regulations or case law will change in any material respect. In addition, statutory differences between countries may limit the protection we can obtain on some of our inventions outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States.

The degree of protection for our proprietary technologies and product candidates is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:


	•	we or the party from whom we licensed such patents might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

	•	we or the party from whom we licensed such patents might not have been the first to file patent applications for these inventions;

	•	others may independently develop similar or alternative technologies or duplicate any of our technologies;

	•	it is possible that none of our pending patent applications will result in issued patents;

	•	the claims of our issued patents may be unenforceable or narrower than as filed and not sufficiently broad to prevent third parties from circumventing them;

	•	we may not develop additional proprietary technologies or drug candidates that are patentable;

	•	our patent applications or patents may be subject to interference, opposition or similar administrative proceedings;

	•	any patents issued to us or our potential strategic partners may not provide a basis for commercially viable products or may be challenged by third parties in the course of litigation or administrative proceedings such as reexaminations or interferences; and

	•	the patents of others may have an adverse effect on our ability to do business.

Furthermore, the patents that we have licensed with respect to Flolan^®, ambrisentan and darusentan are owned by third parties. These third parties or their affiliates were previously responsible for and controlled the prosecution of these patents. In addition, these third parties, with our advice and input, are currently responsible for and control the prosecution and enforcement of these patents. A failure by these third parties to

adequately prosecute and enforce these patents could result in a decline in the value of the patents and have a material adverse effect on our business. Since we collaborate with third parties on some of our technology, there is also the risk that disputes may arise as to the rights to technology or drugs developed in collaboration with other parties.

Additionally, changes in applicable patent law, including recent Supreme Court and other case law, could impact the interpretation, scope or enforceability of our patents and limit our ability to exclude competitors from entering our markets and utilizing our technology.

Patents relating to our products or product candidates or methods of using them can be challenged by our competitors who can argue that our patents are invalid and/or unenforceable. Third parties may challenge our rights to, or the scope or validity of, our patents. Patents also may not protect our products or product candidates if competitors devise ways of making these or similar product candidates without legally infringing our patents. The Federal Food, Drug and Cosmetic Act and the FDA regulations and policies provide incentives to manufacturers to challenge patent validity or create modified, non-infringing versions of a drug or device in order to facilitate the approval of generic substitutes. These same types of incentives encourage manufacturers to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor.

We also rely on trade secrets and proprietary know-how to develop and maintain our competitive position. While we believe that we have protected our trade secrets, some of our current or former employees, consultants, scientific advisors or collaborators may unintentionally or willfully disclose our confidential information to competitors or use our proprietary technology for their own benefit. If our collaborative partners, employees or consultants develop inventions or processes independently that may be applicable to our products under development, disputes may arise about ownership of proprietary rights to those inventions and/or processes. Such inventions and/or processes will not necessarily become our property, but may remain the property of those persons or their employers. Protracted and costly litigation could be necessary to enforce and determine the scope of our proprietary rights. Furthermore, enforcing a claim alleging the infringement of our trade secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop equivalent knowledge, methods and know-how or gain access to our proprietary information through some other means.

We may be accused of infringing on the proprietary rights of third parties, which could impair our ability to successfully commercialize our product candidates.

Our success depends in part on operating without infringing the proprietary rights of third parties. It is possible that we may infringe on intellectual property rights of others without being aware of the infringement. If a patent holder believes that one of our products or product candidates, or our use of a patented product or process, infringes on its patent, it may sue us even if we have received patent protection for our technology. If another party claims we are infringing its technology, we could face a number of issues, including the following:


	•	defending a lawsuit, which is very expensive and time consuming;

	•	defending against an interference proceeding in the United States Patent and Trademark Office, which also can be very expensive and time consuming;

	•	an adverse decision in a lawsuit or in an interference proceeding resulting in the loss of some or all of our rights to our intellectual property;

	•	paying a large sum for damages if we are found to be infringing;

	•	being prohibited from making, using, selling or offering for sale our product candidates or our products, if any, until we obtain a license from the patent holder. Such a license may not be granted to us on satisfactory terms, if at all, and even if we are granted a license, we may have to pay substantial royalties or grant cross-licenses to our patents; and


	•	redesigning the manufacturing methods or the use claims of our product candidates so that they do not infringe on the other party’s patent in the event that we are unable to obtain a license, which, even if possible, could require substantial additional capital, could necessitate additional regulatory approval, and could delay commercialization.

Risks Related to Our Stock

The market price of our common stock has been and may continue to be highly volatile.

We cannot assure you that an active trading market for our common stock will exist at any time. Holders of our common stock may not be able to sell shares quickly or at the market price if trading in our common stock is not active. The trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:


	•	actual or anticipated results of our clinical trials;

	•	actual or anticipated regulatory approvals of our products or of competing products;

	•	changes in laws or regulations applicable to our products;

	•	changes in the expected or actual timing of our development programs;

	•	actual or anticipated variations in quarterly operating results;

	•	actual or anticipated sales of Flolan^®;

	•	announcements of technological innovations by us, our collaborators or our competitors;

	•	new products or services introduced or announced by us or our competitors;

	•	changes in financial estimates or recommendations by securities analysts;

	•	conditions or trends in the biotechnology and pharmaceutical industries;

	•	changes in the market valuations of similar companies;

	•	announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

	•	additions or departures of key personnel;

	•	disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

	•	the loss of a collaborator, including GlaxoSmithKline or Novartis;

	•	developments concerning our collaborations;

	•	trading volume of our common stock;

	•	sales of our common stock by us; and

	•	sales or distributions of our common stock by our stockholders, including distributions by certain of our principal stockholders to their limited partners, who may in turn sell their shares.

In addition, the stock market in general, the Nasdaq National Market and the market for technology companies in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, there has been particular volatility in the market prices of securities of biotechnology and life sciences companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources.

Issuance of shares in connection with financing transactions or under stock plans and outstanding warrants will dilute current stockholders.

Pursuant to our 2003 Equity Incentive Plan, our management is authorized to grant stock options to our employees, directors and consultants, and our employees are eligible to participate in our 2003 Employee Stock Purchase Plan. As of December 31, 2005, options to purchase a total of 3,517,745 shares were outstanding under the Plan (most of which have exercise prices below our current market price) and options to purchase 1,275,569 shares remained available for grant under the plan. The reserve under our 2003 Equity Incentive Plan will automatically increase each January 1 by the lesser of five percent of the number of total outstanding shares of our common stock on such date or 2,500,000 shares, subject to the ability of our board of directors to prevent or reduce such increase. Additionally, we have 250,000 shares of our common stock reserved for issuance under our 2003 Employee Stock Purchase Plan, approximately 50,000 of which were issued as of December 31, 2005. The reserve under our 2003 Employee Stock Purchase Plan will automatically increase each January 1 by the lesser of 1.25% of the number of total outstanding shares of our common stock on such date or 500,000 shares, subject to the ability of our board of directors to prevent or reduce such increase. In addition, we also have warrants outstanding to purchase 1,477,001 shares of our common stock, all of which have exercise prices below our current market price.

Our stockholders will incur dilution upon exercise of any outstanding stock options or warrants. In addition, if we raise additional funds by issuing additional common stock, or securities convertible into or exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and new investors could gain rights superior to existing stockholders.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage, delay or prevent a change of control or management, even if such changes would be beneficial to our stockholders.

Provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Since management is appointed by the board of directors, any inability to effect a change in the board may result in the entrenchment of management. These provisions include:


	•	authorizing the issuance of “blank check” preferred stock;

	•	limiting the removal of directors by the stockholders to removal for cause;

	•	prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

	•	eliminating the ability of stockholders to call a special meeting of stockholders; and

	•	establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholder meetings.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*

None.


ITEM 2.	*PROPERTIES*

We currently lease approximately 40,000 square feet of office and laboratory space in Westminster, Colorado. The lease expires on October 31, 2008. We have options to extend the lease until 2018. We believe that there is adequate space for lease in our area to support our future growth requirements.


ITEM 3.	*LEGAL PROCEEDINGS*

We are not currently a party to any legal proceedings.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

No matters were submitted to a vote of security holders, through solicitation of proxies or otherwise, during the fourth quarter of 2005.

PART II


ITEM 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

Market Information and Holders

Our common stock is traded on the Nasdaq National Market under the symbol “MYOG.” Trading of our common stock commenced on October 30, 2003, following completion of our initial public offering. The following table sets forth, for the periods indicated, the high and low closing sales prices for our common stock as reported by the Nasdaq National Market:


Year Ended December 31, 2005	High		Low

First Quarter	$	9.00	$	6.54
Second Quarter		7.94		6.43
Third Quarter		24.71		7.05
Fourth Quarter		32.41		18.22


Year Ended December 31, 2004	High		Low

First Quarter	$	18.40	$	10.50
Second Quarter		13.20		7.49
Third Quarter		8.21		5.40
Fourth Quarter		9.21		7.15

On March 8, 2006, the last reported sale price of our common stock on the Nasdaq National Market was $35.79 per share. On March 8, 2006, we had approximately 290 holders of record of our common stock.

Dividends

We have never paid any cash dividends on our capital stock and do not intend to pay any such dividends in the foreseeable future.

Equity Compensation Plan Information

The following table shows certain information concerning our common stock to be issued in connection with our equity compensation plans as of December 31, 2005:

(c)

Number of Securities

(b)

Remaining Available

(a)

Weighted-Average

for Future Issuance

Number of Securities

Exercise Price of

Under Equity

to be Issued Upon

Outstanding

Compensation Plans

Exercise of

Options,

(Excluding

Outstanding Options,

Warrants and

Securities Reflected

Plan Category

Warrants and Rights

Rights(3)

in Column (a))

Equity compensation plans approved by security holders(1) (2)

3,517,745

5.49

1,275,569

Equity compensation plans not approved by security holders

None

Total

3,517,745

5.49

1, 275,569


(1)		As of December 31, 2005, 4,793,314 shares were authorized and unissued under our 2003 Equity Incentive Plan. On January 1 of each year during the term of our 2003 Equity Incentive Plan, beginning on January 1, 2004 through and including January 1, 2013, the number of shares in the reserve automatically will be increased by the lesser of 5% percent of our then-outstanding shares on a fully-diluted basis, or 2,500,000 shares of common stock subject to the ability of our board of directors to prevent or reduce such increase. On January 1, 2006, the share reserve of our 2003 Equity Incentive Plan was increased by 2,098,129 shares.

(2)		As of December 31, 2005, 250,000 shares were reserved for issuance under our 2003 Employee Stock Purchase Plan. On January 1 of each year during the term of our 2003 Employee Stock Purchase Plan, beginning on January 1, 2004 through and including January 1, 2013, the number of shares in the reserve automatically will be increased by the lesser of 1.25% percent of our then-outstanding shares on a fully-diluted basis, or 500,000 shares of common stock, subject to the ability of our board of directors to prevent or reduce such increase. As a result of board action, the share reserve of our 2003 Employee Stock Purchase Plan was increased by 250,000 shares as of January 1, 2006.

(3)		Column (b) does not include the shares issued or available for issuance under our 2003 Employee Stock Purchase Plan.

Use of Proceeds from Sales of Registered Securities

On November 4, 2003, we closed the sale of 5,000,000 shares of our common stock in our initial public offering (the “Offering”), and on November 7, 2003, we closed the sale of an additional 750,000 shares of our common stock pursuant to the exercise by the underwriters of an over-allotment option. The Registration Statement on Form S-1 (Reg. No. 333-108301) (the “Registration Statement”) we filed to register our common stock in the Offering was declared effective by the Securities and Exchange Commission on October 29, 2003. The Offering commenced as of October 29, 2003 and did not terminate before any securities were sold. The offering was completed and all shares were sold at an initial price per share of $14.00. The aggregate purchase price of the Offering amount registered was $80,500,000.

The managing underwriters for the initial public offering were Credit Suisse First Boston LLC, J.P. Morgan Securities Inc., CIBC World Markets Corp. and Lazard Freres & Co. LLC. We incurred expenses in connection with the Offering of $7.2 million, which consisted of direct payments of: (i) $1.4 million in legal, accounting and printing fees; (ii) $5.6 million in underwriters’ discounts, fees and commissions; and (iii) $0.2 million in miscellaneous expenses.

After deducting expenses of the offering, we received net offering proceeds of approximately $73.3 million. As of December 31, 2005, we held approximately $8.4 million of the proceeds from the Offering, all of which are invested in short-term financial instruments. We intend to use these remaining proceeds for research

and development, general corporate purposes and working capital. We regularly assess the specific uses and allocations for these funds.


ITEM 6.	*SELECTED FINANCIAL DATA*

The selected financial data set forth below should be read in conjunction with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this report. The statement of operations data for the years ended December 31, 2005, 2004 and 2003, and the balance sheet data as of December 31, 2005 and 2004, are derived from, and qualified by reference to, our audited financial statements included elsewhere in this report. The statement of operations data for the years ended December 31, 2002 and 2001 and the balance sheet data as of December 31, 2003, 2002 and 2001 are derived from our consolidated financial statements that do not appear in this report. The historical results are not necessarily indicative of the operating results to be expected in the future.


																Cumulative Period
																from June 10, 1996,
																(Date of Inception)
																Through
	Years Ended December 31,															December 31,
	2005			2004			2003			2002			2001			2005
	(In thousands, except share and per share data)

Statement of Operations Data:
Revenues — research and development contracts	$	6,963		$	6,606		$	1,010		$	—		$	—		$	14,579
Costs and expenses:
Research and development(1)		52,602			54,124			37,365			24,950			15,288			195,445
Selling, general and administrative(1)		13,141			8,358			3,683			3,857			2,728			36,926
Stock-based compensation		8,887			3,948			4,192			681			38			17,760

		74,630			66,430			45,240			29,488			18,054			250,131

Loss from operations		(67,667	)		(59,824	)		(44,230	)		(29,488	)		(18,054	)		(235,552	)
Interest income (expense), net		3,661			821			(136	)		786			659			6,882

Loss from continuing operations		(64,006	)		(59,003	)		(44,366	)		(28,702	)		(17,395	)		(228,670	)
Discontinued operations, net of income taxes(3)		982			1,318			1,218			654			281			4,564

Net loss		(63,024	)		(57,685	)		(43,148	)		(28,048	)		(17,114	)		(224,106	)
Accretion of mandatorily redeemable convertible preferred stock		—			—			(13,187	)		(14,684	)		(607	)		(32,500	)
Dividend related to beneficial conversion feature of preferred stock(2)		—			—			(39,935	)		—			—			(39,935	)

Net loss attributable to common stockholders	$	(63,024	)	$	(57,685	)	$	(96,270	)	$	(42,731	)	$	(17,721	)	$	(296,541	)

Basic and diluted net loss per common share attributable to common stockholders:
Continuing operations	$	(1.71	)	$	(2.05	)	$	(18.01	)	$	(43.24	)	$	(20.11	)
Discontinued operations, net of income taxes		0.03			0.05			0.22			0.65			0.31

	$	(1.68	)	$	(2.00	)	$	(17.79	)	$	(42.59	)	$	(19.80	)

Weighted-average shares used in computing basic and diluted net loss per share(4)		37,416,368			28,839,076			5,411,891			1,003,426			894,865


	As of December 31,
	2005			2004			2003			2002			2001
	(In thousands)

Balance Sheet Data:
Cash, cash equivalents and investments	$	182,317		$	119,000		$	113,720		$	33,451		$	55,801
Working capital from continuing operations		165,064			104,905			105,270			29,866			53,955
Total assets		189,007			125,603			121,273			38,144			58,541
Long-term obligations		1,875			1,902			5,064			3,740			33
Mandatorily redeemable convertible preferred stock(2)		—			—			—			106,566			91,917
Common stock		42			36			26			1			1
Deficit accumulated during the development stage		(239,186	)		(176,162	)		(118,477	)		(75,329	)		(35,408	)
Total stockholders’ equity/(deficit)		172,224			107,314			103,922			(76,829	)		(35,569	)


(1)		For the years ended December 31, 2005, 2004 and 2003, research and development and selling, general and administrative expenses exclude stock-based compensation of $4,111 and $4,776, $1,971 and $1,977, and $2,373 and $1,819, respectively. For the cumulative period from June 10, 1996 (Inception) to December 31, 2005, research and development and selling, general and administrative expenses exclude stock-based compensation of $8,938 and $8,822, respectively.

(2)		During the year ended December 31, 2003, we raised $39.9 million through the sale of additional shares of Series D preferred stock in August and upon the completion of our initial public offering in November, all of the outstanding Series A, C and D mandatorily redeemable convertible preferred stock was converted into approximately 19.4 million shares of common stock. We recorded a non-cash beneficial conversion charge of $39.9 million in 2003, which is calculated as the difference between the Series D preferred stock offering price and the estimated fair value of the Series D preferred stock, limited to the amount of the proceeds from the sale of the Series D preferred stock.

(3)		Discontinued operations, net of income taxes relates to the consolidated income and expenses associated with the operations related to the sale of Myogen GmbH and the sub-licensing of Perfan I.V.^®, which met the criteria for such treatment as of December 31, 2005 and accordingly, all periods have been restated. The sale of Myogen GmbH and the sub-license of the non-United States and Canada Perfan rights was completed in January 2006.

(4)		The weighted average shares used in computing basic and diluted net loss per share is calculated based on the weighted-average number of common shares outstanding during the year and excludes all dilutive potential common stock, including options, mandatorily redeemable convertible preferred stock, convertible preferred stock, common stock subject to repurchase and warrants. In November 2003, we sold 5.75 million shares of common stock for net proceeds of $73.3 million in our initial public offering. Concurrently, we issued approximately 19.6 million shares of common stock upon the conversion of all of the outstanding shares of Series A, B, C and D preferred stock. Accordingly, this resulted in the increase in the weighted average common shares outstanding for the year ended December 31, 2003.


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

Overview

license, acquire and develop products that address serious, debilitating cardiovascular disorders that are not adequately treated with existing therapies.

We have two selective oral endothelin receptor antagonist (ERA) product candidates in late-stage clinical development: ambrisentan, which is in Phase 3 clinical development for the treatment of patients with pulmonary arterial hypertension (PAH), and darusentan, which completed a Phase 2b clinical trial for the treatment of patients with resistant hypertension in August 2005. Our product candidates are orally administered small molecules that may offer advantages over currently available therapies and address unmet needs in their respective markets. On March 3, 2006, we entered into a broad collaboration with GlaxoSmithKline in connection with which we licensed manufacturing, development and commercialization rights for ambrisentan to GlaxoSmithKline in all territories outside of the United States and, simultaneously, received rights to market and distribute Flolan^® (epoprostenol sodium) for a three year period in the United States. We also conduct a drug discovery research program in collaboration with the Novartis Institutes for BioMedical Research, Inc. (Novartis), through which we seek to discover and develop disease-modifying drugs for chronic heart failure and related disorders.

Our goal is to create an integrated biopharmaceutical company focused on the discovery, development and commercialization of novel therapies that address the fundamental mechanisms involved in cardiovascular disease, with an initial focus on highly debilitating chronic conditions. Our strategy is to utilize our advanced understanding of the molecular biology and clinical medicine of cardiovascular disease to (i) complete the clinical development of, and obtain regulatory approvals for, ambrisentan and darusentan, (ii) discover and develop novel therapeutics which slow or reverse the progression of cardiovascular disease, and (iii) identify and acquire additional pre-clinical and clinical-stage compounds. In March 2006, we started to build our own commercial capabilities in the United States, initially focused on the PAH market. We plan to further expand our commercial capabilities in targeted markets prior to approval, if any, of our product candidates. We may enter into additional co-promotion or licensing partnerships with larger pharmaceutical or biotechnology companies when necessary to reach selected larger or foreign markets. Similarly, we intend to selectively enter into strategic research and development collaborations with other pharmaceutical or biotechnology companies to advance our research program.

Flolan^® (epoprostenol sodium)

We have the exclusive right to market, promote and distribute Flolan^® and the sterile diluent for Flolan^® in the United States for a three year period. Flolan^® was approved by the FDA in 1995 and is indicated for the long term intravenous treatment of primary pulmonary hypertension and pulmonary hypertension associated with the scleroderma spectrum of disease in NYHA Class III and Class IV patients who do not respond adequately to conventional therapy. We have started to expand our commercial infrastructure in anticipation of our distribution of Flolan^® and commencement of related sales and marketing activities beginning in the second quarter of 2006. We do not expect to generate significant profit, if any, from our marketing and distribution of Flolan^®. Rather, we believe that the Flolan^® distribution arrangement with GlaxoSmithKline will allow us to offset a portion of the cost associated with the initial expansion of our sales and marketing operations. In addition, we expect that the arrangement will allow us to obtain marketing and field selling expertise and recognition in PAH in the United States, well in advance of the potential launch of ambrisentan, and expand our understanding of customer needs, reimbursement opportunities and PAH market dynamics in general.

Selective Oral Endothelin Receptor Antagonists: Ambrisentan and Darusentan

Ambrisentan

We initiated two pivotal Phase 3 trials of ambrisentan, ARIES-1 & -2, in patients with PAH in early 2004. We completed patient enrollment in ARIES-2 on July 21, 2005 and reported top line results from the trial in December 2005. In addition, we completed patient enrollment in ARIES-1 on November 30, 2005 and expect to report top line results in April 2006. These trials are randomized, double-blind, placebo-controlled trials of identical design except for the doses of ambrisentan studied and the geographic locations of the investigative sites. Both trials were designed to enroll 186 patients (62 patients per dose group). ARIES-1 will evaluate once-daily doses of 5 mg and 10 mg of ambrisentan. ARIES-2 evaluated once-daily doses of 2.5 mg and 5 mg of ambrisentan. The primary efficacy endpoint of these trials is exercise capacity, measured as the mean change from baseline at 12 weeks in the six-minute walk distance (6MWD) compared to placebo. Secondary endpoints include time to clinical worsening, WHO functional class, the SF-36^tm Health Survey, and Borg dyspnea index. ARIES-2 enrolled 192 patients primarily from Europe, while ARIES-1 enrolled 202 patients primarily from the United States. In addition, more than 400 patients continue ambrisentan treatment in long-term trials with maximum exposure of more than three years.

Darusentan

Hypertension affects approximately 65 million individuals in the United States and approximately one billion worldwide. In the United States, approximately 60% of these individuals are diagnosed and prescribed anti-hypertensive therapy. Nonetheless, an estimated 10% to 30% of treated patients remain at risk for serious cardiovascular and renal complications because they are unable to achieve blood pressures within the recommended ranges despite taking multiple anti- hypertensive medications on a daily basis.

On August 18, 2005, we reported positive top line results from a Phase 2b randomized, double-blind, placebo-controlled clinical trial evaluating the safety and efficacy of darusentan in patients with resistant hypertension. The trial results achieved the primary endpoint and demonstrated that 300 mg of darusentan dosed once daily provided statistically significant, placebo-corrected reductions of 11.5 mmHg (p=0.015) in systolic blood pressure and 6.3 mmHg (p=0.004) in diastolic blood pressure. Clinically meaningful reductions in systolic and diastolic blood pressure were also observed at earlier time points, at lower doses and in patients being treated with full doses of four or more anti-hypertensive medications, one of which was a diuretic. Trial results demonstrated darusentan was generally well tolerated. The most common adverse event was peripheral edema. There were no observed serum aminotransferase concentrations above two times the upper limit of the normal range. Previous clinical trials with other ERAs in patients with hypertension demonstrated dose-dependent increases in serum aminotransferase concentrations, requiring withdrawal of therapy for safety reasons.


	•	DAR-311. The primary objective of this Phase 3 randomized, double-blind, placebo-controlled parallel group trial is to determine if darusentan is effective in reducing systolic blood pressure in resistant hypertension patients currently treated with full doses of four or more antihypertensive medications, one of which is a diuretic. Patients are eligible for enrollment in this trial if they have a systolic blood pressure greater than or equal to 140 mmHg and no other compelling conditions. For patients with diabetes or chronic kidney disease, the blood pressure inclusion criterion is a systolic blood pressure greater than 130 mmHg. Approximately 352 patients will be randomized to one of three doses of darusentan (50, 100, or 300 mg qd) versus placebo in a ratio of 7:7:7:11. The treatment period for the trial is 14 weeks. The primary endpoint of the trial is change from baseline to week 14 in trough sitting systolic blood pressure as compared to placebo.

	•	DAR-312. The primary objective of this Phase 3 randomized, double-blind, placebo-controlled trial is to determine if darusentan is effective in reducing systolic blood pressure in patients with resistant hypertension. Patients are eligible for enrollment in this trial if they have a systolic blood pressure greater than or equal to 140 mmHg despite treatment with full doses of three antihypertensive drugs, one of which is a diuretic, and no other compelling conditions. For patients with diabetes or chronic kidney disease, the blood pressure inclusion criterion is a systolic blood pressure greater than 130 mmHg. Approximately 770 patients will be randomized to darusentan, active control (guanfacine, an antihypertensive drug that acts as a central alpha agonist) or placebo, in a 3:3:1 ratio. The treatment period for the trial is 14 weeks. The efficacy analysis of the trial is change from baseline to week 14 in trough sitting systolic blood pressure compared to placebo and then compared to the active control.

Discovery Research Program

We have built a drug discovery research team and infrastructure utilizing sponsored research programs and licensing arrangements with academic institutions. The goal of our target and drug discovery research is to discover and develop disease-modifying drugs for chronic heart failure and related disorders. To date, we have acquired intellectual property rights to a series of cardiac molecular targets and signaling systems that we believe are of critical importance in cardiac muscle disease. In addition, we have acquired a compound library, advanced several targets through high-throughput screening and identified a series of promising lead structures.

In October 2003, we entered into a research collaboration with Novartis to advance our drug discovery work. In exchange for signing fees paid by Novartis totaling $5.0 million and an obligation by Novartis to provide research funding through October 2006, Novartis has the exclusive right to license drug targets and compounds developed through the collaboration. In May 2005, we expanded the collaboration to include our histone deacetylase inhibitor (HDACi) program. Upon the completion of Phase 2 clinical trials of any product candidate Novartis has licensed from us (with the exception of certain HDACi product candidates), we have the option to enter into a co-promotion and profit sharing agreement for that product candidate.

ESSENTIAL Trial Results

On June 26, 2005, we announced top line results of ESSENTIAL I & II, our two Phase 3 trials of enoximone capsules in patients with advanced chronic heart failure. The trial results failed to demonstrate a statistically significant benefit for any of the three co-primary efficacy endpoints. Based on these results, we discontinued development of enoximone capsules and dedicated our resources to furthering the development of ambrisentan and darusentan as well as our target and drug discovery program.

Discontinued Operations — Sale of Myogen GmbH

Prior to our licensing the worldwide rights to enoximone in 1998, Perfan^® I.V. (intravenous enoximone) was marketed in Europe by Aventis Pharmaceuticals Inc. (formerly Hoechst Marion Roussel, Inc.). In 1999, we formed our wholly-owned German subsidiary, Myogen GmbH, to manage our sales and marketing activities in Europe. From 2000 through 2002, we entered into agreements with a network of distributors to

distribute and market Perfan^® I.V. in Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands and the United Kingdom. We recorded our first sales of Perfan^® I.V. in 2000.

As a result of a detailed review of our strategic options, we sold Myogen GmbH and sublicensed our rights to Perfan^® I.V. in markets outside North America to Wülfing Holding GmbH in January 2006. The sublicense agreement with Wülfing is subject to the terms of our license agreement with Aventis. Under the terms of the sale and sublicense agreement with Wülfing, Wülfing paid us approximately $5.0 million in consideration of the transfer to Wülfing of our rights to certain Perfan^® trademarks, certain quantities of bulk enoximone compound and enoximone starter material, and our existing inventory of finished Perfan^® I.V. The sublicense also obligates Wülfing to pay us royalties based on net sales of Perfan^® I.V. outside North America. Such obligations are generally coterminous with our obligations to pay royalties to Aventis under the license agreement. Under the terms of the stock purchase agreement with Wülfing, Wülfing purchased the outstanding capital stock of Myogen GmbH for an aggregate of approximately $1.1 million, including assumption of an intercompany account payable to us.

Due to the sale of Myogen GmbH and the sublicense of Perfan^® I.V. to Wülfing, we will no longer sell Perfan^® I.V. in Europe.

Myogen GmbH assets, liabilities and results of operations have been reclassified as discontinued operations for all periods.

Results of Operations

Years Ended December 31, 2005, 2004 and 2003

Revenues


	Years Ended December 31,
	2005		2004		2003
	(In thousands)

Revenues — research and development contracts	$	6,963	$	6,606	$	1,010

Research and development contracts revenue

Research and development contracts revenues for the years ended December 31, 2005, 2004 and 2003 were related to the research agreement with Novartis executed in October 2003. The 2005 research and development contracts revenue consists of license revenue totaling $1.3 million and research support funding of $5.6 million. The 2004 research and development contracts revenue consists of license revenue totaling $1.7 million and research support funding of $4.9 million. The 2003 research and development contracts revenue consists of license revenue totaling $385,000 and research support funding of $625,000. The license revenue is related to the non-refundable upfront payment from Novartis, which is recognized ratably over the expected service period. The research support funding is related to the fully burdened cost of the researchers working on the further development of specific potential drug targets and is recognized in the period in which the services are performed.

We expect both license revenue and research support in 2006 will be similar to the amounts recognized in 2005.

Costs and Expenses


	Years Ended December 31,
	2005		2004		2003
	(In thousands)

Costs and expenses:
Research and development (excluding stock-based compensation)	$	52,602	$	54,124	$	37,365
Selling, general and administrative (excluding stock-based compensation expense)		13,141		8,358		3,683
Stock-based compensation		8,887		3,948		4,192

	$	74,630	$	66,430	$	45,240

Research and Development

Research and development expenses, excluding stock-based compensation expenses are summarized as follows:


	Years Ended December 31,
	2005		2004		2003
	(In thousands)

Development
Enoximone capsules	$	18,902	$	26,757	$	19,718
Ambrisentan		21,150		16,255		7,962
Darusentan		5,329		4,250		149

Total development		45,381		47,262		27,829
License fees
Enoximone		—		—		—
Ambrisentan		—		1,500		1,000
Darusentan		—		—		5,000
Other		106		117		188

Total license fees		106		1,617		6,188
Discovery research		7,115		5,245		3,348

Total research and development	$	52,602	$	54,124	$	37,365

The $7.9 million decrease in development costs for enoximone capsules in 2005 as compared to 2004 was primarily due to the discontinuation of this program in June 2005.

The $7.0 million increase in development costs for enoximone capsules in 2004 as compared to 2003 was primarily due to the following:


	•	$5.5 million increase in clinical investigator site payments and external contract costs associated with clinical monitoring and program management efforts as a result of higher patient enrollment and ongoing patient progress in the ESSENTIAL trials;

	•	$765,000 increase in external contract costs associated with clinical monitoring, clinical trial materials, consulting and program management efforts related to other enoximone trials;

	•	$470,000 increase related to enoximone raw material costs expensed for expected use in manufacturing development and analytical testing;

	•	$330,000 increase in costs associated with stability and release testing; and


	•	$1.1 million increase in the internal costs associated with the management of the enoximone trials primarily due to an increase in the number of employees.

These increases were partially offset by a $550,000 decrease related to manufacturing process optimization and development.

We anticipate that our enoximone capsules clinical trial costs will be negligible going forward due to the termination of this program in June 2005.

The $4.9 million increase in development costs for ambrisentan in 2005 as compared to 2004 was primarily related to:


	•	$2.0 million increase in expenses due to the progress of our two Phase 3 ARIES trials and the related extension study, which were initiated in January 2004;

	•	$1.7 million increase related to the initiation in 2005 of several Phase 1 ambrisentan studies; and

	•	$1.3 million increase in internal expenses associated with the management of the ambrisentan trials, primarily due to an increase in the number of employees.

The $8.3 million increase in development costs for ambrisentan in 2004 as compared to 2003 was primarily related to:


	•	$7.7 million increase in expenses due to the progress of our two Phase 3 ARIES trials and the related extension study, which were initiated in January 2004;

	•	$2.4 million increase in expenses related to work on developing the commercial manufacturing process for ambrisentan;

	•	$130,000 increase in expenses due to the extension study associated with our Phase 2 PAH trial; and

	•	$910,000 increase in internal expenses associated with the management of the ambrisentan trials, primarily due to an increase in the number of employees.

These increases were partially offset by a $2.0 million decrease related to the conclusion of our Phase 2 PAH trial in September 2003.

We anticipate development costs associated with ambrisentan will continue to increase in 2006 as we continue clinical development and commercial and manufacturing scale up activities.

The $1.1 million increase in development costs for darusentan in 2005 as compared to 2004 was primarily related to:


	•	$1.2 million increase in expenses due to costs to prepare for the expected initiation of Phase 3 clinical trials of darusentan; and

	•	$570,000 million increase in internal expenses associated with the management of the darusentan trials, primarily due to an increase in the number of employees.

These increases were partially offset by a $415,000 decrease in costs related to our Phase 2b clinical trial, which was completed in mid-2005.

The development costs for darusentan in the 2004 were related to costs for the Phase 2b clinical trial and primarily consisted of:


	•	$3.2 million in expenses incurred from activities related to our Phase 2b clinical trial of darusentan in resistant systolic hypertension;

	•	$220,000 in consulting costs;

	•	$130,000 in expenses related to analytical and regulatory work; and

	•	$375,000 in internal expenses associated with the management of the darusentan trials primarily due to an increase in the number of employees.

We believe our costs for the development of darusentan will increase significantly in 2006 compared to 2005 due to the costs to prepare for and conduct pivotal Phase 3 trials.

In 2004, the license fees were primarily attributable to the initiation of the ambrisentan Phase 3 trials totaling $1.5 million. In 2003, the $5.0 million license fee was attributable to the in-licensing of darusentan and the final $1.0 million cost reimbursement for ambrisentan.

Discovery research expenses increased both in 2005 and 2004 compared to the prior years primarily due to increased staffing costs related to our collaborative research program with Novartis, which was initiated in October of 2003. In addition in 2004 as compared to 2003, we had a decrease of $150,000 in SBIR funding, which reduced the amount of the offset to our research costs. We expect a further increase in discovery research in 2006 due to a planned expansion of our research staff, much of which will not lead to increased research contracts revenue.

Selling, General and Administrative

The $4.8 million increase in selling, general and administrative expense in 2005 as compare to 2004 primarily relates to:


	•	$1.8 million increase in market research costs;

	•	$1.1 million related to increased staffing and related recruiting costs;

	•	$625,000 million increase in insurance and professional service costs; and

	•	$600,000 increase in conferences and consulting costs.

The $4.7 million increase in selling, general and administrative expense in 2004 as compare to 2003 primarily relates to:


	•	$1.6 million increase in insurance and professional service costs related to being a public company for the full year, including costs related to compliance with the Sarbanes-Oxley Act;

	•	$1.2 million related to increased staffing and related recruiting costs;

	•	$780,000 increase in market research costs;

	•	$410,000 increase related to facility and office maintenance costs related to increased space and staffing; and

	•	$215,000 increase in conferences and consulting costs.

We expect a significant increase in selling, general and administrative expense in 2006, based on the fact that we are expanding our sales, marketing and administrative organizations to prepare for the marketing and distribution of Flolan^® in the United States, which we expect to commence in the second quarter of 2006, and our expectation that we will expand our efforts to prepare for the potential commercialization of ambrisentan.

Stock-Based Compensation

The stock-based compensation expense for each period was allocated between selling, general and administrative and research and development as follows:


	Year Ended December 31,
	2005		2004		2003
	(In thousands)

Research and development	$	4,111	$	1,971	$	2,373
Selling, general and administrative		4,776		1,977		1,819

	$	8,887	$	3,948	$	4,192

Stock-based compensation expenses were $8.9 million, $3.9 million and $4.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in 2005 as compared to 2004 relates primarily

to certain employee stock options that were granted in 2005 subject to accelerated vesting upon our stock price reaching an average of $28 per share for five days. These options were treated as variable in accordance with APB 25. These options became fully vested in December 2005, resulting in $6.0 million of the total stock-based compensation expense for 2005. Additionally, certain members of our Board received performance-based stock option grants during 2005, which were also treated as variable in accordance with APB 25. These options were not vested as of December 31, 2005; however, approximately $875,000 of stock-based compensation expense was recorded related to these options during the year due to our increased stock price. There was no corresponding expense for these options in 2004. The decrease in 2004 as compared to 2003 was due to below-market options granted to employees prior to the initial public offering and a decrease in the fair value of our common stock for options granted to non-employees. During 2005 and 2004, the Company did not grant options to employees with exercise prices below the fair market value on the date of grant.

Interest Income/(Expense), Net

Interest income net of interest expense was $3,661,000, $821,000 and ($136,000) for the years ended December 31, 2005, 2004 and 2003, respectively. Interest income was $3.9 million, $1.3 million and $585,000 for the years ended December 31, 2005, 2004 and 2003, respectively. The increases in interest income in 2005 as compared to 2004 and 2004 as compared to 2003 relate to increased cash balances from our financings. Interest expense was $274,000, $460,000, and $721,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Interest expense decreased in these periods primarily because we paid down our term loan balance. The term loan was paid in full in January 2006.

Discontinued Operations

Discontinued operations, net of income taxes relates to the consolidated income and expenses associated with the operations related to the sale of Myogen GmbH and the sub-licensing of Perfan I.V.^®, which met the criteria for such treatment as of December 31, 2005. The sale of Myogen GmbH and the sub-license of the non-United States and Canada Perfan rights was completed in January 2006.

The income and costs included in discontinued operations, net of income taxes are comprised of the following:


	Year Ended December 31,
	2005			2004			2003
	(In thousands)

Product sales	$	3,162		$	3,318		$	2,846
Operating expenses		(2,155	)		(1,978	)		(1,589	)
Income taxes		(25	)		(22	)		(39	)

	$	982		$	1,318		$	1,218

Accretion of Mandatorily Redeemable Convertible Preferred Stock

Accretion of mandatorily redeemable convertible preferred stock was $13.2 million for the year ended December 31, 2003. Accretion of the mandatorily redeemable convertible preferred stock for the year ended December 31, 2003 represents the accretion associated with the Series A, Series C and Series D mandatorily redeemable convertible preferred stock. There is no corresponding expense in 2005 or 2004 due to the conversion of all shares of the Series A, C and D mandatorily redeemable convertible preferred stock into common stock on November 4, 2003.

Deemed Dividend

On August 27, 2003, we issued 29,090,908 shares of Series D preferred stock at a price of $1.375 per share and received net proceeds of $39.9 million. In the third quarter of 2003, we recorded a beneficial conversion charge of approximately $39.9 million, which was calculated as the difference between the offering price and the fair value of the underlying common stock and limited to the amount of proceeds allocated to

the Series D preferred stock in accordance with EITF No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. Accordingly, the $39.9 million charge is deemed to be the equivalent of a dividend on the Series D preferred stock. This deemed preferred stock dividend increases the loss applicable to common stockholders in the calculation of basic net loss per share for the third quarter of 2003 and the year to date 2003. There is no corresponding expense in 2005 or 2004.

Liquidity and Capital Resources

Our cash, cash equivalents and investments from continuing operations amounted to $182.3 million at December 31, 2005. From our inception on June 10, 1996 to December 31, 2005, we funded our operations primarily with $377.0 million (net of issuance costs) from private equity financings and our public offerings, $17.4 million related to our research and development contract with Novartis and $6.9 million from net interest income earned on cash equivalents and investments. On August 27, 2003, we raised net proceeds of $39.9 million through the sale of additional shares of our Series D preferred stock. On November 7, 2003, we completed our initial public offering, which raised net proceeds of $73.3 million. On September 29, 2004, we completed a PIPE financing, in which 9,195,400 new shares of our common stock and warrants exercisable for 1,839,080 shares of our common stock were issued for proceeds of $57.1 million, net of $2.9 million in issuance costs. The warrants have an exercise price of $7.80 per share. On September 21, 2005, we completed an underwritten public offering of 4,675,082 shares of newly issued common stock and the exercise by the underwriters of their over-allotment option to purchase an additional 701,262 shares of common stock, all at $23.25 per share before underwriting discounts and commissions for total net proceeds of approximately $116.8 million. These additional funds have been invested in instruments with maturities of 18 months or less. Our cash outflows in the next 12 months are expected to consist primarily of external expenses related to our research and development programs, as well as payroll costs. Our cash outflows beyond one year are also expected to consist primarily of external expenses related to our research and development programs, as well as payroll costs. We believe that our cash, cash equivalents and investment balances will allow us to fund our future working capital and capital expenditures through at least the end of 2007.

Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, consisting of United States government and agency securities, high-grade United States corporate bonds, municipal bonds, mortgage-backed securities, commercial paper and money market accounts. Our Board of Directors has approved our written investment policy, which limits our investment instruments to those mentioned above. We review compliance with this policy on a monthly basis.

At December 31, 2005, we had approximately $2.6 million in net fixed assets. We expect to purchase additional equipment in 2006, and we expect our spending on fixed assets to grow in future years.

Operating activities resulted in net cash outflows of $53.1 million, $47.7 million, and $31.7 million for the years ended December 31, 2005, 2004 and 2003 respectively. The cumulative net cash outflow from operating activities from our inception to December 31, 2005 was $189.2 million. The use of cash in all periods was primarily a result of funding our research and development activities. Discontinued operations used approximately $0.3 million in 2005, provided $0.3 million in 2004, provided or used nothing in 2003 and provided $0.3 million in the period from inception to December 31, 2005.

Investing activities resulted in a net cash inflow of $3.6 million, a net cash inflow of $19.2 million and a net cash outflow of $43.1 million for the years ended December 31, 2005, 2004 and 2003 respectively. The net cash inflow for the year ended December 31, 2005 is primarily from $51.1 million in purchases of investments offset by $55.7 million in proceeds from the maturity of investments. The net cash inflow for the year ended December 31, 2004 is primarily from $111.5 million in purchases of investments offset by $132.4 million in proceeds from the maturity of short-term investments. The net cash outflow for the year ended December 31, 2003 resulted primarily from $114.8 million in purchases of short-term investments offset by $71.7 million in proceeds related to the maturity of short-term investments. Cumulative investing activities from inception to December 31, 2005 resulted in net cash outflows of $49.3 million, with $5.2 million in net capital asset expenditures and $485.9 million in purchases of investments offset by $441.5 million in proceeds

from the maturity of investments. There were no material investing activities from discontinued operations in 2005, 2004, 2003 or the period from inception to December 31, 2005.

Financing activities resulted in net cash inflows of $117.1 million, $55.4 million, and $112.2 million, for the years ended December 31, 2005, 2004 and 2003, respectively. Financing activities for 2005 primarily consisted of a public offering, in which 5,376,344 shares of common stock were issued for a total net proceeds of $116.8 million, offset by approximately $2.0 million of payments on our term loan. Financing activities for 2004 primarily consisted of a PIPE financing, in which 9,195,400 shares of common stock and warrants exercisable for 1,839,080 shares of common stock were issued for a total net proceeds of $57.1 million, offset by approximately $1.8 million of payments on our term loan. Financing activities for 2003 primarily consisted of the sale of additional shares of our Series D preferred stock with net proceeds of $39.9 million and our initial public offering which raised net proceeds of $73.3 million, offset by approximately $1.1 million of payments on our term loan. Cumulative financing activities from our inception to December 31, 2005 resulted in net cash inflows of $377.1 million, primarily related to the issuance of our Series A, C and D preferred stock, and the sale of shares of our common stock in our initial public offering, secondary offering and PIPE. There were no material financing activities from discontinued operations in 2005, 2004, 2003 or the period from inception to December 31, 2005.

In December 2002, we entered into a term loan with certain financial institutions and borrowed $5,000,000 with a 36-month repayment term, subject to customary non-financial related covenants. The loan accrued interest at 9.82% per annum. The first three monthly repayments were comprised of interest only; the remaining thirty-three payments are comprised of both principal and interest. Concurrent with this loan agreement, warrants were granted to the financial institutions. Substantially all of our assets were pledged as collateral for the loan. We paid off our obligations under the loan in January 2006 and all related collateral was released.

We anticipate that our current cash, cash equivalents and investments will be sufficient to fund our operations through at least the end of 2007. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Although we expect that our existing resources could be adequate to support our operations for a longer period of time under certain scenarios, there can be no assurance that this can, in fact, be accomplished.

We plan to raise additional financing to meet future working capital and capital expenditure needs. There can be no assurance that such additional financing will be available or, if available, that such financing can be obtained on terms satisfactory to us. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue one or more of our clinical trials, those aspects of our drug discovery program not funded by Novartis or other aspects of our operations.

Obligations and Commitments

The following summarizes our significant contractual obligations, which are comprised of our notes payable, capital and operating lease obligations as of December 31, 2005, and the effect these significant contractual obligations are expected to have on our liquidity and cash flows in future periods:


			Payments Due by Period
			Less Than		One to		Four to		After Five
Contractual Obligations	Total		One Year		Three Years		Five Years		Years
	(In thousands)

Notes payable(1)	$	172	$	172	$	—	$	—	$	—
Capital lease obligations(2)		160		84		67		9		—
Operating leases(3)		1,079		376		703		—		—

Total contractual obligations	$	1,411	$	632	$	770	$	9	$	—


(1)		Amounts are equal to the annual maturities of our long-term debt outstanding as of December 31, 2005. Our notes payable was paid in full in January 2006.


(2)		Amounts represent principal payments due under various capital lease obligations as of December 31, 2005. These arrangements expire in various years through 2010.

(3)		These commitments are associated with contracts that expire October 31, 2008. Payments due reflect fixed rent expense.

Total lease expense for the years ended December 31, 2005, 2004 and 2003 was $490,000, $553,000 and $416,000 respectively. We have future payment commitments for operating leases of approximately $1.1 million, principally for our office and laboratory space. In addition, many of our contracts with clinical research organizations, contract manufacturers, academic research agreements and others contain termination provisions that would require us to make final payments if we were to terminate prematurely. The size of these payments depends upon the timing and circumstances of the termination and therefore the extent of the future commitments cannot be meaningfully quantified.

Net Operating Loss and Tax Credit Carryforwards

At December 31, 2005, we had $196.9 million of net operating loss carryforwards, approximately $3.4 million in research and development credits and approximately $8.8 million in orphan drug credit carryforwards available to offset future regular and alternative taxable income. These net operating loss carryforwards, research and development and orphan drug credit carryforwards expire beginning in 2011, 2018 and 2024, respectively. The Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain changes in our ownership occur. We have not done an analysis of these limitations, therefore, the amount of these limitations, if any, is unknown, and net operating and tax credit carryforwards may expire unused.

Critical Accounting Policies and the Use of Estimates

Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and informed management judgments about matters that are inherently uncertain:


	•	revenue recognition;

	•	accounting for research and development expenses;

	•	estimating the value of our equity instruments for use in deferred stock-based compensation calculations; and

	•	accounting for income taxes.

Revenue Recognition.

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 “Revenue Recognition in Financial Statements” (SAB 104). Arrangements with multiple elements are accounted for in accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21. We consider this methodology to be the most appropriate for our business model and current revenue streams.

Product Sales. Product sales are recognized when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists; (ii) product is shipped from the distributor’s consignment stock to the customer; (iii) the selling price is fixed or determinable; and (iv) collection is

reasonably assured. Once the product is shipped to the customer, we do not allow product returns. All product sales are included in discontinued operations, net of income taxes, in the statement of operations.

Research and development contracts. We may enter into collaborative agreements with pharmaceutical companies where the other party generally receives exclusive marketing and distribution rights for certain products for set time periods and set geographic areas. The rights associated with this research and development are assigned or can be assigned to the collaborator or through a license at the collaborator’s option. The terms of the collaborative agreements can include non-refundable licensing fees, funding of research and development efforts, payments based on achievement of certain milestones, and royalties on product sales. We analyze our multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting in accordance with EITF 00-21. We recognize up-front license payments as revenue if the license has stand-alone value, we do not have ongoing involvement or obligations, and the fair value of the undelivered items can be determined. If the license is considered to have stand-alone value but the fair value on any of the undelivered items cannot be determined, the license payments are recognized as revenue over the period of performance for such undelivered items or services.

Non-refundable license fees received are recorded as deferred revenue once received or irrevocably committed, and are recognized ratably over the period of performance for the related services. Where there are two or more distinct phases embedded into one contract (such as product development and subsequent commercialization or manufacturing), the contracts may be considered multiple element arrangements. When it can be demonstrated that each of these phases is at fair value, they are treated as separate earnings processes with upfront fees being recognized over only the initial product development phase. The relevant time period for the product development phase is based on management estimates and could vary depending upon the outcome of clinical trials and the regulatory approval process. As a result, management frequently reviews the appropriate time period.

Milestone payments, based on designated achievement points that are considered at risk and substantive at the inception of the collaborative contract, are recognized as earned when the earnings process is complete and the corresponding payment is reasonably assured. We evaluate whether milestone payments are at risk and substantive based on the contingent nature of the milestone, specifically reviewing factors such as the technological and commercial risk that needs to be overcome and the level of investment required. Milestone payments related to arrangements under which we have continuing performance obligations are recognized as revenue upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved in achieving the milestone; and the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

Revenue from research funding is recognized when the services are performed and is typically based on the fully burdened cost of a researcher working on a collaboration. Revenue is recognized ratably over the period as services are performed, with the balance reflected as deferred revenue until earned.

Accounting for research and development expenses. Our research and development expense category is primarily composed of costs associated with product development of our drug candidates. These expenses represent both clinical development costs and the costs associated with non-clinical support activities such as toxicological testing, manufacturing process development and regulatory consulting services. Clinical development costs represent internal costs for personnel, external costs incurred at clinical sites and contractual payments to third party clinical research organizations to perform certain activities in support of our clinical trials. We also report the costs of product licenses in this category, including our ongoing milestone payment obligations associated with the licensing of our product candidates. Our product candidates do not currently have regulatory approval; accordingly, we expense the license and milestone fees when we incur the liability. We have a discovery research effort, which is conducted in part on our premises by our scientists and in part through collaborative agreements.

While some of our research and development expenses are the result of the internal costs related directly to our employees, a majority of the expenses are charged to us by external service providers, including clinical research organizations and contract manufacturers, and by our academic collaborators. We record research and development expenses for activity occurring during the fiscal period related to the service delivery and in some cases accruing the cost prior to receiving invoices from clinical sites and third party clinical research organizations. We accrue external costs for clinical studies based on the progress of the clinical trials, including patient enrollment, progress by the enrolled patients through the trial, and contractual costs with clinical research organizations and clinical sites. Certain of these accrued research and development costs are included in Accounts Payable on our Balance Sheet and described further in Notes 6 and 8 of the financial statements beginning on F-1. We record internal costs primarily related to personnel in clinical development and external costs related to non-clinical studies and basic research when incurred. Amounts received from other parties to fund our research and development efforts where the reimbursing party does not obtain any rights to the research or drug candidates are recognized as a reduction to research and development expense as the costs are incurred. Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period. Actual costs incurred may or may not match the estimated costs for a given accounting period.

Valuation of equity instruments. We record compensation expense related to options issued to consultants and options issued to, or common stock sold to, employees at less than the fair value. As a result, we have recorded deferred stock-based compensation expense that represents, in the case of employees, the difference between the option exercise price and the fair value of our common stock. In the case of consultants, deferred stock-based compensation represents the fair value of the options granted, computed using the Black-Scholes option-pricing model. These expenses are based on the fair value of the options and common stock. Because prior to our initial public offering there was no public market for our common stock, we have estimated the fair value of these equity instruments using various valuation methods. Subsequent to our initial public offering on October 30, 2003, we estimate the fair value of these equity instruments using the value for our common stock that the public market establishes. Deferred stock-based compensation for employees is recognized over the remaining vesting period of the related option. Deferred stock-based compensation related to consultants is recognized over the vesting period of the related option and the amount recognized is subject to change based on changes in the fair value of our common stock. We recognize stock-based compensation using an accelerated method as described in Financial Accounting Standards Board Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, an Interpretation of APB Opinions No. 15 and 25 (FIN 28).

Accounting for income taxes. We must make significant management judgments when determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. At December 31, 2005, we recorded a full valuation allowance of $95.2 million against our net deferred tax asset balance, due to uncertainties related to the ultimate recovery of our deferred tax assets as a result of our history of operating losses. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to change the valuation allowance, which could materially impact our financial position and results of operations.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004),“Share-Based Payment”, which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB No. 25, and amends SFAS No. 95, “Statement of Cash Flows”. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS No. 123(R) and the related interpretations must be adopted no later than January 1, 2006. We adopted SFAS No. 123(R) effective as of January 1, 2006.

SFAS No. 123(R) permits companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

We plan to use the modified prospective method upon adoption on January 1, 2006.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using the APB No. 25 intrinsic value method and, as such, generally recognize no compensation cost for employee stock options and the employee stock purchase plan. Accordingly, the adoption of the fair value method required under SFAS No. 123(R) will have a significant adverse impact on our results of operations, although it will have no impact on our overall financial position or cash flows. The balance of unearned stock-based compensation to be expensed in the period 2006 to 2009 related to share-based awards unvested at December 31, 2005, as previously calculated under the disclosure-only requirements of SFAS 123, is approximately $6.7 million. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that we grant additional equity securities to employees, stock-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants. We anticipate we will grant additional employee stock options throughout the year to new employees and in the first quarter of 2006 as part of its regular annual equity compensation focal review program. The fair value of these grants is not included in the amount above, as the impact of these grants cannot be predicted at this time because it will depend on the number of share-based payments granted as part of the focal review program and the then-current fair values.

Had we adopted SFAS No. 123(R) in 2004, the magnitude of the impact of that standard on our results of operations would have approximated the impact of SFAS 123 assuming the application of the Black-Scholes option pricing model for the periods through 2004. In 2005, we granted stock options with vesting conditional upon our stock price reaching a target amount for a specified length of time. These were treated as variable options in accordance with APB 25, and accordingly were marked to market each reporting period when it became probable that these options would ultimately vest. However, in accordance with FAS 123(R), options with market conditions would have been valued using a lattice model and these options would not have been marked to market in 2005. Since the lattice model was not required prior to adoption, it is not reasonable to determine the impact adopting FAS 123(R) would have had on our operations in 2005. These options met the market condition in December 2005 and became fully vested. The stock-based compensation expense recorded in 2005 associated with these options was approximately $6.0 million.

The Black-Scholes model considers, among other factors, the expected life of the option and the expected volatility of our stock price. The Black-Scholes model meets the requirements of SFAS 123(R) but the fair values generated by the model may not be indicative of the actual fair values of our stock-based awards, as it does not consider other factors important to stock-based awards, such as continued employment and periodic vesting requirements and limited transferability. For pro forma illustration purposes, the Black-Scholes value of our stock-based awards is assumed to be amortized using the accelerated expensing method over their respective vesting periods, in accordance with the provisions of FIN No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (“FIN 28”). Upon adoption, we plan to use the Black-Scholes model, with the expense amortized over the respective vesting period using the accelerated expensing method. We plan to use the SEC “shortcut” approach to determine the expected term of option grants subsequent to adoption, which results in a life of 6 years for our standard option grants. Standard option grants vest 25% after the first year and monthly thereafter through the fourth anniversary.

Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), there were no operating cash flows recognized in prior periods for such excess tax deductions for stock option exercises.

SFAS No. 154, “Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and FASB Statement No. 3. In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, which for the Company will be January 1, 2006.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK*

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash, cash equivalents, short- and long-term investments, trade accounts receivable, accounts payable and long-term obligations. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents.

We invest in marketable securities in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. The maximum allowable duration of a single issue is 18 months and the average duration of the issues in the portfolio is less than nine months.

As of December 31, 2005, we had an investment portfolio of short-term and long-term investments in a variety of interest-bearing instruments, consisting of United States government and agency securities, high-grade United States corporate bonds, municipal bonds, mortgage-backed securities and money market accounts of $43.9 million excluding those classified as cash and cash equivalents. Our short- and long-term investments consist primarily of bank notes, various government obligations and asset-backed securities. These securities are classified as available-for-sale and are recorded on the balance sheet at fair market value with unrealized gains or losses reported as accumulated other comprehensive income, a separate component of stockholders’ equity. Unrealized losses are charged against income when a decline in fair market value is determined to be other than temporary. The specific identification method is used to determine the cost of securities sold.

Investments in fixed-rate interest-earning instruments carry varying degrees of interest rate risk. The fair market value of our fixed-rate securities may be adversely impacted due to a rise in interest rates. In general, securities with longer maturities are subject to greater interest-rate risk than those with shorter maturities. Due in part to this factor, our investment income may fall short of expectations or we may suffer losses in principal if securities are sold that have declined in market value due to changes in interest rates. Due to the short duration of our investment portfolio, we believe an immediate 10% change in interest rates would not be material to our financial condition or results of operations.

The table below summarizes the book value, fair value, unrealized gains/losses and related weighted average interest rates for our investment portfolio as of December 31, 2005 and 2004:


					Unrealized		Unrealized			Average Rate
	Amortized		Aggregate		Holding		Holding			of Return
Security Type	Cost Basis		Fair Value		Gains		Losses			(Annualized)
	(In thousands, except average rate of Return)

December 31, 2005
Government securities	$	21,015	$	20,962	$	—	$	(53	)		4.19	%
Corporate debt securities		14,345		14,309		—		(36	)		5.25	%
Asset-backed securities		6,985		6,969		1		(17	)		4.07	%
Commercial paper		1,691		1,697		6		—			4.16	%

Total investments	$	44,036	$	43,937	$	7	$	(106	)

December 31, 2004
Government securities	$	27,729	$	27,677	$	—	$	(52	)		2.23	%
Corporate debt securities		17,395		17,371		—		(24	)		2.25	%
Asset-backed securities		3,295		3,283		—		(12	)		2.06	%

Total investments	$	48,419	$	48,331	$	—	$	(88	)

The euro is the functional currency for Myogen GmbH, which is classified as discontinued operations. We translate asset and liability accounts to the United States dollar based on the exchange rate as of the balance sheet date, while the income statement and cash flow statement amounts are translated to the United States dollar at the average exchange rate for the period. Exchange gains and losses resulting from such translation are included as a separate component of stockholders’ equity/(deficit). Transaction gains and losses are recognized in income during the period in which they occur and are included in selling, general and administrative expenses. In addition, we conduct clinical trials in many countries, exposing us to cost increases if the United States dollar declines in value compared to other currencies.


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

The consolidated financial statements required pursuant to this item are included in Item 15 of this report and are presented beginning on page F-1.


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

Previous independent registered public accounting firm

On March 17, 2005, the Audit Committee of Myogen, Inc. (the “Company”) dismissed PricewaterhouseCoopers LLP (“PwC”) as its independent registered public accounting firm.

PwC’s reports on the financial statements of the Company for the years ended December 31, 2004 and 2003 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the years ended December 31, 2004 and 2003 and through March 17, 2005, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in its reports on the financial statements for such years. During the years ended December 31, 2004 and 2003 and through March 17, 2005, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).

New independent registered public accounting firm

On March 17, 2005, the Company’s Audit Committee unanimously approved the engagement of Ernst & Young LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2005.

During the years ended December 31, 2004 and 2003 and through March 17, 2005, neither the Company nor anyone on its behalf consulted with Ernst & Young LLP regarding (i) either the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was either the subject to a disagreement or a reportable event, as those terms are defined in Item 304(a)(1)(iv) and (v) of Regulation S-K.


ITEM 9A.	*CONTROLS AND PROCEDURES*

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Myogen, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Myogen, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Myogen Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Myogen, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Myogen, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2005 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended of Myogen, Inc. and our report dated March 10, 2006 expressed an unqualified opinion thereon.

Ernst & Young LLP

Denver, Colorado

March 10, 2006

No Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III


ITEM 10.	*DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT*

The information required by this Item concerning our Board of Directors is incorporated by reference to the information set forth in the sections entitled “Proposal 1 — Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the 2006 Annual Meeting

of Stockholders to be filed with the Commission within 120 days after the end of our fiscal year ended December 31, 2005 (the “Proxy Statement”). The information required by this Item concerning our executive officers is incorporated by reference to the information set forth in the section of the Proxy Statement entitled “Executive Officers and Key Employees.”

Our Board of Directors has adopted a Code of Conduct and Business Ethics for all of our directors, officers and employees. Stockholders may locate a copy of our Code of Conduct and Business Ethics on our website at http://www.myogen.com or request a free copy of the Code from:

Myogen, Inc.

Attn: Investor Relations

7575 West 103rd Ave., #102

Westminster, CO 80021-5426

Tel: (303) 410-6666

To date, there have been no waivers under our Code of Business Conduct and Ethics. We will post any waivers, if and when granted, of our Code of Conduct and Business Ethics on our website.


ITEM 11.	*EXECUTIVE COMPENSATION*

The information required by this Item regarding executive compensation is incorporated by reference to the information set forth in the sections of the Proxy Statement entitled “Compensation of Executive Officers,” “Compensation of Directors,” “Employment, Severance and Change of Control Agreements,” and “Compensation Committee Interlocks and Insider Participation.”


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

The information required by this Item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth in the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*

The information required by this Item regarding certain relationships and related transactions is incorporated by reference to the information set forth in the section of the Proxy Statement entitled “Certain Transactions.”


ITEM 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES*

The information required by this Item regarding principal accountant fees and services and audit committee pre-approval policy is incorporated by reference to the information set forth in the sections of the Proxy Statement entitled “Independent Registered Public Accounting Firm Fees” and “Pre-Approval Policies and Procedures.”


				Incorporated by Reference**					Filed
Exhibit No			Exhibit Description	Form	Date	Number			Herewith

	10	.10=	Patent and Technology License Agreement between the Board of Regents of The University Of Texas System and the Company, dated December 1, 1999, as amended July 7, 2000 and December 20, 2001.	S-1	8/28/2003		10	.21
	10	.11=	Exclusive Patent And Technology License Agreement between the Board of Regents of The University of Texas System and the Company, dated January 1, 2002.	S-1	8/28/2003		10	.22
	10	.12=	License Agreement between Abbott Laboratories and the Company, dated June 30, 2003.	S-1	8/28/2003		10	.23
	10	.13=	Collaboration and Option Agreement between Novartis Institutes for Bio Medical Research, Inc. and the Company dated October 8, 2003.	S-1/A	10/9/2003		10	.24
	10	.14=	Form of License, Development and Commercialization Agreement between Novartis Institutes for BioMedical Research, Inc. and the Company.	S-1/A	10/9/2003		10	.25
	10	.15=	Materials Transfer Agreement between the Regents of the University of Colorado and the Company, dated September 12, 2003.	S-1/A	10/9/2003		10	.26
	10	.16	Indemnification Agreement between Kirk K. Calhoun and the Company, dated as of January 16, 2004.	10-K	3/1/2004		10	.27
	10	.17	First Amendment to Lease Agreement between Sevo Miller, Inc., as receiver on behalf of Church Ranch Business Center, LLC, and the Company, dated December 2, 2003.	10-K	3/1/2004		10	.28
	10	.18=	Third Amendment to Intellectual Property License Agreement between University License Equity Holdings, Inc. and the Company, dated November 24, 2003.	10-K	3/1/2004		10	.29
	10	.19=	Amendment No. 3 to Patent and Technology License Agreement between the Board of Regents of the University of Texas System and the Company, dated November 6, 2003.	10-K	3/1/2004		10	.30
	10	.20=	Amendment No. 1 to Patent and Technology License Agreement between the Board of Regents of the University of Texas System and the Company, dated as of February 10, 2004.	10-K	3/1/2004		10	.31
	10	.21=	Patent License Agreement between the University of Texas System, the University of North Texas Health Science Center at Fort Worth and the Company, dated January 13, 2000.	10-K	3/1/2004		10	.32
	10	.22(1)	2003 Employee Stock Purchase Plan — August 1, 2004 Offering.	10-Q	8/9/2004		10	.33
	10	.23	Securities Purchase Agreement, dated September 24, 2004, by and among the Company and the investors named therein.	8-K	9/29/2004		10	.34
	10	.24	Second Amendment to Lease Agreement between LaSalle Bank, N .A. (formerly known as LaSalle National Bank), as Trustee for the Certificate holders Under the Pooling and Servicing Agreement, and the Company, dated April 15, 2004.	8-K	10/1/2004		10	.35
	10	.25	Third Amendment to Lease Agreement between Scott Kaufman and the Company, dated September 30, 2004.	8-K	10/1/2004		10	.36


				Incorporated by Reference**					Filed
Exhibit No			Exhibit Description	Form	Date	Number			Herewith

	10	.26+	Third Amendment to the License Agreement by and between Aventis Pharmaceuticals, Inc. and Myogen, dated January 27, 2005.	10-K	3/15/2005		10	.37
	10	.27(1)	2003 Employee Stock Purchase Plan — February 1, 2005 Offering.	10-K	3/15/2004		10	.38
	10	.28(1)	2004 and 2005 Discretionary Bonus Program.	8-K	3/9/2005		10	.39
	10	.29+	Amendment to Collaboration and Option Agreement between Myogen and Novartis Institutes for BioMedical Research, Inc., dated May 23, 2005.	8-K	5/26/2005		10	.40
	10	.30+	Form of License, Development and Commercialization Agreement between Myogen and Novartis Institutes for BioMedical Research, Inc.	8-K	5/26/2005		10	.41
	10	.31	2005 and 2006 Discretionary Bonus Program.	8-K	2/27/2006		—
	10	.32	Sale and Sublicense Agreement by and among Myogen, Wülfing Holding GmbH, Wülfing Pharma GmbH and Myogen GmbH, dated January 27, 2006.						x
	10	.33	Stock Purchase Agreement by and among Wülfing Holding GmbH, Wülfing Pharma GmbH and Myogen.						x
	16	.1	Letter from PricewaterhouseCoopers LLC to the SEC.	8-K	3/23/2005		16	.1
	23	.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.						x
	23	.2	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.						x
	24	.1	Powers of Attorney. Reference B made to page. 65						x
	31	.1 C	Certification of principal executive officer required by Rule 13a-14(a).						x
	31	.2 C	Certification of principal financial officer required by Rule 13a-14(a).						x
	32	.1#	Section 1350 Certification.						x

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MYOGEN, INC.


	By	/s/ J. William Freytag

J. William Freytag

President Chief Executive Officer

Date: March 10, 2006

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints J. William Freytag and Joseph L. Turner, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed by the following persons on behalf of the Registrant on March 10, 2006, and in the capacities indicated:


Name	Title	Date

/s/ J. William Freytag J. William Freytag	President, Chief Executive Officer and Chairman (Principal Executive Officer)	March 10, 2006

/s/ Joseph L. Turner Joseph L. Turner	Senior Vice President, Finance and Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)	March 10, 2006

/s/ Michael R. Bristow Michael R. Bristow	Director	March 10, 2006

/s/ Kirk K. Calhoun Kirk K. Calhoun	Director	March 10, 2006

/s/ Jerry T. Jackson Jerry T. Jackson	Director	March 10, 2006

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Myogen, Inc.

We have audited the accompanying consolidated balance sheets of Myogen, Inc. (a development stage enterprise) as of December 31, 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and for the period June 10, 1996 (inception) through December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements as of December 31, 2004, and for the period June 10, 1996 (inception) through December 31, 2004, were audited by other auditors whose report dated March 15, 2005 expressed an unqualified opinion on those statements. The financial statements for the period June 10, 1996 (inception) through December 31, 2004 include total revenues and net loss of $18,358,200 and $161,082,196, respectively. Our opinion on the statements of operations, shareholders’ equity, and cash flows for the period June 10, 1996 (inception) through December 31, 2005, insofar as it relates to amounts for prior periods through December 31, 2004, is based solely on the report of other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Myogen, Inc. at December 31, 2005, and the consolidated results of its operations and its cash flows for the year then ended and the period from June 10, 1996 to December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Myogen Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado

March 10, 2006

F-2

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Myogen, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a)(1) present fairly, in all material respects, the financial position of Myogen, Inc. and its subsidiary (a development stage enterprise) at December 31, 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Denver, Colorado

March 15, 2005 except as to the impact of the discontinued operations disclosed

in Note 4 for which the date is March 10, 2006

F-3

MYOGEN, INC.
(A Development Stage Enterprise)

CONSOLIDATED BALANCE SHEETS


	December 31,
	2005			2004
	(In thousands,
	except share data)

ASSETS
Current assets:
Cash and cash equivalents	$	138,380		$	70,669
Short-term investments		38,575			48,331
Research and development contract amounts due within one year		—			300
Prepaid expenses, accrued interest receivable and other current assets		2,752			1,772
Assets of discontinued operations		1,289			2,052

Total current assets		180,996			123,124
Long-term investments		5,362			—
Property and equipment, net		2,622			2,452
Other assets		27			27

Total assets	$	189,007		$	125,603




LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,345		$	10,510
Accrued liabilities		2,797			1,893
Current portion of deferred revenue		1,187			1,823
Current portion of other liabilities		142			119
Current portion of notes payable, net of discount		172			1,822
Liabilities of discontinued operations		264			220

Total current liabilities		14,907			16,387
Deferred revenue, net of current portion		1,656			1,399
Other long term liabilities, net of current portion		220			331
Notes payable, net of current portion and discount		—			172
Commitments and contingencies (see Note 8 and Note 13)
Stockholders’ equity:
Preferred Stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2005 and 2004, no shares issued or outstanding		—			—
Common stock, $0.001 par value; 100,000,000 shares authorized and 41,962,587 and 35,731,581 shares issued and outstanding as of December 31, 2005 and 2004, respectively		42			36
Additional paid-in capital		412,862			286,017
Deferred stock-based compensation		(1,406	)		(2,535	)
Other comprehensive loss		(88	)		(42	)
Deficit accumulated during the development stage		(239,186	)		(176,162	)

Total stockholders’ equity		172,224			107,314

Total liabilities and stockholders’ equity	$	189,007		$	125,603

The accompanying notes are an integral part of these consolidated financial statements.

F-4

MYOGEN, INC.
(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF OPERATIONS


										Cumulative Period
										June 10, 1996
										(Inception) to
	2005			2004			2003			December 31, 2005
	(In thousands, except share and per share data)

Revenues — research and development contracts	$	6,963		$	6,606		$	1,010		$	14,579
Costs and expenses:
Research and development (excluding stock-based compensation expense of $4,111, $1,971, $2,373, and $8,938 respectively)		52,602			54,124			37,365			195,445
Selling, general and administrative (excluding stock-based compensation expense of $4,776, $1,977, $1,819 and $8,822, respectively)		13,141			8,358			3,683			36,926
Stock-based compensation		8,887			3,948			4,192			17,760

		74,630			66,430			45,240			250,131

Loss from operations		(67,667	)		(59,824	)		(44,230	)		(235,552	)
Interest income (expense), net		3,661			821			(136	)		6,882

Loss from continuing operations		(64,006	)		(59,003	)		(44,366	)		(228,670	)
Discontinued operations, net of income taxes		982			1,318			1,218			4,564

Net loss		(63,024	)		(57,685	)		(43,148	)		(224,106	)
Accretion of mandatorily redeemable convertible preferred stock		—			—			(13,187	)		(32,500	)
Deemed dividend related to beneficial conversion feature of preferred stock		—			—			(39,935	)		(39,935	)

Net loss attributable to common stockholders	$	(63,024	)	$	(57,685	)	$	(96,270	)	$	(296,541	)

Basic and diluted net loss per common share attributable to common stockholders:
Continuing operations	$	(1.71	)	$	(2.05	)	$	(18.01	)
Discontinued operations, net of income taxes		0.03			0.05			0.22

	$	(1.68	)	$	(2.00	)	$	(17.79	)

Weighted average common shares outstanding		37,416,368			28,839,076			5,411,891

The accompanying notes are an integral part of these consolidated financial statements.

F-5

MYOGEN, INC.

(A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF CASH FLOWS


										Cumulative
										Period from
	For the Years Ended									June 10, 1996
	December 31,									(Inception) to
	2005			2004			2003			December 31, 2005
	(In thousands)

Cash Flows From Operating Activities:
Net loss	$	(63,024	)	$	(57,685	)	$	(43,148	)	$	(224,106	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		955			617			413			2,584
Amortization of deferred stock-based compensation		8,887			3,948			4,192			17,760
Amortization of debt discount		138			138			138			424
Amortization of investment (discount)/premium		(241	)		582			76			580
Stock exchanged for license		—			—			—			1,163
Loss on disposal of property and equipment		40			—			12			74
Changes in operating assets and liabilities:
Trade accounts receivable		276			426			155			212
Research and development contract amounts		300			1,325			(625	)		1,000
Inventories		58			466			136			(200	)
Prepaid expenses, accrued interest and other assets		(1,006	)		229			(1,296	)		(3,082	)
Accounts payable		227			3,032			4,222			10,244
Deferred revenue		(379	)		(1,393	)		3,615			1,843
Accrued liabilities		626			617			404			2,353

Net cash used in operating activities		(53,143	)		(47,698	)		(31,706	)		(189,151	)

Cash Flows From Investing Activities:
Acquisitions of property and equipment		(1,069	)		(1,720	)		(276	)		(5,225	)
Proceeds from sale of property and equipment		—			—			318			332
Purchases of investments		(51,088	)		(111,470	)		(114,805	)		(485,901	)
Proceeds from maturities and sales of investments		55,715			132,404			71,654			441,493

Net cash provided by (used in) investing activities		3,558			19,214			(43,109	)		(49,301	)

Cash Flows From Financing Activities:
Proceeds from related party note		—			—			—			370
Repayments of related party note		—			—			—			(290	)
Proceeds from notes payable		—			—			—			5,250
Payments on notes payable		(1,959	)		(1,777	)		(1,092	)		(5,078	)
Proceeds from issuance of mandatorily redeemable convertible preferred stock, net of issuance costs		—			—			39,936			127,152
Proceeds from issuance of common stock, net of issuance costs		119,110			57,194			73,408			249,838
Payments on capital leases		(85	)		(49	)		(31	)		(174	)

Net cash provided by financing activities		117,066			55,368			112,221			377,068

Effect of exchange rates on cash		(71	)		36			(61	)		52
Net increase in cash and cash equivalents	$	67,410		$	26,920		$	37,345		$	138,668

Cash and cash equivalents, beginning of period	$	70,669		$	44,001		$	6,960		$	—
Cash and cash equivalents of discontinued operations, beginning of period		589			337			33			—
Net increase in cash and cash equivalents		67,410			26,920			37,345			138,668
Less: Cash and cash equivalents of discontinued operations, end of period		(288	)		(589	)		(337	)		(288	)

Cash and cash equivalents, end of period	$	138,380		$	70,669		$	44,001		$	138,380

Supplemental Disclosure of Cash and Non-Cash Financing Activities:
Interest paid	$	137		$	321		$	583		$	1,107
Acquisition of property and equipment under capital leases		38			63			54			313
Common stock issued in exchange for notes receivable		—			—			—			81
Convertible preferred stock issued in exchange for license		—			—			—			1,163
Mandatorily redeemable convertible preferred stock issued in lieu of cash commission on issuance of Series D mandatorily redeemable convertible preferred stock		—			—			—			929
Conversion of Series B convertible preferred stock for common stock upon initial public offering		—			—			1			1
Conversion of mandatorily redeemable preferred stock for common stock upon initial public offering		—			—			159,688			159,688
Deferred research and development contract revenue due within one year		—			—			1,000			1,000

The accompanying notes are an integral part of these consolidated financial statements.

F-12

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in thousands, except share and per share amounts)


1.	Formations and Business of the Company

Myogen, Inc. and its subsidiary (the “Company”) are in the development stage and are engaged in the discovery, development and sale of therapeutic drugs for the treatment of cardiovascular conditions. Myogen, Inc. was incorporated in the State of Colorado on June 10, 1996 (“Inception”) and on May 15, 1998 reincorporated in the State of Delaware. The Company currently has two product candidates in late-stage clinical development for two cardiovascular conditions. In addition, the Company’s research program is focused on creating disease-modifying drugs for chronic heart failure and other cardiovascular diseases.

In 1998, the Company obtained a license to enoximone for the treatment and prevention of certain forms of heart disease in humans. In 1999, the Company established Myogen GmbH, a wholly owned subsidiary located in Germany, through which the intravenous formulation of enoximone, Perfan^® I.V., was sold in eight countries in Europe. In June 2000, the Company began Phase 3 clinical evaluation of the oral formulation of enoximone, enoximone capsules, with the initiation of EMOTE, which was completed in March 2004. In 2002, the Company initiated two additional enoximone capsule Phase 3 trials, the ESSENTIAL trials. Both EMOTE and ESSENTIAL yielded negative results, and the Company discontinued development of enoximone capsules in June 2005. In December 2005, the Board approved a plan to sell Myogen GmbH and sublicense the rights to Perfan^® I.V. in markets outside North America to Wülfing Holding GmbH. See Notes 4 and 16.

In September 2001, the Company in-licensed ambrisentan. In 2002, the Company initiated a Phase 2 clinical trial of ambrisentan for pulmonary arterial hypertension. This trial was completed in 2003. The Company initiated two pivotal Phase 3 trials, ARIES-1 and -2 in January 2004. In 2005, we completed patient enrollment in ARIES-1 and -2 and announced positive top line results in the ARIES-2 trial.

In June 2003, the Company in-licensed darusentan. In July 2004, the Company initiated a darusentan Phase 2b clinical trial in resistant systolic hypertension. In August 2005, we reported positive top line results of the trial.

Prior to commercial sales of a drug, the Company must complete the clinical trials and receive the necessary regulatory approvals. Should the Company be unable to obtain such approvals, there could be a material adverse effect on its financial position, results of operations and cash flows.

In November 2003, the Company completed an initial public offering of 5,750,000 shares of its common stock. The Company received net proceeds of $73.3 million, net of $7.2 million in expenses and underwriters’ discount relating to the issuance and distribution of securities.

On September 29, 2004, the Company completed on a Private Investment in a Public Entity (PIPE) financing, in which 9,195,400 new shares of common stock and warrants exercisable for 1,839,080 shares of common stock were issued for total net proceeds of $57.1 million, net of $2.9 million in issuance costs.

On September 21, 2005, the Company completed an underwritten public offering of 5,376,344 shares of newly issued common stock, receiving net proceeds of approximately $116.8 million.


2.	Liquidity

The Company has incurred significant losses and negative cash flows from operations in every fiscal period since Inception. For the years ended December 31, 2005, 2004 and 2003, the Company incurred losses from continuing operations of $64.0 million, $59.0 million, and $44.4 million, respectively, and negative cash flows from operations of $53.1 million, $47.7 million, and $31.7 million, respectively. As of December 31, 2005, the Company had a deficit accumulated during the development stage of $239.2 million. Management anticipates that operating losses and negative cash flows from operations will continue for at least the next several years.

F-13

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

To date, the Company has satisfied its cash commitments primarily through public and private placements of equity securities. From Inception to December 31, 2005, the Company raised $377.0 million of net cash proceeds from the sale of equity securities.

Management believes that the existing cash, cash equivalents and investments on hand will be sufficient to continue operations through at least the end of 2007. Failure to generate sufficient revenues or raise additional capital could have a material adverse effect on the Company’s ability to achieve its intended business objectives. Management plans on raising additional financing to meet future working capital and capital expenditure needs. There can be no assurance that such additional financing will be available or, if available, that such financing can be obtained on terms satisfactory to the Company.


3.	Summary of Significant Accounting Policies

Basis of Presentation

The Company has generated limited revenue to date and its activities have consisted primarily of developing products, licensing products, raising capital and recruiting personnel. Accordingly, the Company is considered to be in the development stage as of December 31, 2005 as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises.

Myogen GmbH assets, liabilities and results of operations have been reclassified as discontinued operations for all periods presented. See Note 4.

On October 24, 2003, the Company effected a one-for-five reverse stock split. All references in the consolidated financial statements to common shares, common share prices and per common share amounts have been adjusted retroactively for all periods presented to reflect this reverse stock split. As a result of the reverse stock split, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock conversion ratios were adjusted from one-to-one to five-to-one.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Myogen, Inc. and its wholly owned subsidiary, Myogen GmbH. All significant inter-company accounts and transactions have been eliminated in consolidation. Myogen GmbH is included in discontinued operations, see discussion in Note 4.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of expenses during the reporting period. Actual results could differ from these estimates.

Risks and Uncertainties

The Company’s operations are subject to certain risks and uncertainties, including those associated with the history of operating losses and risk of continued losses, early stage of development, dependence on the outcome of clinical trials and dependence on regulatory approval to sell products.

Advertising Costs

The Company expenses all advertising, promotional and publication costs as incurred and classifies those costs under selling, general and administrative expenses. Total advertising costs were approximately

F-14

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$2,926,000 and $780,000 for the years ended December 31, 2005 and 2004, respectively. There were no advertising costs incurred during the year ended December 31, 2003.

Cash and Cash Equivalents

The Company considers all investments that, when purchased, have a remaining maturity of 90 days or less, to be cash equivalents. All cash equivalents are carried at cost, which approximates fair value.

Investments

Investments are accounted for in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and accordingly, those classified as available-for-sale are carried at fair value and total $43,937,000 and $48,331,000 at December 31, 2005 and 2004, respectively. Gains or losses on the sale of investments classified as available-for-sale are recognized on the specific identification method. Unrealized gains or losses are treated as a separate component of stockholders’ equity until the security is sold or until a decline in fair market value is determined to be other than temporary. As of December 31, 2005 and 2004, the amortized cost basis, aggregate fair value and gross unrealized holding gains and losses by major security type of investment classified as available-for-sale are as follows:


					Unrealized		Unrealized
	Amortized		Aggregate		Holding		Holding
Security Type	Cost Basis		Fair Value		Gains		Losses

December 31, 2005
Government securities	$	21,015	$	20,962	$	—	$	(53	)
Corporate debt securities		14,345		14,309		—		(36	)
Asset-backed securities		6,985		6,969		1		(17	)
Commercial Paper		1,691		1,697		6		—

Total investments	$	44,036	$	43,937	$	7	$	(106	)

December 31, 2004
Government securities	$	27,729	$	27,677	$	—	$	(52	)
Corporate debt securities		17,395		17,371		—		(24	)
Asset-backed securities		3,295		3,283		—		(12	)

Total investments	$	48,419	$	48,331	$	—	$	(88	)

All of the investments as of December 31, 2005 and 2004 that were in a loss position, have been in a continuous unrealized loss position for less than 12 months. Market values were determined for each individual security in the investment portfolio. The declines in value of these investments is primarily related to changes in interest rates and are considered to be temporary in nature.

All of the investments classified as short-term on the balance sheet have a maturity of longer than 90 days, but less than one year. All of the investments classified as long-term on the balance sheet have contractual maturities of greater than one year and less than two years.

Interest income recognized from investments totaled $3,935,000, $1,280,000 and $585,000 for the years ended December 31, 2005, 2004 and 2003, respectively,

F-15

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value of Financial Instruments

The Company’s financial instruments include cash, cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities and notes payable. The carrying amounts of the Company’s financial instruments approximate fair value due to their short maturities.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. All inventory is included in Assets of discontinued operations on the balance sheet. See Note 4.

Property and Equipment

Property and equipment are recorded at cost. Leasehold improvements and assets under capital leases are amortized over the shorter of the life of the lease or the estimated useful life of the assets. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives of the assets:


	Estimated Useful Life

Laboratory equipment and other		5 years
Furniture and fixtures		5 years
Computer equipment and software		3 years
Manufacturing equipment		3 years

Long-Lived Assets and Impairments

The Company periodically evaluates the recoverability of its long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”) and, accordingly, reduces the carrying value whenever events or changes in business conditions indicate the carrying amount of the assets may not be fully recoverable. SFAS 144 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the fair value less costs to sell such assets. A portion of the Company’s long-lived assets are included in Discontinued operations. See Note 4.

Revenue Recognition

Myogen recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104 “Revenue Recognition in Financial Statements” (SAB 104). Arrangements with multiple elements are accounted for in accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21. The Company considers this methodology to be the most appropriate for its business model and current revenue streams.

Product Sales

Sales are recognized when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists; (ii) product is shipped from the distributor’s consignment stock to the customer; (iii) the selling price is fixed or determinable; and (iv) collection is reasonably assured. Once the product is shipped to the customer, the Company does not allow product returns. All product sales are included in discontinued operations, net of income taxes, in the statement of operations. See Note 4.

F-16

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Research and development contracts

Myogen may enter into collaborative agreements with pharmaceutical companies where the other party receives exclusive marketing and distribution rights for certain products for set time periods and set geographic areas. The rights associated with this research and development are assigned or can be assigned to the collaborator through a license at the collaborator’s option. The terms of the collaborative agreements can include non-refundable funding of research and development efforts, licensing fees, payments based on achievement of certain milestones, and royalties on product sales. Myogen analyzes its multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting in accordance with EITF 00-21. The Company recognizes up-front license payments as revenue if the license has standalone value and the fair value of the undelivered items can be determined. If the license is considered to have standalone value but the fair value on any of the undelivered items cannot be determined, the license payments are recognized as revenue over the period of performance for such undelivered items or services.

Non-refundable license fees received are recorded as deferred revenue once received or irrevocably committed and are recognized ratably over the period of performance for the related services. Where there are two or more distinct phases embedded into one contract (such as product development and subsequent commercialization or manufacturing), the contracts may be considered multiple element arrangements. When it can be demonstrated that each of these phases is at fair value, they are treated as separate earnings processes with upfront fees being recognized over only the initial product development phase. The relevant time period for the product development phase is based on management estimates and could vary depending upon the outcome of clinical trials and the regulatory approval process. As a result, management frequently reviews the appropriate time period.

Milestone payments based on designated achievement points that are considered at risk and substantive at the inception of the collaborative contract are recognized as earned when the earnings process is complete and the corresponding payment is reasonably assured. The Company evaluates whether milestone payments are at risk and substantive based on the contingent nature of the milestone, specifically reviewing factors such as the technological and commercial risk that needs to be overcome and the level of investment required. Milestone payments related to arrangements under which the Company has continuing performance obligations are recognized as revenue upon achievement of the milestone only if all of the following conditions are met: the milestone payments are non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved in achieving the milestone; and the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone. If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as the Company completes its performance obligations.

Research and Development

The Company’s research and development expense is primarily composed of costs associated with discovery research and product development. The latter expense represents both clinical trial costs and the costs associated with non-clinical support activities such as toxicological testing, manufacturing process development and regulatory affairs. The Company’s research and development expenses include internal employee costs and research and development expenses associated with external service providers, including clinical research organizations and contract manufacturers, and by the Company’s academic collaborators. The Company also reports the cost of product licenses in this category, including its milestone obligations.

F-17

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Research and development expenditures are charged to operations as incurred. Amounts received from other parties to fund the Company’s research and development efforts where the reimbursing party does not obtain any rights to the research or drug candidates are recognized as a reduction to research and development expense as the costs are incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. As of December 31, 2005 and 2004, valuation allowances have been established to reduce deferred tax assets to zero.

Foreign Currency Translation

The euro is the functional currency for the Company’s discontinued foreign subsidiary. The Company translates asset and liability accounts to the United States dollar based on the exchange rate as of the balance sheet date, while income statement and cash flow statement amounts are translated to the United States dollar at the average exchange rate for the period. Exchange gains or losses resulting from such translation are included as a separate component of stockholders’ deficit. Transaction gains and losses are recognized in income during the period in which they occur. During the years ended December 31, 2005, 2004 and 2003, the Company recognized net transaction losses of $10,000, $37,000 and gains of $340,000 from continuing operations, respectively, which are included in selling, general and administrative expense.

Concentration of Risk

The Company’s cash, cash equivalents and investments as of December 31, 2005 and 2004 are maintained in three financial institutions in amounts that typically exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk in this area. It is the Company’s practice to place its cash equivalents and investments in high quality securities in accordance with a written policy approved by the Company’s Board of Directors.

All of our research and development contract revenues and amounts due were from a single collaborator in 2005, 2004 and 2003.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss available for common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed giving effect to all dilutive potential common stock, including options, mandatorily redeemable convertible preferred stock, convertible preferred stock, common stock subject to repurchase and warrants. Diluted net loss per common share for all periods presented is the same as basic net

F-18

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

loss per share because the potential common shares were anti-dilutive. Weighted-average anti-dilutive common shares not included in net loss attributable to common stockholders are summarized as follows:


	December 31,
	2005		2004		2003

Common stock options		2,084,529		2,068,251		2,263,623
Warrants		788,256		123,266		33,544
Employee stock purchase plan		21,609		—		—
Convertible preferred stock		—		—		132,980
Mandatorily redeemable convertible preferred stock		—		—		12,293,728

Total		2,894,394		2,191,517		14,723,875

Stock-Based Compensation and Unaudited Pro Forma Net Loss per Common Share

The Company measures compensation expense to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting For Stock Issued to Employees (“APB 25”), and provides pro forma disclosures of net loss as if the fair value based method was applied as prescribed by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Accordingly, as allowable under SFAS 123, the Company does not recognize compensation expense for options granted to employees when the exercise price equals or exceeds the fair value of common stock as of the grant date. Stock-based awards to consultants are accounted for under the provisions of SFAS 123 and Emerging Issues Task Force (“EITF”) Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

Had employee compensation cost for the Company’s stock-based compensation plan been determined based on the fair value at the grant dates for awards using the Black-Scholes model prescribed by SFAS 123, the Company’s pro forma net loss and pro forma net loss per share would be as follows:


										Cumulative Period
										from June 10, 1996
	Years Ended December 31,									(Inception) to
	2005			2004			2003			December 31, 2005

Net loss attributable to common stockholders, as reported	$	(63,024	)	$	(57,685	)	$	(96,270	)	$	(296,541	)
Deduct: total stock-based employee compensation expense determined under fair value based method		(6,436	)		(5,824	)		(3,509	)		(16,842	)
Add: total stock-based employee compensation expense recognized under the intrinsic rate based method		8,364			3,803			3,413			15,972

Pro forma net loss	$	(61,096	)	$	(59,706	)	$	(96,366	)	$	(297,411	)

Pro forma basic and diluted net loss per share	$	(1.63	)	$	(2.07	)	$	(17.81	)

Basic and diluted net loss per share, as reported	$	(1.68	)	$	(2.00	)	$	(17.79	)

For options granted prior to the commencement of public trading of the Company’s common stock, the fair value was determined at the date of grant using the Black-Scholes model with the following weighted average assumptions: no dividend yield, risk-free interest rates ranging from 2.3% to 6.8%, volatility factor of

F-19

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

0% and an expected life of five years. Risk-free interest rates were determined using government securities with original maturities similar to the respective expected option life at date of grant. The estimated fair value for these options was calculated using the minimum value method and may not be indicative of the future pro forma effects of option grants on reported net income (loss) for future years since this model does not take into consideration volatility and the commencement of public trading in the Company’s common stock on October 30, 2003. The Black-Scholes model was utilized to calculate the value of the options issued after October 30, 2003 through December 31, 2003, using the following assumptions: no dividend yield, risk-free interest rates ranging from 3.0% to 3.1%, volatility factor of 100% and an expected life of five years. The expected stock price volatility was estimated using percentages reported by similar public companies within the biotechnology industry as the Company does not have a sufficient trading history from which to calculate volatility through October 2005. The expected stock price volatility for options granted from October 2005 through December 31, 2005 was estimated using the Company’s historical daily stock prices. The following weighted average assumptions were used in the Black-Scholes option-pricing model for employee options:


	2005	2004

Risk-free interest rate	3.69 - 4.44%	2.78 - 3.79%
Expected life (in years)	5	5
Expected volatility	74.94 - 100%	100%
Expected dividend yield	0%	0%

Recent Accounting Pronouncements

SFAS No. 123(R) and the related interpretations must be adopted no later than January 1, 2006. The Company adopted SFAS No. 123(R) effective as of January 1, 2006.

SFAS No. 123(R) permits companies to adopt its requirements using one of two methods:

The Company plans to use the modified prospective method upon adoption on January 1, 2006.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using the APB No. 25 intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options and the employee stock purchase plan. Accordingly, the adoption of the fair value method required under SFAS No. 123(R) will have a significant adverse impact on our results of operations, although it will have no impact on our overall financial position or cash flows. The balance of unearned stock-based compensation to be expensed in the period 2006 to 2009 related to share-based awards unvested at

F-20

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2005, as previously calculated under the disclosure-only requirements of SFAS 123, is approximately $6.7 million. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that the Company grants additional equity securities to employees, stock-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants. The Company anticipates it will grant additional employee stock options throughout 2006 to new employees and in the first quarter of 2006 as part of its regular annual equity compensation focal review program. The fair value of these grants is not included in the amount above, as the impact of these grants cannot be predicted at this time because it will depend on the number of share-based payments granted and the then-current fair values.

Had the Company adopted SFAS No. 123(R) in 2004, the magnitude of the impact of that standard on the Company’s results of operations would have approximated the impact of SFAS 123 assuming the application of the Black-Scholes option pricing model as illustrated in the pro forma table above for the periods through 2004. In 2005, the Company granted stock options with vesting conditional upon the Company’s stock price reaching a target amount for a specified length of time. These were treated as variable options in accordance with APB 25, and accordingly were marked to market each reporting period when it became probable that these options would ultimately vest. However, in accordance with FAS 123R, options with market conditions would have been valued using a lattice model and these options would not have been marked to market in 2005. Since the lattice model was not required prior to adoption, it is not reasonable to determine the impact adopting FAS 123R would have had on our operations in 2005. These options met the market condition in December 2005 and became fully vested. The stock-based compensation expense recorded in 2005 associated with these options was approximately $6.0 million.

The Black-Scholes model considers, among other factors, the expected life of the option and the expected volatility of the Company’s stock price. The Black-Scholes model meets the requirements of SFAS 123R but the fair values generated by the model may not be indicative of the actual fair values of the Company’s stock-based awards, as it does not consider other factors important to stock-based awards, such as continued employment and periodic vesting requirements and limited transferability. For pro forma illustration purposes, the Black-Scholes value of the Company’s stock-based awards is assumed to be amortized using the accelerated expensing method over their respective vesting periods, in accordance with the provisions of FIN No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (“FIN 28”). Upon adoption, the Company plans to use the Black-Scholes model, with the expense amortized over the respective vesting period using the accelerated expensing method. The Company plans to use the SEC “shortcut” approach to determine the expected term of option grants subsequent to adoption, which results in a life of 6 years for the Company’s standard option grants. Standard option grants vest 25% after the first year and monthly thereafter through the fourth anniversary.

Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), there were no operating cash flows recognized in prior periods for such excess tax deductions for stock option exercises.

F-21

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, which for the Company will be January 1, 2006.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.


4.	Discontinued Operations

On June 26, 2005, the Company announced top line results of ESSENTIAL I & II, the two Phase 3 trials of enoximone capsules in patients with advanced chronic heart failure. The trial results failed to demonstrate a statistically significant benefit for any of the three co-primary efficacy endpoints. Based on these results, the Company discontinued development of enoximone capsules. Perfan^® I.V. would have served as a companion product to oral enoximone. Given the discontinuation of the oral enoximone program, the Board approved a plan to sell Myogen GmbH, a wholly-owned European subsidiary, and sublicense the rights to Perfan^® I.V. (intravenous enoximone) in markets outside North America to Wülfing Holding GmbH. The sublicense will require the purchaser to pay the Company a royalty on all future sales of Perfan of 8% as long as the Company maintains its license with Aventis, in which the Company pays a royalty on Perfan sales. See Note 13. The Company would hold a passive royalty interest in Perfan and will have no influence over marketing or distribution of Perfan and the royalty is not expected to be a significant source of revenues. Therefore, the passive royalty interest is not considered direct cash flows of a disposed component as defined by EITF 03-13, Applying the Conditions in Paragraph 42 of Statement 144 in Determining Whether to Report Discontinued Operations. See Note 16.

In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), the accompanying consolidated financial statements reflect the results of operations and financial position of Myogen GmbH and Perfan^® I.V. related activity as discontinued operations.

The assets and liabilities of the discontinued operations are presented in the consolidated balance sheets under the captions “Assets of discontinued operations” and “Liabilities of discontinued operations.” The underlying assets and liabilities of the discontinued operations for dates presented are as follows:


	December 31,
	2005		2004

Cash and cash equivalents	$	288	$	589
Trade accounts receivable		508		946
Finished products		167		212
Raw materials		34		46
Prepaid expenses and other assets		274		207
Property and equipment, net		18		52

Assets of discontinued operations	$	1,289	$	2,052


	December 31,
	2005		2004

Accounts payable	$	189	$	171
Other liabilities		75		49

Liabilities of discontinued operations	$	264	$	220

F-22

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the income from the discontinued operations of each period presented:


										Cumulative Period
										from June 10, 1996
	Years Ended December 31,									(Inception) to
	2005			2004			2003			December 31, 2005

Product sales	$	3,162		$	3,318		$	2,846		$	13,903
Pre-tax income from operations		1,008			1,340			1,257			4,672
Income taxes		(25	)		(22	)		(39	)		(108	)

Discontinued operations, net of income taxes	$	983		$	1,318		$	1,218		$	4,564

All product sales from Inception to December 31, 2005 have occurred in Europe through the Company’s subsidiary, Myogen GmbH and are summarized by country as follows:


	Years Ended December 31,
	2005		2004		2003

Sales:
Netherlands	$	1,186	$	1,039	$	796
Germany		974		853		720
United Kingdom		671		681		542
France		234		304		342
Italy		27		395		405
Other		70		46		41

	$	3,162	$	3,318	$	2,846


5.	Property and Equipment

Property and equipment are summarized as follows:


	December 31,
	2005			2004

Laboratory equipment and other	$	2,077		$	1,576
Computer equipment and software		1,265			931
Leasehold improvements		1,048			858
Furniture and fixtures		480			343
Manufacturing equipment		27			48
Capital projects in progress		142			185

		5,039			3,941
Less accumulated depreciation		(2,417	)		(1,489	)

	$	2,622		$	2,452

Property and equipment recorded under capital leases totaled $313,000 and $275,000 as of December 31, 2005 and 2004, respectively, and is included in computer equipment and software. In addition, amortization expense related to assets under capital lease was $66,000, $53,000, and $47,000 for the years ended December 31, 2005, 2004, and 2003 respectively and $185,000 for the period from Inception to December 31, 2005.

F-23

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Accounts Payable and Accrued Liabilities

Accounts payable are comprised of the following:


	December 31,
	2005		2004

Trade accounts payable	$	10,234	$	10,290
Related parties (Note 14)		111		220

	$	10,345	$	10,510

Included in trade accounts payable are accruals for contracted third-party development activity, including estimated clinical study costs, which will be invoiced to us in subsequent accounting periods. These accruals were approximately $6.4 million in 2005 and $5.7 million in 2004. Clinical study costs represent costs incurred by clinical research organizations and clinical sites. These costs are recorded as a component of research and development expenses. Management accrues costs for these clinical studies based on the progress of the clinical trials, including patient enrollment, invoices received and contracted costs when evaluating the adequacy of the accrued liabilities. Significant judgments and estimates are made and used in determining the accrued balance in any accounting period. Actual results could differ from these estimates.

Accrued liabilities are comprised of the following:


	December 31,
	2005		2004

Accrued personnel costs	$	2,379	$	1,181
Accrued professional services		221		263
Advances for reimbursable research and development expenses		99		313
Accrued royalties		52		69
Accrued taxes		46		67

	$	2,797	$	1,893


7.	Borrowings

In December 2002, the Company entered into a term loan with certain financial institutions and borrowed $5,000,000 with a 36-month repayment term, subject to customary non-financial related covenants. The loan accrues interest at 9.82% per annum. The first three monthly repayments were comprised of interest only; the remaining thirty-three payments are comprised of both principal and interest. Concurrent with this loan agreement, warrants were granted to the financial institutions (Note 10). Substantially all the assets of the Company are pledged as collateral for the loan.

The notes payable matures in January 2006, therefore, as of December 31, 2005 the balance is classified as a current liability, and the related discount was fully amortized.

Interest expense recognized in association with these loans and capital lease obligations (Note 8) totaled $274,000, $459,000, and $721,000 for the years ended December 31, 2005, 2004 and 2003, respectively.


8.	Commitments and Contingencies

The Company leases office and research and development facilities under agreements that expire in 2006 and 2008. The Company has options to renew the lease agreement for two five-year terms. Total rent expense

F-24

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in 2005, 2004 and 2003 was $490,000, $553,000 and $416,000, respectively and $2,489,000 for the period from Inception to December 31, 2005.

The Company entered into several capital leases in order to finance certain equipment acquisitions. As of December 31, 2005, the aggregate future minimum lease obligations for capital leases and non-cancelable operating leases with initial or remaining terms in excess of one year are as follows for each of the years ending December 31:


	Capital Leases			Operating Leases

2006	$	84		$	376
2007		42			380
2008		16			323
2009		9			—
2010		9			—

Total future minimum lease payments		160		$	1,079

Less amount representing interest		(16	)

Present value of future minimum lease payments		144
Less current portion		(74	)

Capital lease obligations, less current portion	$	70

From time to time, the Company becomes involved in legal proceedings arising in the ordinary course of business. The Company was not involved in any material legal proceedings as of December 31, 2005.

In the ordinary course of its business, the Company makes certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include indemnities of clinical investigators, consultants and contract research organizations involved in the development of the Company’s clinical stage products, indemnities of distributors of its marketed product, indemnities to its lenders and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees does not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. However, the Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and in accordance with SFAS No. 5, Accounting for Contingencies. No such losses have been recorded to date.

F-25

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


9.	Preferred Stock

As of December 31, 2005 and 2004 the Company had 5,000,000 authorized but unissued shares of undesignated preferred stock.


10.	Stockholders’ Equity

Registration Statement

The Company has in effect a universal shelf registration statement on SEC Form S-3. The universal shelf registration statement on Form S-3 permits the Company to sell, in one or more public offerings, shares of its common stock, shares of preferred stock, depository shares, debt securities or warrants, or any combination of such securities, for proceeds in an aggregate amount of up to $250 million. To date no securities have been issued pursuant to this registration statement

Common Stock

On October 24, 2003, the Company effected a one-for-five reverse stock split. All references in the consolidated financial statements to common shares, common share prices and per common share amounts have been adjusted retroactively for all periods presented to reflect this reverse stock split. As a result of the reverse stock split, the Series C Preferred Stock and Series D Preferred Stock conversion ratios have been adjusted from one-to-one to five-to-one.

On November 4, 2003, the Company completed an initial public offering of 5,000,000 shares of its common stock. On November 7, 2003, the public offering underwriters’ completed the exercise of their over-allotment option for an additional 750,000 shares. Concurrent with the closing of the initial public offering, all of the 98,021,120 shares of convertible preferred stock outstanding automatically converted into common stock at a five-to-one ratio, resulting in the issuance of 19,604,186 shares of common stock and the Company increased the authorized number of shares of common stock to 100,000,000 shares and decreased the authorized number of undesignated preferred shares to 5,000,000 shares. The Company received net proceeds of $73,325,000 from its initial public offering, net of $7,175,000 in expenses and underwriters’ discount relating to the issuance and distribution of the securities.

On September 29, 2004, the Company completed a Private Investment in a Public Entity (PIPE) financing with net proceeds of $57,108,000, net of $2,892,000 in expenses and placement agent fees, in which 9,195,400 new shares of common stock were issued.

On September 21, 2005, the Company completed an underwritten public offering of 4,675,082 shares of newly issued common stock and the exercise by the underwriters of their over-allotment option to purchase an additional 701,262 shares of common stock, all at $23.25 per share before underwriting discounts and commissions. The net proceeds of this offering were $116,810,000, net of $8,189,000 in expenses and underwriting discounts and commissions.

Warrants

On September 29, 2004, the Company completed a PIPE financing, in which warrants exercisable for 1,839,080 shares of common stock were issued. The warrants have an exercise price per share of $7.80, with a five-year life and are fully vested and exercisable six months from the closing date. In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the warrants have been included as permanent equity and valued at fair value on the date of issuance. The fair value of the warrants at the grant date of $10,133,000 was determined using the Black-Scholes model with the following assumptions: dividend yield of 0%; estimated volatility of 100%;

F-26

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

risk-free interest rate of 3.37% and a contractual life of five years. The warrant holders have the ability to cashless exercise when the current market price of the Company’s common stock is greater than the warrant exercise price and a registration statement for the resale of the shares is not then in effect. There is no provision for net-cash settlement of the warrants and any liquidated damages related to the warrant holders’ registration rights do not exceed what would be a reasonable discount on registered shares. During 2005, 362,079 of these warrants were exercised and there are 1,477,001 warrants outstanding at December 31, 2005.

In December 2002, the Company issued warrants to purchase 327,273 shares of Series D Preferred Stock with an exercise price of $1.375 per share to certain financial institutions in connection with a term loan. Upon the conversion of the Preferred Stock into common stock in November 2003, these warrants became exercisable for 65,453 shares of common stock with an exercise price of $6.875 per share. The Company allocated the proceeds between the warrants and the term loan in accordance with the provisions of APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants (“APB 14”). Upon date of grant, the warrants were ascribed a relative fair value of $412,844 using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%; estimated volatility of 100%; risk-free interest rate of 2.8% and a contractual life of ten years. This amount was recorded as a debt discount and is amortized over the three-year term of the loan. The life of the warrants is equal to ten years from the date of grant. These warrants were exercised and there are no warrants outstanding at December 31, 2005.

In 2000, the Company issued a warrant to purchase 9,090 shares of Series C Preferred Stock with an exercise price of $1.375 per share to a financial institution in connection with a term loan. Upon the conversion of the Preferred Stock into common stock in November 2003, this warrant became exercisable for 1,818 shares of common stock with an exercise price of $6.875 per share. The Company allocated the proceeds between the warrant and the term loan in accordance with the provisions of APB 14. Upon date of grant, the warrant was ascribed a relative fair value of $10,815 using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%; estimated volatility of 100%; risk-free interest rate of 6.6% and a contractual life of ten years. These warrants were exercised and there are no warrants outstanding at December 31, 2005.

The Company has reserved 1,477,001 shares of common stock for the potential exercise of warrants.


11.	Stock Options and Employee Benefits

In July 1998, the Board of Directors approved the Company’s 1998 Equity Incentive Plan, under which the Company may grant options, stock bonuses, stock appreciation rights and rights to purchase stock to officers, employees, consultants and directors. In September 2003, the Board of Directors approved the amendment and restatement of the 1998 Equity Incentive Plan as the 2003 Equity Incentive Plan (as amended and restated, the “Plan”), which became effective upon the initial closing of the initial public offering on November 4, 2003. The options are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code, unless specifically designated as non-qualifying stock options or unless exceeding the applicable statutory limit.

At December 31, 2005, the Company had reserved an aggregate of 4,793,314 shares of common stock for issuance under the Plan and 1,275,569 options were available for grant. Options granted may be exercised for a period of not more than ten years from the date of grant or any shorter period as determined by the Board of Directors. Options vest as determined by the Board of Directors, generally over a four-year period, subject to acceleration upon the occurrence of certain events. The option price of any incentive stock option shall equal or exceed the fair value per share on the date of grant as determined by the Company’s Board of Directors prior to the initial public offering or market closing price after the initial public offering, or 110% of the fair value per share in the case of a 10% or greater stockholder.

F-27

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Activity of the Plan is summarized in the following table:


	Incentive and Non-Qualifying Stock Options
	Number of			Weighted Average		Options		Weighted Average
	Shares			Exercise Price		Exercisable		Exercise Price

Outstanding at December 31, 1997		—		$	—		—		—
Granted (at market)		61,500		$	0.50
Exercised		—		$	—
Canceled		(3,000	)	$	0.50

Outstanding at December 31, 1998		58,500		$	0.50		—		—
Granted (at market)		29,500		$	0.81
Exercised		—		$	—
Canceled		(600	)	$	0.50

Outstanding at December 31, 1999		87,400		$	0.61		14,325	$	0.50
Granted (at market)		240,300		$	1.15
Exercised		(17,896	)	$	0.60
Canceled		(1,000	)	$	1.15

Outstanding at December 31, 2000		308,804		$	1.03		25,568	$	0.68
Granted (at market)		1,123,800		$	1.25
Granted (above market)		38,240		$	2.50
Exercised		(17,508	)	$	0.85
Canceled		(10,962	)	$	1.15

Outstanding at December 31, 2001		1,442,374		$	1.25		146,226	$	1.13
Granted (below market)		474,280		$	1.25
Granted (at market)		180,724		$	1.25
Exercised		(79,508	)	$	1.20
Canceled		(84,829	)	$	1.25

Outstanding at December 31, 2002		1,933,041		$	1.25		459,109	$	1.22
Granted (below market)		850,427		$	4.35
Granted (at market)		26,500		$	13.61
Exercised		(79,380	)	$	1.06
Canceled		(1,196	)	$	1.24

Outstanding at December 31, 2003		2,729,392		$	2.34		986,041	$	1.43

Granted (at market)		713,150		$	10.15
Exercised		(66,204	)	$	1.31
Canceled		(45,477	)	$	7.95

F-28

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Incentive and Non-Qualifying Stock Options

Number of
Weighted Average
Options
Weighted Average

Shares Exercise Price Exercisable Exercise Price

Outstanding at December 31, 2004
3,330,861 $ 3.96 1,547,422 $ 2.02

Granted (at market)
814,720 $ 10.36

Exercised
(471,742 ) $ 2.48

Canceled
(156,094 ) $ 7.55

Outstanding at December 31, 2005
3,517,745 $ 5.49 2,090,858 $ 4.08

The total options outstanding and exercisable under the Plan as of December 31, 2005 are as follows:


	Options Outstanding
			Weighted
			Average				Options Exercisable
			Remaining		Weighted				Weighted
			Contractual		Average				Average
	Number of		Life		Exercise		Number of		Exercise
Exercise Prices	Shares		(Years)		Price		Shares		Price

$ 0.50 - $ 1.15		53,000		3.81	$	1.00		53,000	$	1.00
$ 1.25		1,435,809		6.11	$	1.25		1,108,715	$	1.25
$ 2.50		15,777		5.61	$	2.50		14,618	$	2.50
$ 5.00		614,197		7.65	$	5.00		358,265	$	5.00
$ 5.40 - $ 8.10		404,384		8.55	$	7.16		116,233	$	7.23
$ 8.16		34,500		8.87	$	8.16		9,342	$	8.16
$ 8.48		490,290		6.24	$	8.48		284,690	$	8.48
$ 8.57 - $12.80		204,016		8.66	$	10.11		83,402	$	10.64
$12.81 - $27.59		265,772		8.98	$	18.66		62,593	$	16.79

		3,517,745		7.03	$	5.49		2,090,858	$	4.08

For options granted at market value under the Plan, the per share weighted average grant date fair value was $8.33, $8.57 and $11.68 during 2005, 2004 and 2003, respectively. The per share weighted average grant date fair value of options granted below market value under the Plan during 2003 was $11.21; and there were no below market value option grants in 2005 or 2004.

Stock-Based Compensation

In connection with certain option grants to employees, the Company recognized $7,337,000, $12,000 and $8,317,000 of deferred stock-based compensation for the years ended December 31, 2005, 2004 and 2003, respectively, for the excess of the fair value of the Company’s common stock over the exercise price of the option at the date of grant. Of these amounts, the Company recognized stock-based compensation expense of $8,364,000, $3,803,000 and $3,413,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Stock-based employee compensation expense is recognized over the option vesting period using the multiple option method as prescribed by FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, an Interpretation of APB Opinions No. 15 and 25 (“FIN 28”).

During the years ended December 31, 2005, 2004 and 2003, the Company granted 20,500, 12,000 and 47,000 options, respectively, to consultants. The Company recorded deferred stock-based compensation of $421,000, $236,000 and $878,000 related to such grants in 2005, 2004 and 2003, respectively, of which $522,000, $145,000 and $779,000 was recognized in operations in 2005, 2004 and 2003, respectively. The fair

F-29

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

values of these options are calculated at each reporting date using the Black-Scholes option-pricing model. As a result, the stock-based compensation expense will fluctuate as the fair value of the Company’s common stock fluctuates. The Company believes that the fair values of the options are more reliably measurable than the fair value of the services received. The expected stock price volatility was estimated using percentages reported by similar public companies within the biotechnology industry because the Company does not have a sufficient trading history from which to calculate volatility through October 2005. The expected stock price volatility was estimated using the Company’s historical daily stock prices from October 2005 through December 31, 2005. The following weighted average assumptions were used in the Black-Scholes option-pricing model for consultant options:


	2005	2004	2003

Risk-free interest rate	3.69 - 4.44%	3.28 - 3.77%	2.74 - 3.36%
Expected life (in years)	10	10	10
Expected volatility	74.94 -100%	100%	100%
Expected dividend yield	0%	0%	0%

401(k) Plan

The Company’s employee savings and retirement plan is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Eligible employees may elect to defer their current compensation up to the statutorily prescribed annual limits and have the amount of such reduction contributed to the 401(k) Plan. As of December 31, 2005, the Company had not made any matching or additional contributions to the 401(k) Plan on behalf of its employees.

Employee Stock Purchase Plan

The Company instituted an employee stock purchase plan in 2003, in which substantially all of its regular employees are eligible to participate. Participants may contribute up to 20% of their annual compensation to the plan, subject to certain limitations. The Board of Directors has the authority to set the terms of an offering and may specify offering periods of up to 27 months. The plan allows participants to purchase Myogen common stock through payroll deductions at a price 15% less than the lower of the closing price for the beginning of the offering period or the purchase date. The plan allows for the issuance of 250,000 shares of common stock to eligible employees. In 2005, 49,586 shares were issued pursuant to this plan. During 2004 and 2003, no shares were issued pursuant to this plan. The purchase price of the stock is 85% of the lower of its beginning-of-enrollment period or end-of-measurement period market price. Each enrollment period is two years, with six-month measurement periods ending January 31 and July 31, provided that a new two year offering will commence immediately after the end of a measurement period if the fair market value of the Company’s common stock at the end of such measurement period is less than the fair market value of the Company’s common stock on the initial day of such offering.

For the years ended December 31, 2005 and 2004, the weighted-average fair value of the purchase rights granted were $4.04 and $4.84 per share, respectively. The Black-Scholes model was utilized to calculate the value of the purchase rights, using the following assumptions:


	2005	2004

Risk-free interest rate	2.72 - 3.81%	3.69%
Expected life (in years)	0.5 - 2	2
Expected volatility	100%	100%
Expected dividend yield	0%	0%

F-30

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pro forma stock-based compensation, net of the effect of adjustments, was $615,000 and $79,000 in 2005 and 2004, respectively, for the ESPP.


12.	Income Taxes

All of the losses from continuing operations were from U.S. operations.

The income tax effects of temporary differences that give rise to significant portions of the Company’s net deferred tax assets are as follows:


	December 31,
	2005			2004

Deferred tax assets:
Net operating loss carryforwards	$	73,366		$	51,517
Amortization of intangibles		5,049			5,317
Orphan drug and research and development credit carryforwards		12,140			4,601
Deferred revenue		1,125			1,352
Stock-based compensation		3,238			484
Other		275			231

Total deferred tax assets		95,193			63,502
Deferred tax liabilities:
Depreciable assets		(36	)		(6	)

Total deferred tax liabilities		(36	)		(6	)

Net deferred tax assets, before valuation allowance		95,157			63,496
Valuation allowance		(95,157	)		(63,496	)

Net deferred tax assets	$	—		$	—

The Company’s ability to realize the benefit of its deferred tax assets will depend on the generation of future taxable income through profitable operations. Due to the uncertainty of achieving profitable operations, the Company has recorded a full valuation allowance against its deferred tax assets.

The provision for income taxes differs from the amount computed by applying the federal income tax rate of 35% for 2005, 2004 and 2003 to the loss from continuing operations as follows for the years ended:


	December 31,
	2005			2004			2003

U.S. federal income tax benefit at statutory rates	$	(22,402	)	$	(20,651	)	$	(15,528	)
Permanent differences		330			1,152			1,063
Orphan drug and research and development credit carryforwards		(7,539	)		(3,177	)		(1,224	)
State income tax benefit, net of federal benefit		(2,050	)		(1,811	)		(1,271	)
Change in valuation allowance		31,661			24,487			16,960

	$	—		$	—		$	—

As of December 31, 2005, the Company had available federal net operating loss carryforwards of approximately $196.9 million, which includes approximately $5.1 million of deductions related to stock-based compensation that are not realized as deferred tax assets until current taxes payable can be reduced. These net

F-31

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operating loss carryforwards will expire beginning in 2011. In addition, the Company had research and development credit and orphan drug credit carryforwards of $3.3 million and $8.8 million, respectively, as of December 31, 2005, to offset future regular and alternative tax expense. The research and development credit and orphan drug credit carryforwards expire beginning in 2018 and 2024, respectively, and are subject to review and possible adjustment by the Internal Revenue Service.

The Tax Reform Act of 1986 limits a company’s ability to utilize certain net operating loss and tax credit carryforwards in the event of a cumulative change in ownership in excess of 50 percent, as defined in the Act. The Company has completed numerous financings that may have cumulatively resulted in a change in ownership in excess of 50 percent, as so defined. The utilization of net operating loss and tax credit carryforwards may be limited due to these ownership changes. The Company has not yet completed an analysis of these limitations, therefore, the amount of these limitations, if any, is unknown, and net operating and tax credit carryforwards may expire unused.

In 2004, one of the Company’s product candidates, ambrisentan, was granted orphan drug designation for the treatment of pulmonary arterial hypertension by the FDA’s Office of Orphan Products Development. Orphan drug designation provides certain tax benefits for qualifying expenses.


13.	Royalty and License Commitments

From time to time, the Company enters into royalty and license agreements (the “Agreements”) with universities, companies, research groups and others, resulting in certain commitments. The Company may terminate such Agreements at any time, generally with 30 to 60 days written notice. The Company has expensed $527,000, $2,205,000 and $7,442,000 related to the Agreements for the years ended December 31, 2005, 2004 and 2003, respectively.

The Agreements are summarized as follows:

In September 1998, the Company entered into a license agreement with University License Equity Holdings, Inc., (formerly University Technology Corporation), (“ULEHI”), an affiliate of the University of Colorado, under which ULEHI granted to the Company an exclusive, worldwide license to practice, develop and use certain of ULEHI’s technology and licensed patent rights to develop and market the Company’s products. In exchange for the license agreement, the Company made a small upfront payment and issued 46,542 shares of its common stock valued at $0.50 per share. The license agreement expires on December 31, 2018. Under the license agreement, the Company will be required to pay an annual license maintenance fee, an annual minimum research support payment and quarterly royalty payments based on a percentage of net quarterly product sales. The terms of the agreement also require the Company to pay for all costs related to obtaining and maintaining patents on the technology. As of December 31, 2005, no royalty payments have been made and no royalty payments are due. The Company incurred sublicense fees of $13,000 and $25,000 to ULEHI under this agreement for the years ending December 31, 2005 and 2003, respectively. No sublicense fees were incurred in 2004. This agreement was amended in November 2003 to modify the royalty payment timeline and to include milestone payments for any drugs developed from the licensed technology, up to a maximum of $400,000 in the case of a drug for which an application for marketing approval is filed.

In October 1998, the Company entered into a license agreement with Aventis Pharmaceuticals, Inc. (formerly Hoechst Marion Roussel, Inc.), to obtain an exclusive worldwide license for the right to develop and commercialize enoximone. On November 23, 1999, the Company and Aventis amended the licensing agreement, reducing annual payments required under the agreement. In January 2005, we entered into a material amendment to the Aventis license agreement. Pursuant to the amendment, Aventis agreed to divest its rights, including all royalty rights, to all forms of enoximone in the United Kingdom and Belgium. In conjunction with such divestiture, the Company agreed to a modest increase in the royalty rates payable to

F-32

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Aventis with respect to the oral form of enoximone in European countries other than the United Kingdom and Belgium (the “Limited European Countries”). Royalties payable with respect to the intravenous formulation of enoximone (Perfan(R) I.V.) remained unchanged in the Limited European Countries and royalties payable with respect to all forms of enoximone remained unchanged in all countries other than the Limited European Countries. Through December 31, 2005, the Company has made $5.5 million in license payments under this agreement. No additional license or milestone payments are due under this agreement. The Company pays Aventis royalties based on sales. See Note 16.

In December 1999, the Company entered into a license agreement with the Board of Regents of the University of Texas System (“UTS”) to obtain certain patent and technology rights. Under the agreement, the Company is required to make payments totaling $3.2 million on achieving certain milestone objectives beginning with the initiation of Phase I clinical trials and through the filing of a new drug application for a licensed or identified product. Effective July 7, 2000, the agreement was amended to require an annual license fee of $50,000 on each anniversary of the effective date, beginning with the later of December 2002 or the termination of the sponsored research agreement discussed below. This license agreement is also subject to the terms of the Sponsored Research Agreement entered into concurrently with the Patent and Technology License Agreement, under which the Company currently pays $250,000 per annum through March 31, 2007. During the year ended December 31, 2005, the Company incurred sublicense fees of $31,000 under this agreement. As of December 31, 2003, the Company had accrued $162,500 in accounts payable to a related party under this agreement for a sublicense fee.

In January 2000, the Company entered into a Patent License Agreement with the University and the University of North Texas Health Science Center at Fort Worth (UNTHSC) which grants the Company exclusive rights, with the right to sublicense, to certain patents and technology relating to cardiac hypertrophy. This exclusive license may be subject to certain rights of the United States Government to the extent any of the licensed subject matter is developed under a governmental funding agreement. In consideration for the license, the Company is obligated to pay an annual license fee of $50,000 per year, a percentage of sublicense revenue and royalties based upon net sales. Additionally, the Company is obligated to make milestone payments for any drugs developed from the licensed technology, up to a maximum of $3.2 million in the case of a drug for which a marketing application is approved.

In January 2000, the Company issued 803,606 shares of Series B Preferred Stock in connection with the license agreements entered into in December 1999 and January 2000 with the University and UNTHSC.

Concurrent with the UTS licensing agreement, the Company entered into a Sponsored Research Agreement with the University of Texas Southwestern Medical Center for a term of three years. As consideration for the research performed by the University of Texas Southwestern Medical Center, the Company is required to pay the related expenses, plus other indirect costs of such research. In 2002, total payments made under the agreement and expensed to research and development were $360,000. During 2004, the Company paid $110,000 in license fees and $275,000 for research under this agreement. During 2005, the Company paid $50,000 in license fees and $250,000 for research under this agreement. This agreement will terminate on March 31, 2007, unless terminated earlier under the terms of the agreement.

In October 2001, the Company entered into an agreement with Abbott Laboratories for the exclusive license to develop and commercialize ambrisentan, an endothelin receptor antagonist compound. Under the agreement, the Company is required to make payments on attainment of certain milestone objectives. In addition, the Company was required to reimburse Abbott for costs related to the development expenditures already incurred by them as of the effective date of the agreement. The Company has made license and cost-reimbursement payments totaling $5.8 million in the past and an additional cost-reimbursement payment for additional feasibility and evaluation studies performed on the Company’s behalf of $690,000 was accrued at December 31, 2003. In 2004, the Company made a $1.5 million milestone payment as a result of the initiation

F-33

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of its Phase 3 ARIES trials for ambrisentan. Milestone payments totaling $4.5 million will be made in the future if the agreement remains in effect through the successful commercialization of ambrisentan in pulmonary arterial hypertension.

In June 2003, the Company entered into a license agreement with Abbott under which the Company received an exclusive worldwide license from Abbott to develop and commercialize darusentan for all conditions except oncology. In consideration for the license, the Company paid Abbott initial license fees of $5.0 million and is obligated to make future milestone payments totaling $25.0 million if the Company successfully commercializes the drug for a single condition. Additional milestone payments would be due if the Company commercializes darusentan for additional conditions. However, in no event would the Company be obligated to pay more than $50.0 million in total milestone and license fees. In addition, the Company will owe royalties based on net sales of darusentan. If the Company seeks a co-promotion arrangement for darusentan in any country or group of countries, Abbott has the right of first negotiation. Abbott also has the option to be the exclusive development and commercialization partner for darusentan in Japan, upon terms to be negotiated. If the Company does not commercialize darusentan in certain markets, Abbott may market the product on its own in the affected countries, paying the Company a royalty on its sales. The Company must use reasonable commercial diligence to develop and commercialize darusentan and to meet milestones in completing certain clinical work. The term of the agreement is indefinite, however, either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

In February 2002, the Company entered into a Sponsored Research Agreement with the Board of Regents of the University of Wisconsin System (“UWS”), effective October 2001. Under the terms of the agreement, the Company is required to reimburse UWS for all direct and indirect costs of such research up to a maximum amount. Total payments made under the agreement in 2005, 2004 and 2003 were $84,000, $211,000 and $211,000, respectively. This agreement terminated in 2005.

In February 2004, the Company entered into an additional Sponsored Research Agreement with UWS, related to ambrisentan. Under the terms of the agreement, the Company is required to reimburse UWS for all direct and indirect costs of such research up to a maximum amount. Total payments made under the agreement in $95,000 and $105,000, in 2005 and 2004, respectively. This agreement will terminate on January 31, 2006, unless terminated earlier by its terms. The Company has an obligation to pay a total of an additional $22,000 in 2006.

During 2002, the Company entered into a collaborative research agreement with an unrelated third party associated with the Company’s EMPOWER study. Under this agreement, the Company is entitled to certain milestone payments in conjunction with the Phase 3 study. As of December 31, 2005, the Company accrued $99,000 under this agreement which is reflected as a reduction in research and development expense as costs are incurred. During 2005, 2004 and 2003, $214,000, $332,000 and $355,000 of research and development expenses, respectively, were reduced under this agreement. No additional payments are expected to be received given the termination of the enoximone program in June 2005.

On October 8, 2003, the Company entered into a research collaboration with the Novartis Institutes for BioMedical Research, Inc. (“Novartis”) for the discovery and development of novel drugs for the treatment of cardiovascular disease. In exchange for a $4.0 million upfront payment, a deferred payment of an additional $1.0 million which was made to the Company in October 2004 and an obligation by Novartis to provide research funding to the Company through October 2006, Novartis has the exclusive right to license drug targets and product candidates developed through the collaboration. In May 2005, the Company expanded the collaboration to include its histone deacetylase inhibitor (HDACi) program. The expansion of the collaboration extends research funding with respect to the HDACi program for a minimum of three years and includes undisclosed signing fees, milestone payments and royalty payments on sales of products that are successfully commercialized. Upon execution of a license for a product candidate, Novartis is obligated to fund all further

F-34

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

development of that product candidate, make payments to the Company upon the achievement of certain milestones and pay the Company royalties for sales if the product is successfully commercialized. To date, Novartis has not licensed any drug targets or compounds under the terms of the collaboration. Upon execution of a license, Novartis is obligated to fund all further development of the licensed product candidate, make payments to the Company upon the achievement of certain milestones and pay the Company royalties for sales of any products that are successfully commercialized. Upon the completion of Phase 2 clinical trials of any product candidate Novartis has licensed from the Company (with the exception of certain HDACi product candidates), the Company has the option to enter into a co-promotion and profit sharing agreement with them for that product candidate, subject to reimbursement by the Company of a portion of Novartis’ development expenses up to that point, the Company’s agreement to share the future development and marketing expenses for the relevant product candidate and elimination of the royalty payable to the Company.

The agreement provides Novartis the right to extend the collaboration for an additional period of up to two years. Thereafter, the collaboration can be extended by mutual agreement of the parties. The collaboration agreement provides Novartis with the unilateral right to terminate or extend the collaboration at the end of the respective three year periods. In addition, Novartis has an early termination right which allows it to terminate the collaboration agreement with sixty (60) days prior notice at any time (for product candidates other than HDACi product candidates) or at any time after November 23, 2006 (for HDACi product candidates). In addition, the collaboration agreements may be terminated upon breach of the license, insolvency of either party, mutual written agreement or the sale of the Company to a competitor of Novartis.


14.	Related Party Transactions

During 1998, the Company entered into consulting agreements with three stockholders of the Company. The agreements are renewable annually upon mutual consent. One agreement expired in 1999 and was not renewed. Another agreement terminated in 2003. For the years ended December 31, 2005, 2004 and 2003 and the period from Inception to December 31, 2005, the Company incurred consulting fees of $24,000, $24,000, $30,000 and $228,000 related to these agreements, respectively. In addition, the Company granted to two of these stockholders options to purchase a total of 24,000 shares of the Company’s common stock at $0.50 per share. For consulting services provided during 2001, certain of such stockholders also received options to purchase 24,000 shares of the Company’s common stock at an exercise price of $0.50, vesting over four years. The options were valued on their respective grant dates using the Black-Scholes option-pricing model resulting in an insignificant stock-based compensation charge over the vesting period. During 2003, a new consulting agreement was entered into with one of these stockholders, with a three-year term. The consulting fees will be $24,000 per year and it granted 12,000 options to purchase the Company’s common stock at an exercise price of $7.50, vesting over three years. These options were valued on the grant date using the Black-Scholes option-pricing model, which resulted in a total value of $133,000, of which $78,000, $25,000 and $36,000 was recognized as stock-based compensation expense during the years ended December 31, 2005, 2004 and 2003, respectively.

During 1999, the Company entered into separate consulting agreements with two stockholders of the Company. The agreements extend for three years and are renewable annually thereafter upon mutual consent. For the years ended December 31, 2005, 2004 and 2003 and the period from Inception to December 31, 2005, the Company incurred consulting fees of $72,000, $68,000, $71,000 and $472,000, respectively, related to these agreements. One agreement expired in 2002 and was not renewed. The remaining agreement was amended in 2003 to extend the expiration date of the agreement to December 31, 2007 and grant an additional 30,000 options. For consulting services provided prior to 2001, the stockholders also received options to purchase 62,000 shares of the Company’s common stock at a weighted average exercise price of $1.10, vesting over four years. The options were valued on their respective grant dates using the Black-Scholes option-pricing model. The options have a total value of approximately $603,000 of which approximately $37,000 reduction

F-35

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in stock-based compensation expense during the year ended December 31, 2004, and $34,000 and $349,000 was recognized as stock-based compensation expense during the years ended December 31, 2005 and 2003, respectively. The additional 30,000 options granted in 2003 have an exercise price of $7.50, vesting over two years. The options were valued on the grant date using the Black-Scholes option-pricing model, which resulted in a total value of $392,000, of which $62,000, $97,000 and $141,000 was recognized as stock-based compensation expense during the years ended December 31, 2005, 2004 and 2003, respectively.

Dr. Michael Bristow, a Director of the Company, has served as a director of Touchstone Research, Inc., formerly Clinical Cardiovascular Research, LLC, for each of the last three years. On December 4, 1998, the Company entered into a Clinical Research Services Master Agreement with Clinical Cardiovascular Research, LLC, as amended, pursuant to which it paid $1,474,000 in 2003 and $2,141,000 in 2002. This agreement terminated in December 2003, however, $604,000 and $1,367,000 of research was performed in 2005 and 2004, respectively, on a fee for service basis. Payments pursuant to this agreement and fee for service expenses totaled $10,247,000 for the period from Inception to December 31, 2005. Such payments are recorded as research and development expense. See Note 16.

The Company has made annual contributions of $169,000, $228,000 and $269,000 for fiscal years ended December 31, 2005, 2004 and 2003, respectively, and $1,795,000 for the period from Inception to December 31, 2005, to the University of Colorado to support academic research in heart failure, including research performed by Dr. Michael Bristow. Such contributions and payments were recorded as research and development expense.


15.	Business Segments

The Company operates in the United States and in certain countries throughout Europe under one operating segment. All product sales from Inception to December 31, 2005 have occurred in Europe through the Company’s subsidiary. In December 2005, the Company’s subsidiary met the criteria for discontinued operations and is reflected as such in the accompanying financial statements. See Notes 4 and 16.


16.	Subsequent Events

Under the terms of the sale and sublicense agreements, Wülfing has agreed to pay Myogen approximately $6.1 million on or prior to February 10, 2006 and a royalty on future net sales of Perfan^® I.V., all of which has been received. In exchange, Wülfing will receive an exclusive sublicense to manufacture and commercialize Perfan^® I.V. in markets outside North America, all of the outstanding capital stock of Myogen GmbH, rights to certain Perfan^® I.V. trademarks and all existing inventories of Perfan^® I.V. finished product.

On February 22, 2006, the Strategic Alliance Agreement previously executed by Myogen and ARCA Discovery, Inc., a biopharmaceutical company formed by Dr. Michael Bristow, became effective and Myogen received 614,834 shares of common stock of ARCA Discovery, Inc. in consideration for the grant of a sub-license to certain intellectual property that the Company was not pursuing. The Company’s shares represent an ownership interest in ARCA Discovery, Inc. of less than seven percent.

On March 3, 2006, Myogen entered into a License Agreement (the “GSK License Agreement”) with Glaxo Group Limited, a GlaxoSmithKline company, and a Distribution and Supply Agreement (the “Flolan Distribution Agreement”) with SmithKline Beecham Corporation, d/b/a GlaxoSmithKline (together with Glaxo Group Limited, “GlaxoSmithKline”). Under the terms of the GSK License Agreement, GlaxoSmithKline receives an exclusive sublicense to Myogen’s rights to ambrisentan outside of the United States. Myogen received an upfront payment of $20 million and, subject to the achievement of specific milestones, will be eligible to receive up to an additional $80 million in milestone payments. In addition, Myogen will receive stepped royalties based on net commercial sales of ambrisentan in the GlaxoSmithKline territory. Myogen will

F-36

MYOGEN, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

continue to conduct and bear the expense of all clinical development activities that the parties currently believe are required to obtain and maintain regulatory approvals for ambrisentan in the United States, Canada and the European Economic Area and each party may conduct additional development activities in its territory at its own expense.

Under the terms of the Flolan Distribution Agreement, Myogen will receive exclusive rights to market, promote and distribute Flolan^® and the sterile diluent for Flolan^® in the United States for a three year period after commencement of our distribution and related commercial activities. Myogen expects to commence distributing and marketing Flolan^® in the second quarter of 2006.


17.	Quarterly Financial Results (Unaudited) (in thousands, except per share data)


2005	March 31,			June 30,			September 30,			December 31,

Revenues — research and development contracts	$	1,706		$	1,580		$	1,779		$	1,898
Costs and expenses:
Research and development*		17,405			20,691			6,031			8,475
Selling, general and administrative*		2,979			2,683			3,298			4,181
Stock-based compensation		516			518			1,267			6,586
Loss from continuing operations		(18,631	)		(21,702	)		(8,172	)		(15,501	)
Discontinued operations, net of income taxes		330			182			306			164
Net loss attributable to common stock	$	(18,301	)	$	(21,520	)	$	(7,866	)	$	(15,337	)
Basic and diluted net loss per common share attributable to common stockholders:
Continuing operations	$	(0.52	)	$	(0.61	)	$	(0.23	)	$	(0.37	)
Discontinued operations, net of income taxes		0.01			0.01			0.01			—

	$	(0.51	)	$	(0.60	)	$	(0.22	)	$	(0.37	)

F-37


				Incorporated by Reference**					Filed
Exhibit No			Exhibit Description	Form	Date	Number			Herewith

	10	.18=	Third Amendment to Intellectual Property License Agreement between University License Equity Holdings, Inc. and the Company, dated November 24, 2003.	10-K	3/1/2004		10	.29
	10	.19=	Amendment No. 3 to Patent and Technology License Agreement between the Board of Regents of the University of Texas System and the Company, dated November 6, 2003.	10-K	3/1/2004		10	.30
	10	.20=	Amendment No. 1 to Patent and Technology License Agreement between the Board of Regents of the University of Texas System and the Company, dated as of February 10, 2004.	10-K	3/1/2004		10	.31
	10	.21=	Patent License Agreement between the University of Texas System, the University of North Texas Health Science Center at Fort Worth and the Company, dated January 13, 2000.	10-K	3/1/2004		10	.32
	10	.22(1)	2003 Employee Stock Purchase Plan — August 1, 2004 Offering.	10-Q	8/9/2004		10	.33
	10	.23	Securities Purchase Agreement, dated September 24, 2004, by and among the Company and the investors named therein.	8-K	9/29/2004		10	.34
	10	.24	Second Amendment to Lease Agreement between LaSalle Bank, N .A. (formerly known as LaSalle National Bank), as Trustee for the Certificate holders Under the Pooling and Servicing Agreement, and the Company, dated April 15, 2004.	8-K	10/1/2004		10	.35
	10	.25	Third Amendment to Lease Agreement between Scott Kaufman and the Company, dated September 30, 2004.	8-K	10/1/2004		10	.36
	10	.26+	Third Amendment to the License Agreement by and between Aventis Pharmaceuticals, Inc. and Myogen, dated January 27, 2005.	10-K	3/15/2005		10	.37
	10	.27(1)	2003 Employee Stock Purchase Plan — February 1, 2005 Offering.	10-K	3/15/2004		10	.38
	10	.28(1)	2004 and 2005 Discretionary Bonus Program.	8-K	3/9/2005		10	.39
	10	.29+	Amendment to Collaboration and Option Agreement between Myogen and Novartis Institutes for BioMedical Research, Inc., dated May 23, 2005.	8-K	5/26/2005		10	.40
	10	.30+	Form of License, Development and Commercialization Agreement between Myogen and Novartis Institutes for BioMedical Research, Inc.	8-K	5/26/2005		10	.41
	10	.31	2005 and 2006 Discretionary Bonus Program.	8-K	2/27/2006		—
	10	.32	Sale and Sublicense Agreement by and among Myogen, Wülfing Holding GmbH, Wülfing Pharma GmbH and Myogen GmbH, dated January 27, 2006.						x
	10	.33	Stock Purchase Agreement by and among Wülfing Holding GmbH, Wülfing Pharma GmbH and Myogen.						x
	16	.1	Letter from PricewaterhouseCoopers LLC to the SEC.	8-K	3/23/2005		16	.1
	23	.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.						x
	23	.2	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.						x
	24	.1	Powers of Attorney. Reference B made to page. 65						x

Incorporated by Reference**

Filed

Exhibit No

Exhibit Description

Form

Date

Number

Herewith

.1 C

Certification of principal executive officer required by Rule 13a-14(a).

.2 C

Certification of principal financial officer required by Rule 13a-14(a).

.1#

Section 1350 Certification.

EX-10.32 2 d33922exv10w32.txt SALE AND SUBLICENSE AGREEMENT SALE AND SUBLICENSE AGREEMENT BY AND AMONG MYOGEN, INC., WULFING HOLDING GMBH, WULFING PHARMA GMBH AND MYOGEN GMBH EFFECTIVE AS OF JANUARY 1, 2006 SALE AND SUBLICENSE AGREEMENT This SALE AND SUBLICENSE AGREEMENT (the "AGREEMENT") executed as of this 27th day of January, 2006 ("EXECUTION DATE") and effective as of the 1st day of January, 2006 (the "EFFECTIVE DATE"), by and among MYOGEN, INC., a corporation organized and governed under the laws of Delaware, United States of America ("MYOGEN"), WULFING HOLDING GMBH, a corporation organized and governed under the laws of the Federal Republic of Germany ("SUBLICENSEE"), WULFING PHARMA GMBH, a corporation organized and governed under the laws of the Federal Republic of Germany ("PHARMA") and MYOGEN GMBH, a corporation organized and governed under the laws of the Federal Republic of Germany and, following the Stock Sale (as defined below), a wholly-owned subsidiary of Sublicensee ("SUBSIDIARY" and together with Pharma, the "GUARANTORS"). Myogen, Sublicensee and Guarantors are sometimes referred to herein individually as a "PARTY" and together as the "PARTIES." WHEREAS, Myogen is a biotechnology company that has expertise and experience in the research and development of compounds for use in treating cardiovascular disease; WHEREAS, Myogen has obtained from Sanofi-Aventis ("SANOFI-AVENTIS"), under the terms of the License Agreement (as defined below), (a) an exclusive worldwide license under Sanofi-Aventis' patents and know-how to develop and commercialize Enoximone (as defined below) and (b) all of Sanofi-Aventis' rights under certain existing trademarks relating to Enoximone in several countries around the world; WHEREAS, Sublicensee wishes to acquire Myogen's rights to commercialize and sell the Product and in connection therewith Myogen and Sublicensee have entered into that certain Stock Purchase Agreement effective as of January 1, 2006 (the "PURCHASE AGREEMENT") which contemplates the purchase by Sublicensee of all of the outstanding capital stock of Myogen GmbH, Myogen's wholly-owned subsidiary (the "STOCK SALE"); and WHEREAS, the consummation of the Stock Sale is conditioned upon the execution and delivery of this Agreement and the grant of the sublicense to Sublicensee as contemplated herein; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, the Parties agree as follows: ARTICLE 1 DEFINITIONS For purposes of this Agreement, the terms defined in this Article 1 has the meanings specified below: 1.1 "ADR" has the meaning set forth in Article 11.3. 1.2 "AFFILIATE" means any corporation, firm, partnership or other entity, whether de jure or de facto, which directly or indirectly owns, is owned or is under common ownership with a Party to this Agreement to the extent of more than fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a 1. particular jurisdiction) having the power to direct the affairs of the entity and any person, firm, partnership, corporation or other entity actually controlled by, controlling or under common control with a Party to this Agreement. This term does not include those individuals or entities who have made an equity investment in a Party but who have no significant operational management with respect to the Party. 1.3 "AUTHORITY" means the United States Food and Drug Administration or any other equivalent regulatory authority in the Territory, including, without limitation, the European Medicines Agency (EMEA). 1.4 "BULK ENOXIMONE" mean approximately three hundred (300) kilograms of bulk Enoximone drug substance in Myogen's existing inventory. 1.5 "COMMERCIALIZATION" or "COMMERCIALIZE" means activities directed to obtaining pricing and reimbursement approvals, marketing, promoting, distributing, using, importing, exporting or selling the Product. Commercialization will not include any activities related to Manufacturing. 1.6 "COMPETITIVE PRODUCT INFRINGEMENT" has the meaning set forth in Article 6.5.1. 1.7 "CONTROL" means possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with or proprietary rights of any Third Party. 1.8 "DRUG APPROVAL APPLICATION" means an application for Regulatory Approval required before commercial sale or use of a Product as a drug in a country in the Territory. 1.9 "ENOXIMONE" means 1,3-dihydro-4-methyl-5-[4-(methythio)-benzoyl]-2H- imidazol-2-one, and all pharmaceutically-acceptable forms (e.g., salts) and all formulations thereof. 1.10 "ENOXIMONE STARTER MATERIAL" means approximately five hundred (500) kilograms of each Enoximone starter material (MIA, MTBA) in Myogen's existing inventory. 1.11 "EUROPE" means, for the purposes of this Agreement, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom. 1.12 "EUROPEAN RIGHTS" has the meaning set forth in Article 9.2. 1.13 "FIELD" means the prevention, treatment and/or diagnosis of cardiovascular diseases and disorders. 1.14 "FINISHED PRODUCT" means that Product in finished saleable form in Myogen's existing inventory. 1.15 "INFORMATION" means techniques and data including inventions, practices, methods, assays, knowledge, know-how, skill, experience, marketing, pricing, distribution, cost, 2. sales and manufacturing information and test data including pharmacological, pharmacokinetic, toxicological and clinical data, analytical and quality control data, stability and integrity data, formulation data, quality control data, and safety and efficacy data. 1.16 "LIABILITIES" has the meaning set forth in Article 4.7. 1.17 "LICENSE AGREEMENT" means that certain License Agreement, effective as of October 1, 1998, by and between Hoechst Marion Roussel, Inc. ("HMR") and Myogen as amended by that certain First Amendment to the License Agreement, effective as of November 23, 1999, by and between HMR and Myogen, that certain Second Amendment to the License Agreement, effective as of June 2, 2003, by and between Aventis Pharmaceuticals, Inc. (formerly HMR) ("AVENTIS") and Myogen and that certain Third Amendment to the License Agreement, dated January 27, 2005, by and between Aventis (now Sanofi-Aventis) and Myogen as the same may be further amended from time to time and under which Myogen obtained from Sanofi-Aventis the exclusive worldwide right to develop and commercialize Enoximone in the Field. 1.18 "LOSSES" has the meaning set forth in Article 10.1.1. 1.19 "MANUFACTURING" or "MANUFACTURE" means all the activities relating to production of Product, including without limitation, purchasing raw materials, quality control and assurance, filling, finishing, labeling, packaging, qualified person release, holding, shipping, transport and storage and the tests and analyses conducted in connection therewith. Manufacturing excludes activities relating to Commercialization. 1.20 "MATERIAL BREACH" has the meaning set forth in Article 9.3.4. 1.21 "MYOGEN DATA" means all Information related to the Product Myogen or any of its Affiliates has in its possession arising out of all pre-clinical and clinical research and development conducted by or on behalf of Myogen or its Affiliates or disclosed Myogen to or its Affiliates by licensors and other collaborators to the extent not subject to a restrictive confidentiality arrangement with a Third Party. 1.22 "MYOGEN INDEMNIFIED PARTIES" has the meaning set forth in Article 10.2.1. 1.23 "MYOGEN KNOW-HOW" means Information related to the Product which (i) Myogen discloses, or is required to disclose, to Sublicensee under this Agreement and (ii) is within the Control of Myogen and its Affiliates, including any HMR Know-How (as defined in the License Agreement) which Myogen or its Affiliates Control pursuant to the License Agreement. 1.24 "NET SALES" means Sublicensee's and/or its Affiliates' and/or all of its permitted Third Party Sublicensees' gross sales of Products less the sum of the following, to the extent each is actually incurred and included in the invoice price and does not exceed the reasonable and customary amount for such item in the market in which such sales occurred: (A) discounts, rebates and similar amounts; 3. (B) sales, tariff duties and/or use taxes directly imposed and with reference to particular sales; (C) outbound transportation including packaging, handling and insurance prepaid or allowed; and (D) amounts allowed or credited on returns. No deductions shall be made for commissions paid to individuals whether they be with independent sales agencies or regularly employed by Sublicensee and on its payroll, or for cost of collections. Products shall be considered "sold" when billed out or invoiced. In the event that the sale is made to an Affiliate, the Net Sale will not be less than an equivalent sale to a non-Affiliate. 1.25 "PAYMENTS" shall mean those payments from Sublicensee to Myogen set forth in Article 4.1. 1.26 "PRODUCT" means that intravenous formulation of Enoximone for use in the Field marketed under the Trademarks. 1.27 "REASONABLE DILIGENCE" shall mean commercially reasonable efforts, as applicable, to conduct activities relating to the Product in the various countries in the Territory, consistent with accepted business practices and legal requirements, and comparable to efforts in the pharmaceutical industry applicable to the particular activity relating to human pharmaceutical products at an equivalent stage of development and similar market potential, profit potential and strategic value in view of conditions then prevailing. 1.28 "REGULATORY APPROVAL" means any approval (including pricing and reimbursement approvals), product and/or establishment license, registration or authorization of any Authority or other federal, state or local regulatory agency, department, bureau or other governmental entity necessary for the Manufacture and Commercialization of the Product in the Territory. 1.29 "REGULATORY EXPENSES" shall mean any and all expenses, costs and expenses incurred in obtaining and maintaining Regulatory Approval for the Product, which expenses are attributable to the Product for use in the Field in the Territory. 1.30 "REGULATORY FILINGS" shall have the meaning set forth in Article 3.2.2. 1.31 "S-A TERMINATION NOTICE" has the meaning set forth in Article 9.2. 1.32 "SUBLICENSEE DATA" means all Information arising out of all activities conducted by or on behalf of Sublicensee or its sublicensees, or disclosed to Sublicensee by its licensors and other collaborators necessary to obtain Regulatory Approval for marketing of Products in the Territory. 1.33 "SUBLICENSEE INDEMNIFIED PARTIES" has the meaning set forth in Article 10.1.1. 4. 1.34 "SUBLICENSEE KNOW-HOW" means Information related to the Product which (i) Sublicensee discloses, or is required to disclose, to Myogen under this Agreement and (ii) is within the Control of Sublicensee, including, without limitation, all Information developed by or on behalf of Sublicensee relating to the Product. 1.35 "SUBLICENSEE PATENT" means any and all Patents for inventions made by Sublicensee personnel on behalf of Sublicensee or its Affiliates which covers the evaluation, manufacture, use, importation, offer for sale and/or sale of Enoximone for development by Sublicensee within the Field or Product, which Patent is owned or Controlled by Sublicensee or its Affiliates. 1.36 "TERM" has the meaning set forth in Article 9.1. 1.37 "TERMINATION EFFECTIVE DATE" has the meaning set forth in Article 9.2. 1.38 "TERRITORY" means the world other than the United States and Canada, subject to Article 9.2. 1.39 "THIRD PARTY" means any entity other than Myogen or Sublicensee or their respective Affiliates. 1.40 "THIRD PARTY SUBLICENSEE" has the meaning set forth in Article 2.3. 1.41 "TRADEMARKS" means the trademarks used in connection with the Product in the Territory as set forth in SCHEDULE 1.41. 1.42 "TRADEMARK COSTS" means the fees and expenses paid to outside counsel and other Third Parties, direct costs of in-house counsel and filing and maintenance expenses, incurred in connection with the establishment and maintenance of rights under the Trademarks applicable to Product in the Territory, including costs of filing and registration fees, and actions to enforce or maintain a trademark and other proceedings. 1.43 "TRADEMARK INFRINGEMENT CLAIMS" has the meaning set forth in Article 6.6.1. 1.44 "TRANSITION SERVICES" means Myogen data retrieval at Myogen facilities, consultation services, transition services and Commercialization assistance related to the Products. ARTICLE 2 LICENSE GRANTS & REGULATORY MATTERS 2.1 KNOW-HOW LICENSE TO SUBLICENSEE FOR COMMERCIALIZATION. Upon the terms and subject to the conditions of this Agreement and the License Agreement, including, without limitation, the payment obligations herein, Myogen grants to Sublicensee an exclusive (even as to Myogen and its Affiliates) license under the Myogen Know-How to conduct Manufacturing, pre-marketing activities, Commercialization (including the right to make, have made (subject to Article 2.3), use, import (subject to Article 2.3), sell, offer for sale and have sold) and related 5. activities in the Territory with respect to the Product in accordance with the terms of this Agreement. 2.2 KNOW-HOW LICENSE TO CONDUCT REGULATORY APPROVALS. Upon the terms and subject to the conditions of this Agreement and the License Agreement, including, without limitation, the payment obligations herein, Myogen grants to Sublicensee an exclusive license (even as to Myogen and its Affiliates) under the Myogen Know-How to conduct the Regulatory Approvals in the Territory in accordance with the terms of this Agreement with respect to the Product for use in the Field. 2.3 THIRD PARTY SUBLICENSEES. The licenses set forth in Article 2.1 and Article 2.2 shall include the right to sublicense to Third Party Sublicensees, but only upon prior written notice to Myogen and prior written consent of Myogen; provided that that no consent shall be required for Third Party Sublicensees that are granted only rights to distribute the Product for Sublicensee in the Territory. Sublicensee may not exercise its "have made" or "importation" rights under Article 2.1 without first obtaining Myogen's prior written consent. "THIRD PARTY SUBLICENSEE" means a Third Party that enters into a sublicense agreement with Sublicensee providing a sublicense to such Third Party under Sublicensee's license provided by this Agreement. 2.4 LICENSE AGREEMENT. Sublicensee hereby acknowledges that Myogen acts as licensee under the License Agreement and Third Parties may own the rights to some or all of the Myogen Know-How and Sublicensee acknowledges that the sublicense granted hereunder to Sublicensee under the Myogen Know-How is governed by the terms of the License Agreement. Sublicensee also acknowledges that Myogen's performance under this Agreement cannot violate any of the terms of the License Agreement which has been provided to Sublicensee. Sublicensee agrees to abide by the terms and conditions of the License Agreement, and perform those obligations of Myogen as if Sublicensee were Myogen where and to the extent applicable. 2.5 REGULATORY MATTERS AND COMMERCIALIZATION. Sublicensee shall, consistent with Myogen's obligations under the License Agreement, use Reasonable Diligence to (a) maintain all Regulatory Approvals and to Manufacture and Commercialize the Product in the countries in the Territory where Product is distributed as of the Effective Date and (b) obtain and maintain Regulatory Approvals, and to Manufacture and Commercialize the Product in the remaining countries in the Territory where the Product will be distributed by Sublicensee during the Term. 2.6 TRADEMARKS. Subject to the terms and conditions of this Agreement, Myogen hereby transfers whatever rights it may have under the Trademarks as of the Effective Date. Sublicensee will, at its own expense, prepare and provide the documents necessary to transfer the Trademark rights. Myogen will use its commercially reasonable efforts to assist Sublicensee in the transfer contemplated hereunder and shall execute such documentation as Sublicensee may reasonably request in order to effectuate such transfer. As of the Effective Date, Sublicensee will be responsible for all Trademark Costs. 2.7 TERMINATION OF IMPLIED MYOGEN GMBH SUBLICENSE. Upon the Effective Date, that certain Sales and Supply Agreement, dated as of February 1, 2000, by and between Myogen and Subsidiary shall be terminated and of no further force and effect. 6. 2.8 RIGHT OF FIRST NEGOTIATION. (A) In the event that Myogen, at any time during the Term, decides to pursue granting a sublicense to any Third Party to conduct Manufacturing or Commercialization and related activities outside of the Territory with respect to the Product (the "NEW TERRITORY"), Myogen will notify Sublicensee in writing and thereby grant Sublicensee an exclusive option to negotiate with Myogen for an exclusive license under the Myogen Know-How in the New Territory in the Field (the "RIGHT OF NEGOTIATION"). (B) Sublicensee must exercise the Right of Negotiation by providing written notice to Myogen (the "RIGHT OF NEGOTIATION NOTICE") within sixty (60) days after receiving written notice from Myogen as provided in Article 2.8(a) of the Right of Negotiation. (C) If Sublicensee does not submit a Right of Negotiation Notice to Myogen as provided in Article 2.8(b) prior to the expiration of the sixty (60) day period referenced in Article 2.8(b), the Right of Negotiation will immediately terminate at 12:01 a.m. Eastern Standard Time on the calendar day that is immediately after the last calendar day of such sixty (60) day period and Myogen will have no further obligation to Sublicensee with respect to the Right of Negotiation for Product in the New Territory. (D) If Sublicensee exercises the Right of Negotiation by providing a Right of Negotiation Notice as provided in Article 2.8(b), Myogen and Sublicensee will negotiate in good faith, and use their diligent efforts, to complete a license agreement during the Right of Negotiation Period pursuant to which Sublicensee would obtain an exclusive license with respect to the Product under the Myogen Know-How in the New Territory (the "NEW TERRITORY LICENSE AGREEMENT"). The "RIGHT OF NEGOTIATION PERIOD" will be the period that commences on the date on which Sublicensee provides Myogen with a Right of Negotiation Notice as provided in Article 2.8(b) (for the purposes of this Article 2.8(d) only, the "commencement date") and expires at 12:01 a.m. Eastern Standard Time on the day immediately following the sixtieth (60th) day after the commencement date. Such Right of Negotiation Period may be extended upon the mutual written agreement of Myogen and Sublicensee prior to the expiration thereof as provided in Article 2.8(e) or earlier terminated by the termination of this Agreement. (E) In the event Myogen and Sublicensee have not executed the New Territory License Agreement during the Right of Negotiation Period, after starting to negotiate the terms and conditions thereof in good faith: (i) Myogen and Sublicensee may, upon their mutual written agreement prior to the expiration of the Right of Negotiation Period, extend the Right of Negotiation Period for successive additional periods of twenty (20) days; or (ii) if not extended by Myogen and Sublicensee as provided in (i), the Right of Negotiation Period will expire as provided in Article 2.8(d) and Myogen will have no further obligation to Sublicensee with respect to the Right of Negotiation or Product in the New Territory. 7. ARTICLE 3 REPORTS AND REGULATORY MATTERS 3.1 OBLIGATIONS OF THE PARTIES. 3.1.1. REPORTS. Sublicensee shall submit semi-annual written summary reports which describe the progress of Commercialization and Regulatory Approval efforts undertaken by it with regard to the Products under this Agreement including, without limitation, the progress towards the Commercialization and Regulatory Approval obligations set forth in this Agreement. 3.1.2. MANUFACTURE AND COMMERCIALIZATION; EXPENSES. During the term of this Agreement, Sublicensee shall bear its own costs and expenses incurred with any Manufacturing and Commercialization conducted pursuant to this Agreement. 3.1.3. TRANSITION SERVICES. Myogen will use commercially reasonable efforts to provide Sublicensee with Transition Services as reasonably requested by Sublicensee. During the period beginning on the Effective Date and ending six (6) months thereafter ("TRANSITION PERIOD"), Myogen will provide Transition Services at no charge to Sublicensee. After expiration of the Transition Period, Sublicensee will pay Myogen for Transition Services performed by Myogen at two hundred dollars ($200) per hour. Myogen shall submit written statements on a quarterly basis to Sublicensee setting forth such expenses incurred by Myogen for such quarter and Sublicensee shall reimburse Myogen for such expenses within thirty (30) days thereafter. 3.2 REGULATORY MATTERS. 3.2.1. COMPLIANCE WITH REGULATIONS. Sublicensee and/or Subsidiary, as applicable, and Myogen to the extent it is providing services, will conduct its/their efforts hereunder in compliance with all applicable regulatory requirements of the applicable Authority, including without limitation, the guidelines of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use. 3.2.2. REGULATORY FILINGS. Sublicensee or Subsidiary shall, at its own expense, prepare and submit all filings with the regulatory authorities with respect to the Product in each country in the Territory as applicable (the "REGULATORY FILINGS"), and Sublicensee or Subsidiary shall be responsible for causing such applications to progress through the approval process in a timely manner. Regulatory Expenses incurred in obtaining Regulatory Approval for the Product shall be at the sole cost of Sublicensee or Subsidiary. Sublicensee or Subsidiary shall, promptly after each such Regulatory Filing, deliver to Myogen a report with a brief summary of such Regulatory Filing, which shall be held by Myogen subject to the provisions of Article 5. 3.2.3. MAINTENANCE OF RECORDS. Sublicensee and/or Subsidiary, as applicable, shall maintain records with respect to activities conducted in connection with their activities relating to the Product in sufficient detail and in the manner appropriate for Regulatory Approval purposes and in a manner which will reflect all clinical and pre-clinical studies conducted, results achieved and data obtained by Sublicensee or Subsidiary in the course of such activities. 8. 3.2.4. ADVERSE EVENT REPORTING. Sublicensee and/or Subsidiary, as applicable, shall be responsible for reporting of adverse experience information to meet the current requirements for Adverse Drug Reaction reporting to the applicable Authorities within the Territory. In addition, Sublicensee and/or Subsidiary, as applicable, shall provide supplemental information at periodic intervals and/or report adverse events at more frequent intervals if requested by an applicable Authority. Sublicensee or Subsidiary, as applicable, shall provide Myogen copies of any reports to the applicable Authorities under this Article 3.2.4 within forty-eight (48) hours of the submission of such reports to such applicable Authorities. To the extent the obligations of this Article 3.2 are undertaken by Subsidiary, Sublicensee will ensure that Subsidiary complies with such obligations. 3.3 EXISTING INVENTORY. Subject to the terms and conditions set forth in this Agreement, within forty-five (45) days after the Execution Date, Myogen shall ship the Bulk Enoximone, the Enoximone Starter Material and the Finished Product to Sublicensee "Free Carrier," Myogen site (FCA per INCOTERMS, 2000 version). ARTICLE 4 PAYMENTS AND ROYALTIES 4.1 PAYMENTS. As consideration for the assets transferred to and the rights granted to Sublicensee by Myogen under this Agreement, Sublicensee shall make the following Payments to Myogen as promptly as practicable after the Execution Date and in any event no later than February 10, 2006: (A) One Hundred Fifty Thousand U.S. Dollars ($150,000) for the Bulk Enoximone; (B) Forty Thousand U.S. Dollars ($40,000) for the Enoximone Starter Material; (C) One Hundred Seventy-Seven Thousand Three Hundred Ninety-Six U.S. Dollars ($177,396) for the Finished Product; (D) Four Million Six Hundred Thousand U.S. Dollars ($4,600,000) for the CTM Trademark (as identified on Schedule1.41); and (E) Ten Thousand U.S. Dollars ($10,000) for the Trademarks other than the CTM Trademark. 4.2 ROYALTIES. Sublicensee will, for use of the rights granted under Articles 2.1 and 2.2, pay to Myogen on a quarterly basis within forty-five (45) days after the end of each calendar quarter, periodic payments equal to Eight Percent (8%) of Net Sales in the Territory that occurred in the immediately preceding calendar quarter (the "NET SALES ROYALTY PERCENTAGE"). 4.3 DURATION OF ROYALTY OBLIGATIONS. If this Agreement is not terminated in accordance with the other provisions hereof, Sublicensee's obligation to pay earned royalties 9. hereunder in a particular country other than the Terminated Countries (as defined in the License Agreement) shall continue for so long as Myogen is obligated to pay royalties to Sanofi-Aventis for Net Sales of the Product under the License Agreement. If this Agreement is not terminated in accordance with the other provisions hereof, Sublicensee's obligation to pay earned royalties hereunder in the Terminated Countries (as defined in the License Agreement) shall continue until October 1, 2011. 4.4 LOSS OF REGISTRATION. Provided that Sublicensee is otherwise in compliance with the terms and conditions of this Agreement, including, without limitation, Sublicensee's obligations under Article 3 to update the applicable regulatory dossier, in the event of a lost or suspended registration of the Product due to regulatory actions by an applicable Authority in a country set forth on EXHIBIT A prior to the third anniversary of the Effective Date, Sublicensee shall be entitled to the following credits: (A) For each country set forth on EXHIBIT A in which Sublicensee is required to cease selling the Product during the period commencing on the Effective Date through the first anniversary of the Effective Date, Sublicensee shall be entitled to an amount equal to the product of (i) the dollar amount for such country set forth under the heading "Year 1" on EXHIBIT A multiplied by (ii) a fraction, the numerator of which is the number of days during such period in which Sublicensee was actually prohibited from selling the Product and the denominator of which is 365; (B) For each country set forth on EXHIBIT A in which Sublicensee is required to cease selling the Product during the period commencing on the first anniversary of the Effective Date through the second anniversary of the Effective Date, Sublicensee shall be entitled to an amount equal to the product of (i) the dollar amount for such country set forth under the heading "Year 2" on EXHIBIT A multiplied by (ii) a fraction, the numerator of which is the number of days during such period in which Sublicensee was actually prohibited from selling the Product and the denominator of which is 365; and (C) For each country set forth on EXHIBIT A in which Sublicensee is required to cease selling the Product during the period commencing on the second anniversary of the Effective Date through the third anniversary of the Effective Date, Sublicensee shall be entitled to an amount equal to the product of (i) the dollar amount for such country set forth under the heading "Year 3" on EXHIBIT A multiplied by (ii) a fraction, the numerator of which is the number of days during such period in which Sublicensee was actually prohibited from selling the Product and the denominator of which is 365. Each of the payments contemplated under this Article 4.4 shall, at the sole option of Myogen, be either (i) offset against future payment obligations of Sublicensee under Article 4.2 in which case Myogen shall provide Sublicensee written notice of such determination within forty-five (45) days after the end of the applicable time period under Article 4.4(a), (b) or (c) above or (ii) paid by Myogen within forty-five (45) days after the end of the applicable time period under Article 4.4(a), (b) or (c) above. 4.5 ROYALTY PAYMENTS AND REPORTS. Sublicensee shall make royalty payments under this Agreement to Myogen or its designee along with the report summarizing the Net Sales 10. of any Products by Sublicensee, its Affiliates or Third Party Sublicensees, if any, during the relevant quarter within forty-five (45) days following the end of each calendar quarter. Such reports will contain Net Sales of all Products for each country in the Territory. All payments to Myogen shall be in U.S. currency. For the purpose of calculating payments, the currency exchange rate for converting any currency to U.S. dollars shall be the exchange rate in the key currency cross rates table in the final edition of The Wall Street Journal (U.S. Eastern Edition) or in the case the currency exchange rate is not published in The Wall Street Journal, the mid-point of the closing bid and ask price of "Reuter's 2000 Information Service" historical databases, on the last business day of each calendar quarter to which such payment relates. A "business day" is a day on which banks are open for business in the country of the currency to be translated. Unless Myogen instructs Sublicensee otherwise, payments pursuant to this Article 4 shall be made by bank wire transfer as follows: Myogen, Inc. Silicon Valley Bank, NA Account Number: 3300364754 ABA Routing Number: 121140399 4.6 TAXES. Myogen shall pay any and all taxes levied on account of royalties it receives under this Agreement. If laws or regulations require that taxes be withheld, then Sublicensee will (a) deduct those taxes from the remittance royalty, (b) timely pay the taxes to the proper taxing authority and (c) send proof of payment to Myogen within thirty (30) days following such payment. 4.7 GUARANTY. Each of the Guarantors hereby jointly, severally and unconditionally, as primary obligor and not merely as surety, guarantees the full and prompt performance of the Payments by Sublicensee to Myogen hereunder (all such obligations being herein collectively call the "LIABILITIES"). Each of the Guarantors hereby expressly waives (a) notice of the existence or creation or non-payment of all or any of the Liabilities; (b) any obligation of Myogen to proceed directly against or exhaust any collateral held by Myogen from Sublicensee, any other guarantor, or any other person; and (c) any claim or right which Guarantors may now have or hereafter acquire against Sublicensee or any other person or entity that arises from the existence, payment, performance or enforcement of the obligations of Guarantors hereunder, including (without limitation) any right of subrogation, reimbursement, restitution, exoneration, contribution or indemnification. 4.8 BLOCKED CURRENCY. In each country where the local currency is blocked or cannot be removed from such country, Sublicensee will pay the royalty owed on Net Sales in that country in U.S. currency to Myogen at the exchange rate in Article 4.5. 4.9 PAYMENTS TO OR REPORTS BY AFFILIATES. Any payment required under any provision of this Agreement to be made to either Party or any report required to be made by either Party shall be made to or by an Affiliate of that Party if designated by that Party as the appropriate recipient or reporting entity. 11. 4.10 NO MULTIPLE ROYALTIES. No multiple royalties shall be payable because any Product, its manufacture, use, lease or sale are or shall be covered by the Myogen Know-How licensed under this Agreement. ARTICLE 5 CONFIDENTIALITY 5.1 CONFIDENTIALITY; EXCEPTIONS. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that, for the term of this Agreement and for seven (7) years thereafter, the receiving Party shall keep confidential and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement any Information related to the Products and other information and materials furnished to it by the other Party pursuant to this Agreement, or any provisions of this Agreement or the License Agreement that are the subject of an effective order of the Securities and Exchange Commission granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended (collectively, "CONFIDENTIAL INFORMATION"), except to the extent that it can be established by the receiving Party that such Confidential Information: (A) was already known to the receiving Party at the time of disclosure by the other Party; (B) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (C) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; (D) was disclosed to the receiving Party by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or (E) was independently developed by the receiving Party without breach of the provisions of this Agreement (and can be verified by the disclosing Party as such). 5.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary in (a) filing or prosecuting patent applications, (b) prosecuting or defending litigation, (c) complying with applicable laws or regulations or (d) conducting pre-clinical or clinical trials, provided that if a Party is required by law or regulation to make any such disclosure of the other Party's Confidential Information it will, except where impracticable for necessary disclosures (e.g., in the event of medical emergency), give reasonable advance notice to the other Party of such disclosure requirement and, except to the extent inappropriate in the case of patent applications, will use its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed. In addition each Party shall be entitled to disclose, under a binder of confidentiality containing provisions as protective as those of this Article 5, Confidential Information to any Third Party for the purpose of carrying out the purposes of this Agreement. Nothing in this Article 5 shall restrict any Party from using for any purpose consistent with the terms of this Agreement any 12. Information developed by it during the term of this Agreement. When a Party makes disclosure of Confidential Information to any of its employees, it shall obtain an acknowledgment and agreement from each such employee that such employee agrees to be bound by the provisions of Article 5.1 hereof or the equivalent. 5.3 SURVIVAL. This Article 5 shall survive the termination or expiration of this Agreement for a period of seven (7) years. 5.4 MANUFACTURING AGREEMENT. All Information exchanged between the Parties under the Contract Manufacturing Agreement, dated January 31, 2001, by and between Pharma and Myogen and/or its Affiliates shall be deemed Confidential Information and shall be subject to the terms of this Article 5, and shall be included within the definitions of Myogen Know-How and Sublicensee Know-How. ARTICLE 6 OWNERSHIP OF INTELLECTUAL PROPERTY; ENFORCEMENT 6.1 OWNERSHIP. 6.1.1. As between Myogen and Sublicensee, Myogen shall solely own, and it alone has the right to apply for patents within and outside of the United States for any inventions made solely by Myogen's or its licensors' personnel or consultants in the course of performing work under this Agreement. 6.1.2. As between Myogen and Sublicensee, Sublicensee shall solely own, and Sublicensee alone has the right to apply for patents within and outside of the United States for any inventions made solely by Sublicensee's personnel or consultants in the course of performing work under this Agreement. 6.2 DISCLOSURE OF PATENTABLE INVENTIONS. Each Party shall provide to the other any invention disclosure submitted in the normal course of performing its obligations hereunder which discloses an invention related to Enoximone or the Products in the Field. Such invention disclosures shall be provided to the other Party promptly after submission and in no event later than ten (10) days after the end of the calendar quarter in which the disclosure was submitted; provided, however, that no disclosure is required that would constitute publication prior to the time a patent issues, and in any case all submissions will be considered Confidential Information of the Party submitting the invention disclosure. Sublicensee shall disclose to Myogen any and all Sublicensee Patents, Sublicensee Know-How and Sublicensee Data. 6.3 LICENSE TO MYOGEN. 6.3.1. LICENSE FOR COMMERCIALIZATION. Upon the terms and subject to the conditions of this Agreement and subject to payment by Myogen to Sublicensee of such royalty payments as are mutually agreed upon by Myogen and Sublicensee, Sublicensee grants to Myogen an exclusive license (even as to Sublicensee and its Affiliates) under the Sublicensee Patents, Sublicensee Know-How and the Sublicensee Data to conduct Manufacturing, pre-marketing activities, Commercialization, to make, have made, use, import, sell, offer for sale and 13. have sold and related activities outside the Territory with respect to the Product in accordance with the terms of this Agreement. Such license shall include the right to grant sublicenses; provided that such sublicenses are made subject to the terms of this Agreement and Myogen remains responsible for any breach by a sublicensee of the sublicense. 6.3.2. LICENSE TO CONDUCT DEVELOPMENT. Upon the terms and subject to the conditions of this Agreement and subject to payment by Myogen to Sublicensee of such royalty payments as are mutually agreed upon by Myogen and Sublicensee, Sublicensee grants to Myogen an exclusive license (even as to Sublicensee and its Affiliates) under the Sublicensee Patents, Sublicensee Know-How and the Sublicensee Data to conduct development and Regulatory Approvals outside the Territory in accordance with the terms of this Agreement with respect to the Product for use in the Field. Such license shall include the right to grant sublicenses; provided that such sublicenses are made subject to the terms of this Agreement and Myogen remains responsible for any breach by a sublicensee of the sublicense. 6.4 THIRD PARTY PATENT RIGHTS. 6.4.1. Myogen represents and warrants that to its knowledge that there are no Third Party rights which may be infringed by the manufacture or sale of any Product, the use of any Myogen Know-How or any other activity contemplated by this Agreement. 6.4.2. Neither Party makes any representation or warranty to the other, other than that made in this Article 6.4, with respect to the validity, enforceability, perfection or dominance of any patent or other proprietary right or with respect to the absence of rights of Third Parties which may be infringed by the manufacture or sale of any Product, the use of any Know-How or any other activity contemplated by this Agreement. Each Party agrees to bring to the attention of the other Party any patent or patent application it discovers, or has discovered, and which relates to the subject matter of this Agreement. 6.5 ENFORCEMENT RIGHTS. 6.5.1. GENERAL. (A) In the event a Third Party, through the actual or proposed manufacture, export, use, sale or offer for sale of a product in the Territory competitive with the Product infringes and is reasonably likely to infringe ("COMPETITIVE PRODUCT INFRINGEMENT") any Myogen Know-How, as between Myogen and Sublicensee, Sublicensee has the sole and exclusive right to institute, prosecute and control any action or proceeding with respect to such infringement, and the right to any and all relief, recovery and the like. Myogen has the right to participate and be represented in such action by counsel of its own selection at its own expense. Myogen agrees to be joined as a party plaintiff, if necessary in any such action, and to give Sublicensee reasonable assistance and any needed authority to control, file and to prosecute such action, at Sublicensee's expense. (B) If either Party learns or determines in good faith that there is or is a likelihood of Competitive Product Infringement of any Myogen Know-How by a Third Party in the Territory, the Party first having knowledge shall promptly notify the other Party in writing thereof, which notice shall set forth the facts of such actual or potential infringement in 14. reasonable detail. If Sublicensee, fails to institute and prosecute an action or proceeding to abate any actual infringement within a period of thirty (30) days after receiving written notice of actual infringement or otherwise having knowledge of the actual infringement, then Myogen has the right, but not the obligation, to bring and prosecute any action and Sublicensee agrees to be joined as a party plaintiff in such action and to give Myogen all authority to control, file and prosecute the action as may be necessary; provided, however, that Sublicensee shall have the right to participate and to be represented in any such action by counsel of its choice. (C) The Parties' costs of intellectual property enforcement (including internal costs and expenses specifically attributable to said patent enforcement) and related recoveries with respect to actions brought under this Article 6.5.1 shall be the responsibility and to the benefit of Sublicensee, except as otherwise noted herein. Any amounts recovered in such action referred to in this Article 6.5.1 shall be recovered by Sublicensee. (D) No settlement or consent judgment or other voluntary final disposition of suit under this Article 6.5.1 may be entered into without the consent of Myogen, which consent shall not be withheld unreasonably or delayed. 6.5.2. SETTLEMENT OF THIRD PARTY CLAIMS FOR PRODUCTS; ROYALTY REDUCTION. If a Third Party asserts that a patent or other right owned by it in the Territory is infringed by the manufacture, use or sale of the Product and if following the conclusion of proceedings brought as a result of such infringement, Sublicensee is required to pay the Third Party any payment of any kind for the right to sell the Product in a particular country, the royalty rate then payable to Myogen attributable to such country shall be reduced by one-half (but shall in no event be less than the minimum royalty percentage that Myogen is required to pay Sanofi-Aventis under the License Agreement). The royalty rate shall return to its previous level once Sublicensee has fully satisfied the payment due to the Third Party. In the event Sublicensee is required to pay to the Third Party a royalty due to an alleged infringement, then the royalty rate payable to Myogen attributable only to sales in such country in which the royalty is required to be paid shall be reduced by one-half of the royalty rate payable to the Third Party (but shall in no event be less than the minimum royalty percentage that Myogen is required to pay Sanofi-Aventis under the License Agreement). Such royalty rate shall return to its prior level once the royalty obligations to the Third Party have been satisfied. No settlement or consent judgment or other voluntary final disposition of a suit under this Article 6.5.2 may be entered into without the mutual consent of Myogen and Sublicensee which shall not be unreasonably withheld or delayed. 6.6 INFRINGEMENT OF TRADEMARKS. 6.6.1. Each Party shall notify the other Party promptly upon learning of any actual or alleged infringement of any Trademark or of any unfair trade practices, trade dress imitation, passing off of counterfeit goods, or like offenses, or any such claims (hereinafter "TRADEMARK INFRINGEMENT CLAIMS") brought by a Third Party against a Party in connection with the Product in the Territory. Upon learning of such Trademark Infringement Claim, Sublicensee shall take all reasonable and appropriate steps to resolve the Trademark Infringement Claim, with the reasonable cooperation and assistance of Myogen. All of the reasonable direct costs of in-house counsel, the fees and expenses paid to outside counsel and other reasonable direct costs incurred in bringing, maintaining and prosecuting any action described in this Article 6.6.1 shall 15. be included in Trademark Costs and shall be borne by Sublicensee, and any remaining recovery shall be split fifty percent (50%) to Sublicensee and fifty percent (50%) to Myogen. 6.6.2. Each Party shall notify the other Party promptly upon learning of any actual or alleged Trademark Infringement Claims brought by a Third Party against a Party in connection with a Product in the Territory. Upon learning of such Trademark Infringement Claim, Sublicensee will take all reasonable and appropriate steps to resolve such Trademark Infringement Claim, with the reasonable cooperation and assistance of Myogen. All of the reasonable direct costs of in-house counsel, the fees and expenses paid to outside counsel other reasonable direct costs incurred in bringing, maintaining and prosecuting any action described in this Article 6.6.2 shall be borne solely by Sublicensee. 6.7 NO EFFECT OF BANKRUPTCY ON LICENSES. All licenses and grants to a party under or pursuant to this Agreement by the other party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (11 U.S.C. Section 101 et seq.) (the "BANKRUPTCY CODE"), present conveyances of "intellectual property" as defined therein. The parties agree that the licensee, as the owner of such rights, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The parties further agree that, in the event that either party ceases to do business in the ordinary course or if any proceeding is instituted by or against a party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property or it shall take any action to authorize any of the foregoing actions, the licensee shall have the right to assume, retain and enforce its rights under this Agreement. ARTICLE 7 REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY 7.1 REPRESENTATIONS AND WARRANTIES. Each Party hereby represents and warrants to the other Party that this Agreement is a legal and valid obligation binding on such Party and enforceable in accordance with its terms, subject to laws regarding bankruptcy or insolvency generally, provided that the Parties acknowledge and agree that this Agreement constitutes a license of "intellectual property" as provided in the Bankruptcy Code. The execution delivery and performance of the Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it is bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. Such Party represents and warrants that it has not, and covenants that during the term of the Agreement it will not, grant to any Third Party any rights which would conflict or interfere with or curtail or impair the rights granted to the other Party hereunder. 7.2 EXCLUSIVITY; NON-COMPETITION WITHIN THE FIELD. During the term of this Agreement: Myogen and its Affiliates shall not, directly or indirectly, conduct, have conducted or fund any research, development, regulatory, or commercialization activity of any intravenous formulation of Enoximone in the Territory and in the Field other than pursuant to the terms and 16. conditions of this Agreement. Sublicensee acknowledges that its activities and operations pursuant to this Agreement shall be the principle mechanism by which Sublicensee will Commercialize the Products. ARTICLE 8 INFORMATION & REPORTS 8.1 RECORDS OF REVENUES AND EXPENSES. Sublicensee will maintain complete and accurate accounts and records of revenues, costs, expenses and payments earned or made in connection with this Agreement and such records shall be available for examination at Myogen's expense during Sublicensee's reasonable business hours for a period of two (2) years from creation of the individual records. In addition, not more often than once each year, Myogen may designate a firm of certified public accountants acceptable to Sublicensee to verify the correctness of calculations and classifications of such revenues, costs, expenses or payments earned or made in connection with this Agreement. Amounts that are determined to be due as a result of any variances in revenues, costs, expenses or payments earned or made in connection with this Agreement discovered during such audit shall be paid by Sublicensee within thirty (30) days after the conclusion of the audit (subject to Article 11 hereof). If the audit results in a variance of more than five percent (5%) in favor of Myogen, the reasonable audit expenses of Myogen shall be paid by Sublicensee. Any records or accounting information received from Myogen shall be included within the definition of Confidential Information for purposes of Article 5. ARTICLE 9 TERM AND TERMINATION 9.1 TERM. This Agreement shall commence as of the Effective Date and shall continue unless terminated as provided herein in its entirety ("TERM") or with respect to certain countries in the Territory as set forth herein. 9.2 TERMINATION OF LICENSE AGREEMENT BY SANOFI-AVENTIS. Subject to Article 9.2 of the License Agreement, Sanofi-Aventis has the right to terminate the License Agreement in its entirety only during the period prior to the first Regulatory Approval of an Enoximone product (other than the Product) in the United States if Myogen shall either (a) discontinue its development obligations as set forth in Article 3.6.1(a) of the License Agreement or, (b) fails to meet the milestone set forth in Article 3.6.1(b) of the License Agreement. Termination of the License Agreement by Sanofi-Aventis must be made pursuant to a written notice (the "S-A TERMINATION NOTICE") delivered by Sanofi-Aventis to Myogen within ninety (90) days after the expiration of the time period with respect to which such notice is being delivered. Such termination shall be effective as of thirty (30) days following delivery of the S-A Termination Notice to Myogen (the "TERMINATION EFFECTIVE DATE"). If Sanofi-Aventis terminates the License Agreement as set forth above, pursuant to the License Agreement, Myogen may retain all rights granted under Article II of License Agreement to make, manufacture and commercialize the Product in the Europe only (the "EUROPEAN RIGHTS"). In the event Sanofi-Aventis does terminate the License Agreement under Article 9.2 of the License Agreement during the Term of this 17. Agreement, Myogen will retain the European Rights in accordance with Article 9.2 of the License Agreement and the Territory will then be restricted to Europe as defined in Article 1, unless Sanofi-Aventis agrees in writing to expand the Territory to include countries outside of Europe as defined in Article 1. Notwithstanding the forgoing, the parties acknowledge that Myogen and Sanofi-Aventis are currently negotiating a fourth amendment to the License Agreement which would amend Article 9.2 of the License Agreement (the "FOURTH AMENDMENT"). This Section 9.2 will be void upon execution of the Fourth Amendment. 9.3 TERMINATION FOR MATERIAL BREACH. 9.3.1. Subject to the provisions of this Article 9.3, if either Party has committed a Material Breach (as defined below) and such Material Breach shall remain uncured and shall be continuing for a period of sixty (60) days following receipt of written notice thereof from the non-breaching Party, then, in addition to any and all other rights and remedies that may be available, the non-breaching Party has the right to terminate this Agreement effective upon the expiration of such sixty (60) day period. Any such written notice of alleged Material Breach from the non-breaching Party shall include a reasonably detailed description of all relevant facts and circumstances demonstrating, supporting and/or relating to each such alleged Material Breach by the breaching Party. 9.3.2. If (i) Sublicensee terminates this Agreement pursuant to the provisions of this Article 9.3 other than for Material Breach by Myogen of Myogen's obligations under Article 7.2 or (ii) Myogen terminates this Agreement pursuant to the provisions of this Article 9.3 and provides Sublicensee notice of its intention to apply certain of the provisions below, then the following provisions (or in the case of termination by Myogen under clause (ii) above, those provisions set forth below which Myogen wishes to enforce as set forth in Myogen's notice to Sublicensee) will apply: (A) all licenses and rights in the Myogen Know-How granted to Sublicensee hereunder shall terminate; (B) all Confidential Information supplied by each Party to the other Party shall be promptly destroyed by each Party and each Party shall certify such destruction to the other, except that each Party may retain one copy of such information solely for legal archive purposes; (C) Sublicensee and Subsidiary shall cooperate in the transfer to Myogen of all NDAs, Drug Approval Applications and Regulatory Approvals related to the Product, and shall take such other actions and execute such other instruments, assignments and documents as may be necessary to effect the transfer of rights hereunder to Myogen; and (D) effective upon the effective date of termination of the Agreement by Myogen under Article 9.3, Sublicensee hereby grants to Myogen a non-exclusive, world-wide, royalty-free license, with the right to grant and authorize the grant of sublicenses, under the Sublicensee Patents, Sublicensee Know-How and the Sublicensee Data to (i) conduct Manufacturing, pre-marketing activities, Commercialization, to make, have made, use, import, sell, offer for sale and have sold and related activities inside and outside the Territory with 18. respect to the Product and (ii) conduct Regulatory Approval activities inside and outside the Territory with respect to the Product for use in the Field. 9.3.3. If Sublicensee terminates this Agreement pursuant to the provisions of this Article 9.3 due to a Material Breach by Myogen of Myogen's obligations under Article 7.2 and provides Myogen notice of its intention to apply certain of the provisions below, then the following provisions (to the extent they are set forth in Sublicensee's notice to Myogen of such Material Breach) will apply: (A) Myogen shall reimburse all Payments effected through the date of such termination; (B) Sublicensee's royalty obligations under Article 4.2 shall cease immediately upon such termination; (C) effective upon the effective date of such termination, Myogen hereby grants to Sublicensee a non-exclusive, royalty-free license, with the right to grant and authorize sublicenses, under the Myogen Know-How to (i) conduct Manufacturing, pre-marketing activities, Commercialization, to make, have made, use, import, sell, offer for sale and have sold and related activities in the Territory with respect to the Product and (ii) conduct Regulatory Approval activities in the Territory with respect to the Product for use in the Field; and (D) all Confidential Information supplied by each Party to the other Party shall be promptly destroyed by each Party and each Party shall certify such destruction to the other, except that each Party may retain one copy of such information solely for legal archive purposes. 9.3.4. For purposes of this Article 9.3, "MATERIAL BREACH" means the breach or failure to perform, in a material respect, a material obligation under this Agreement. Without limiting the foregoing and by way of example only, the term "Material Breach" shall be deemed to include the failure of Sublicensee in a material respect to meet Sublicensee's payment or non-compete obligations or a failure of Myogen in a material respect to meet Myogen's non-compete obligations. 9.3.5. Termination of this Agreement pursuant to this Article 9.3 shall not relieve the breaching Party of any liability, including any obligation of Sublicensee to make payments hereunder, which accrued hereunder prior to the effective date of such termination, nor preclude the non-breaching Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement nor prejudice the non-breaching Party's right to obtain performance of any obligation. For purposes of this Article 9.3, any unpaid Payments shall be due and payable upon termination of this Agreement by Myogen pursuant to this Article 9.3. 9.3.6. The provisions of this Article 9.3 shall survive termination of this Agreement for a period of seven (7) years. 19. 9.4 LICENSE OF TRADEMARKS UPON TERMINATION. Should this Agreement terminate for any reason pursuant to Article 9.3 other than for Material Breach by Myogen of Myogen's obligations under Article 7.2, promptly after the written request of Myogen, Sublicensee shall grant or have granted to Myogen an exclusive, perpetual, irrevocable, transferable, royalty-free license (with the right to grant sublicenses) to use the Trademarks in connection with the Products in the Territory. ARTICLE 10 INDEMNIFICATION 10.1 INDEMNIFICATION BY MYOGEN. 10.1.1. SUBLICENSEE INDEMNIFIED PARTIES. Myogen hereby agrees to indemnify, save, defend and hold Sublicensee and its Affiliates, officers, directors, agents and employees (the "SUBLICENSEE INDEMNIFIED PARTIES") harmless from and against any and all suits, claims, actions, demands, liabilities, expenses and/or losses, including reasonable legal expense and attorneys' fees (collectively, "LOSSES"), incurred by or against any Sublicensee Indemnified Parties, which arise out of any breach of this Agreement by Myogen, or any negligence or willful misconduct by Myogen, except to the extent such Losses are attributable to the breach of this Agreement by Sublicensee or any Sublicensee Indemnified Parties or any negligence or willful misconduct by Sublicensee or any Sublicensee Indemnified Parties. 10.1.2. NOTICE OF CLAIM. In the event that a Sublicensee Indemnified Party seeks indemnification under Article 10.1.1, it shall inform Myogen of such claim as soon as reasonably practicable after it receives notice of the claim and shall permit Myogen to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as reasonably requested (at the expense of Myogen) in the defense of the claim. 10.2 INDEMNIFICATION BY SUBLICENSEE. 10.2.1. MYOGEN INDEMNIFIED PARTIES. Sublicensee hereby agrees to indemnify, save, defend and hold Myogen and its Affiliates, officers, directors, agents and employees (the "MYOGEN INDEMNIFIED PARTIES") harmless from and against any and all Losses incurred by or against such Myogen Indemnified Parties which arise out of (a) any breach of this Agreement by Sublicensee, or any negligence or willful misconduct by Sublicensee, except to the extent such Losses are attributable to the breach of this Agreement by Myogen or any Myogen Indemnified Parties or any negligence or willful misconduct by Myogen or any Myogen Indemnified Parties, or (b) the design, manufacture, use, handling, storage, sale or other disposition of Products by Sublicensee, its Affiliates, agents or sublicensees, except to the extent such Losses also result from the negligence or willful misconduct of any Myogen Indemnified Parties. 10.2.2. NOTICE OF CLAIM. In the event that any Myogen Indemnified Party seeks indemnification under Article 10.2.1, it shall inform Sublicensee of a claim as soon as reasonably practicable after it receives notice of the claim and shall permit Sublicensee to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary 20. consideration), and shall cooperate as reasonably requested (at the expense of Sublicensee) in the defense of the claim. 10.3 INSURANCE. (A) Throughout the Term and thereafter for a period of ten (10) years (if such insurance is on a claims-made basis), each Party shall carry and maintain in full force and effect insurance with an insurance company or companies having a Best's rating of A or higher against clinical trials liability (with respect to Sublicensee, solely to the extent Sublicensee is conducting clinical trials), commercial general liability, and/or product liability with respect to such Product. Such policies may be worldwide blanket policies. (B) Such insurance shall be unimpaired by claims, and shall include indemnity against liability on the part of either Party and any of its Affiliates, as well as Myogen, as their interests may appear, due to injury, disability or death of any person or persons, or injury to property, arising from the manufacture, sale or use of such Product or components thereof in amounts of not less than Ten Million USD ($10,000,000.00) combined single limit, bodily injury and property damage. Within thirty (30) days after the Execution Date, each Party shall furnish the other Party with certificates of insurance evidencing the aforesaid coverage, which certificates shall describe the principal terms of such policy or policies and provide that thirty (30) days prior written notice of cancellation or material changes in said insurance policies will be given to the other Party. (C) The indemnification obligations herein shall apply on a first dollar basis, without limitation or reduction to any deductible or self-insured retention which the Parties may have under their insurance coverage. (D) The provisions of this Article 10 shall survive the expiration or termination of this Agreement for a period of ten (10) years following the effective date of such expiration or termination. ARTICLE 11 DISPUTE RESOLUTION 11.1 GENERAL. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either Party's rights and/or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes rising under this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 11 if and when a dispute arises under this Agreement. 11.2 NEGOTIATION. Either Party may, by written notice to the other, have such dispute referred to their respective executive officers designated below or their successors, for attempted resolution by good faith negotiations within fourteen (14) days after such notice is received. Said designated officers are as follows: FOR SUBLICENSEE: Managing Director 21. FOR MYOGEN: Chief Executive Officer In the event the designated executive officers are not able to resolve such dispute, either Party may at anytime alter the fourteen (14) day period seek to resolve the dispute through the means provided in Article 11.3. 11.3 ARBITRATION. Any dispute, controversy or claim arising out of or relating to this Agreement or the validity, construction, enforceability or performance hereof or thereof, including without limitation disputes relating to alleged breach or to termination of this Agreement, shall be finally and exclusively resolved by arbitration by binding Alternative Dispute Resolution ("ADR") pursuant to the Commercial Arbitration Rules and the administration of the American Arbitration Association for Large, Complex Cases then in effect. Arbitral proceedings shall be conducted in Denver, Colorado before three (3) arbitrators. The arbitral panel may award any remedy allowed by law, including money damages, prejudgment interest and attorneys' fees, and may grant final, complete, interim, or interlocutory relief, including injunctive relief. Notwithstanding the foregoing, punitive, exemplary or multiple damages may not be awarded. 11.3.1. LEGAL FEES. Except as set forth in Article11.3 above, each Party shall bear its own legal fees and other expenses incurred in connection with the transactions contemplated hereby. 11.3.2. CONFIDENTIALITY. The ADR proceeding shall be confidential and the arbitral panel shall issue appropriate protective orders to safeguard each Party's Confidential Information. Except as required by law, no Party shall make (or instruct the arbitrator to make) any public announcement with respect to the proceedings or decision of the arbitrator without prior written consent of each other Party. The existence of any arbitrated dispute, and the award, shall be kept in confidence by the Parties and the arbitral panel, except as required in connection with the enforcement of such award or as otherwise required by applicable law. 11.4 SURVIVABILITY. Any duty to arbitrate under this Agreement shall remain in effect and enforceable alter termination of this Agreement for any reason for the statute of limitations applicable to any disputes arising out of this Agreement. 11.5 JURISDICTION. For the purpose of this Article 11, each Party agrees to abide by the award rendered in any arbitration, and the Parties agree to accept the jurisdiction of any court having jurisdiction over it for the purposes of enforcing awards entered pursuant to this Article and for enforcing the agreements reflected in this Article. ARTICLE 12 MISCELLANEOUS 12.1 ASSIGNMENT; BINDING EFFECT. 12.1.1. ASSIGNMENT TO AFFILIATES. Either Party may assign any of its rights or obligations under this Agreement in any country in the Territory to any Affiliates; provided, 22. however, that such assignment shall not relieve the assigning Party of its responsibilities for performance of its obligations under this Agreement. 12.1.2. ASSIGNMENT TO NON-AFFILIATES. Myogen may assign any of its rights or obligations under this Agreement to a non-Affiliate only in connection with a merger or similar reorganization or the sale of all or substantially all of its assets to which this Agreement relates, or otherwise with the prior written consent of Sublicensee. Neither Sublicensee nor any Affiliate of Sublicensee may assign any of its rights or obligations under this Agreement to a non-Affiliate (including transfer of the Trademarks to any Third Party) without Myogen's prior written consent. Subject to the preceding sentence, this Agreement shall survive any merger or reorganization of either Party with or into, or such sale of assets to, a Third Party; provided, that in the event of such merger, reorganization or sale, no intellectual property rights of the acquiring corporation shall be included in the patents licensed. The foregoing notwithstanding, Sublicensee may transfer the Trademarks to Third Parties and lease such Trademarks back from such Third Parties in connection with financing transactions; provided that such transfer is subject to those licensing obligations of Sublicensee set forth in Article 9.4. 12.1.3. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void and of no effect. 12.2 CONSENTS NOT UNREASONABLY WITHHELD. Whenever provision is made in this Agreement for either Party to secure the consent or approval of the other, such consent or approval shall not unreasonably be withheld or delayed. Whenever provision is made in this Agreement for one Party to object or to disapprove a matter, such objection or disapproval shall not be unreasonably exercised. 12.3 FORCE MAJEURE. Except for the payments of amounts due, neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party; provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance. The foregoing shall not affect either Party's rights hereunder to terminate this Agreement in its entirety or with respect to the Product or certain countries in the Territory pursuant to the terms hereof. 12.4 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments and do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 12.5 TRADEMARK RIGHTS. Except as otherwise provided herein or otherwise agreed to in writing by the Parties, no right, express or implied is granted by this Agreement to use in any manner the name "Myogen," "Wulfing" or any other trade name or trademark of the other Party or its Affiliates in connection with the performance of the Agreement. Notwithstanding the foregoing, subject to the terms and conditions of this Agreement, for a period of six (6) months beginning on the Effective Date, Myogen grants to Sublicensee a non-exclusive, non-transferable 23. license (without the right to grant sublicenses) to use the trademark and trade name "Myogen" (including the Myogen logo) ("MYOGEN MARKS") solely in connection with marketing and selling in the Territory, Products existing in inventory that are labeled with the Myogen Marks as of the Effective Date. Sublicensee agrees to state in appropriate places on all materials using the Myogen Marks that the Myogen Marks are trademarks of Myogen and to include the symbol (TM) or (R) as appropriate. Myogen grants no rights in the Myogen Marks other than those expressly granted in this Article 12.5. Sublicensee acknowledges Myogen's exclusive ownership of the Myogen Marks. Sublicensee agrees not to take any action inconsistent with such ownership and to cooperate, at Myogen's request and expense, in any action (including the conduct of legal proceedings) which Myogen deems necessary or desirable to establish or preserve Myogen's exclusive rights in and to the Myogen Marks. Sublicensee will not adopt, use, or attempt to register any trademarks or trade names that are confusingly similar to the Myogen Marks or in such a way as to create combination marks with the Myogen Marks. At Myogen's request, Sublicensee will modify or discontinue any use of the Myogen Marks if Myogen determines that such use does not comply with Myogen's then-current trademark usage policies and guidelines. 12.6 NOTICES. All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by a nationally recognized express courier service, to the Parties at the following address (or at such other address for a Party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof). IF TO MYOGEN, ADDRESSED TO: MYOGEN, INC. 7575 W. 103rd Avenue, Suite 102 Westminster, Colorado 80021-5426 Attention: President (with a copy to the General Counsel) Telephone: 303-410-6666 Telecopy: 303-410-6667 IF TO SUBLICENSEE, ADDRESSED TO: Wulfing Holding GmbH Bethelner Landstr. 18 31028 Gronau, Leine Germany Attention: Managing Director Telephone: 49 (0) 5182 585 130 Telecopy: 49 (0) 5182 585 222 IF TO GUARANTORS, ADDRESSED TO: MYOGEN GMBH Rochusstrasse 175-177 24. 53123 Bonn Germany Attention: Ernst Schneider Telephone: 49 (0) 228 74879 11 Telecopy: 49 (0) 228 74879 20 WULFING PHARMA GMBH Bethelner Landstr. 18 31028 Gronau, Leine Germany Attention: Managing Director Telephone: 49 (0) 5182 585 130 Telecopy: 49 (0) 5182 585 222 12.7 WAIVER. Except as specifically provided for herein, the waiver from time to time by either Party of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party's rights or remedies provided in this Agreement. All such waivers shall be in writing. 12.8 SEVERABILITY. If any term, covenant or condition of this Agreement or the application thereof to any party or circumstance shall, to any extent, be held to be invalid or unenforceable, (a) the remainder of this Agreement, or the application of such term, covenant or condition to the Parties or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (b) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 12.9 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be construed against either Party, irrespective of which Party may be deemed to have authored the ambiguous provision. 12.10 GOVERNING LAW. This Agreement shall be governed by and interpreted under the laws of the State of Delaware, United States of America without regard to principles of conflicts of law. 12.11 HEADINGS. The Article and paragraph headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said Articles or paragraphs and do not form a part of this Agreement. 12.12 COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but together shall constitute one and the same instrument. 12.13 ENTIRE AGREEMENT. This Agreement, including all exhibits and schedules attached hereto, and all documents delivered concurrently herewith, set forth all the covenants, 25. promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with regard to the subject matter herein and supersede and terminate all prior agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties regarding the subject matter hereof other than as specifically set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26. IN WITNESS WHEREOF, the Parties have executed this SALE AND SUBLICENSE AGREEMENT in duplicate originals by theft duly authorized officers as of the date and year first above written. MYOGEN, INC. By: /s/ John R. Julian ------------------------------------ Name: John R. Julian ---------------------------------- Title: SVP Commercial Development --------------------------------- WULFING HOLDING GMBH By: /s/ Lutz H. Holz ------------------------------------ Name: Lutz H. Holz ---------------------------------- Title: Managing Director --------------------------------- WULFING PHARMA GMBH By: /s/ Lutz H. Holz ------------------------------------ Name: Lutz H. Holz ---------------------------------- Title: Managing Director --------------------------------- MYOGEN GMBH By: /s/ Andrew Dickinson ------------------------------------ Name: Andrew Dickinson ---------------------------------- Title: Managing Director --------------------------------- SALE AND SUBLICENSE AGREEMENT SIGNATURE PAGE EXHIBIT A

EX-10.33 3 d33922exv10w33.txt STOCK PURCHASE AGREEMENT UR-NR. _____ /2006 PK Verhandelt zu Bonn am 27. Januar 2006 Vor dem unterzeichneten DR. PETER KEMP NOTAR MIT DEM AMTSSITZ IN BONN erschienen heute: 1. Herr JOHN R. JULIAN, Kaufmann, geb. am 11.08.1944, geschaftsansassig 7575 W. 103rd Ave., Suite 102, Westminster, CO 80021-5426, U.S.A., dem Notar zur Person ausgewiesen durch seinen amtlichen Reisepass, hier handelnd nicht im eigenen Namen, sondern als zur alleinigen Vertretung berechtigter Senior Vice President Commercial Development fur die MYOGEN, INC., eine Aktiengesellschaft nach dem Recht des Staates Delaware/USA, mit dem Sitz (registered office) in Wilmington, Delaware/USA, Postanschrift: 7575 W. 103rd Ave., Suite 102, Westminster, CO 80021-5426, U.S.A. unter Vorlage einer Vertretungsbescheinigung (Secretary's Certificate) der Myogen, Inc., vom 20.01.2006, die als ANLAGE 1 zu dieser Urkunde genommen wird, - im Folgenden als ,,MYOGEN" bezeichnet - 2. Herr LUTZ H. HOLZ, geb. am 24.08.1965, geschaftsansassig Bethelner Landstrabe 18, 31028 Gronau, dem Notar zur Person ausgewiesen durch amtlichen Lichtbildausweis, 2 hier handelnd nicht im eigenen Namen, sondern als zur alleinigen Vertretung berechtigter und von den Beschrankungen des Section 181 BGB befreiter Geschaftsfuhrer fur die Gesellschaften (a) WULFING HOLDING GMBH mit dem Sitz in Gronau, Leine, eingetragen im Handelsregister des AG Hildesheim unter HRB 15291, - im Folgenden als "WULFING" bezeichnet - (b) WULFING PHARMA GMBH mit dem Sitz in Gronau, Leine, eingetragen im Handelsregister des AG Hildesheim unter HRB 15238, - im Folgenden als "WULFING PHARMA" bezeichnet - Postanschrift beider Gesellschaften: Bethelner Landstrabe 18, 31028 Gronau. Der Erschienene zu 1. ist nach der Uberzeugung des Notars der deutschen Sprache nicht hinreichend machtig. Der amtierende Notar, welcher der englischen Sprache hinreichend machtig ist, ubersetzte daher den folgenden Text abschnittsweise in die englische Sprache. Eine schriftliche Ubersetzung in die englische Sprache ist den Beteiligten ausgehandigt sowie dieser Niederschrift als ANLAGE beigefugt. I. Die Erschienenen erklarten, handelnd wie angegeben, mundlich zur Niederschrift den folgenden KAUF- UND ABTRETUNGSVERTRAG: 3 PRAAMBEL Myogen ist ein borsennotiertes Pharmaunternehmen, welches u.a. ein Projekt fur die Entwicklung einer oralen Darreichungsform fur den Wirkstoff Enoximon zur Behandlung von chronischer Herzinsuffizienz betreibt. Die Substanz Enoximon wurde von Aventis Pharmaceuticals Inc. (ehemals Hoechst Marion Roussel, Inc.), mit Geschaftssitz in 300 Somerset Corporate Blvd., Bridgewater, New Jersey 08807, U.S.A., einlizensiert. Gleichzeitig hat Myogen die Rechte und Zulassungen an der sterilen Form von Enoximon "Perfan i.v." erworben, das in mehreren Landern Europas zugelassen ist. Fur den Markt in Europa und Nahost wird "Perfan i.v." derzeit im Auftrag der Myogen GmbH uber Distributionspartner vertrieben. Zu diesem Zweck hat Myogen, hinsichtlich des wirksamen Bestandteils von "Perfan i.v." selbst Lizenznehmer, der Myogen GmbH Unterlizenz erteilt (Sales and Supply Agreement vom 01.02.2000). Myogen beabsichtigt, ihre Aktivitaten in Europa und Nahost neu zu organisieren, und beabsichtigt daher die Myogen GmbH und das Produkt ,,Perfan i.V" zu verkaufen. Dies soll in zwei Schritten vollzogen werden: zum einen wird Myogen unter Widerruf der Unterlizenz fur Myogen GmbH und Beendigung des Sales and Supply Agreement vom 01.02.2000 Wulfing in einem gesonderten Schriftstuck einen Unterlizenz- und Kaufvertrag (Sale and Sublicense Agreement) abschlieben, welcher zum einen die Ubertragung von Markenrechten und zum anderen die Lizenzvergabe u.a. von Vertriebsrechten zum Gegenstand haben wird; zum anderen wird Wulfing die Myogen GmbH ubernehmen. Letzteres ist Gegenstand der nachfolgenden Vereinbarung. SECTION 1 BETEILIGUNG Im Handelsregister des Amtsgerichts Bonn ist unter HRB 8745 eingetragen die MYOGEN GMBH (im Folgenden: die "GESELLSCHAFT") mit dem Sitz in Bonn. Das Stammkapital der Gesellschaft betragt 25.000 E. Das Stammkapital ist voll eingezahlt. Eine Nachschusspflicht besteht nicht. 4 Myogen halt an der Gesellschaft einen Geschaftsanteil im Nennbetrag von 25.000,00 E (funfundzwanzigtausend Euro), entsprechend dem gesamten Stammkapital der Gesellschaft. SECTION 2 VERKAUF UND ABTRETUNG Myogen verkauft hiermit ihren in Section 1 naher bezeichneten Geschaftsanteil an der Gesellschaft an Wulfing und tritt den Geschaftsanteil an Wulfing ab, die diese Abtretung annimmt. Der Verkauf erfolgt mit wirtschaftlicher Wirkung vom 01.01.2006, 00:00 Uhr (dem "UBERTRAGUNGSSTICHTAG"), die Abtretung erfolgt mit sofortiger dinglicher Wirkung. SECTION 3 JAHRESABSCHLUSSE (1) Der bestatigte Jahresabschluss (Bilanz nebst Gewinn- und Verlustrechnung, Lagebericht) der Gesellschaft zum 31.12.2004 (im folgenden: ,,JAHRESABSCHLUSS 2004", ,,BILANZ 2004") wurde Wulfing vor Abschluss dieses Vertrages ubergeben. (2) Myogen hat eine vorlaufige Bilanz der Gesellschaft auf den 31.12.2005 (im Folgenden: "VORLAUFIGE BILANZ 2005") erstellt und mit Wulfing abgestimmt. Die vorlaufige Bilanz 2005 lag bei Beurkundung vor und wird als ANLAGE 2 zu dieser Urkunde genommen. SECTION 4 KAUFPREIS Der Kaufpreis fur den hiermit verkauften Geschaftsanteil betragt 50,487 US$ (FUNFZITAUSENDVIERHUNDERTSIEBENUNDACHTZIG US-DOLLAR). Der Kaufpreis ist am 10.02.2006 zur Zahlung auf ein von Myogen noch anzugebendes Konto fallig. 5 SECTION 5 GEWINN Die Gewinne der Gesellschaft bis zum Ende des Geschaftsjahres 2005, unter Einschluss von Gewinnen vorangegangener Geschaftsjahre, die nicht verteilt worden sind, sowie Gewinnrucklagen, die nicht aufgelost worden sind, stehen Wulfing zu. SECTION 6 ZUSICHERUNGEN VON MYOGEN (1) Myogen sichert zu, dass, jeweils am Ubertragungsstichtag, (a) die in Section 1 enthaltenen Angaben richtig sind, Myogen uber den verauberten Geschaftsanteil frei verfugen kann und dass dieser Geschaftsanteil nicht mit Rechten Dritter belastet ist; (b) der Jahresabschluss 2004 nach den Grundsatzen ordnungsgemaber Buchfuhrung und Bilanzierung unter Wahrung der Bilanzkontinuitat erstellt worden ist und ein den tatsachlichen Verhaltnissen entsprechendes Bild der Vermogens -, Finanz- und Ertragslage der Gesellschaft vermittelt; (c) der Gesellschaft keine Umstande bekannt sind, die Zweifel an der ordnungsgemaben Erstellung der vorlaufigen Bilanz 2005 entstehen lassen konnten; (d) die Gesellschaft nicht gebunden ist an: (aa) Vertrage mit Geschaftsfuhrern, Angestellten, Beratern oder sonstigen Personen, die ein jahrliches Entgelt von mehr als 150.000 US$ oder eine Umsatz- oder Gewinnbeteiligung vorsehen, soweit derartige Vertrage nicht in ANLAGE 3 zu diesem Vertrag aufgefuhrt sind; (bb) Pachtvertrage, Mietvertrage oder sonstige Vertrage, die eine Laufzeit von mehr als einem Jahr vorsehen oder voraussichtlich zu jahrlichen Ausgaben der Gesellschaft von mehr als 40.000 6 US$ fuhren, soweit derartige Vertrage nicht in ANLAGE 4 zu diesem Vertrag aufgefuhrt sind; (cc) an Vertrage - als Lizenzgeber oder Lizenznehmer - uber gewerbliche Schutzrechte oder sonstige nicht geschutzte Kenntnisse oder Erfindungen (know-how), soweit solche nicht in ANLAGE 5 zu diesem Vertrag aufgefuhrt sind; (dd) an Vertrage, die aufgrund der Verauberung der Anteile an der Gesellschaft von Dritten gekundigt, geandert oder erganzt werden konnen, soweit solche nicht in ANLAGE 6 zu diesem Vertrag aufgefuhrt sind; (e) die Gesellschaft - unbeschadet des folgenden Section 10 (Arzneimittelrechtliche Erfordernisse) - uber samtliche offentlich-rechtlichen Genehmigungen und Erlaubnisse verfugt, die zur Fortfuhrung des Geschaftsbetriebs der Gesellschaft erforderlich sind, diese Genehmigungen und Erlaubnisse nicht zuruckgenommen oder widerrufen worden sind, keine Umstande vorliegen, die die Rucknahme oder den Widerruf dieser Genehmigungen und Erlaubnisse befurchten lassen, und der Geschaftsbetrieb der Gesellschaft in Ubereinstimmung mit diesen Genehmigungen und Erlaubnissen gefuhrt wird; (f) gegen die Gesellschaft keinerlei Haftungsanspruche in Zusammenhang mit Herstellung oder Vertrieb von "Perfan i.v." geltend gemacht oder angekundigt worden sind; (g) die Gesellschaft weder an einem Verfahren vor staatlichen Gerichten oder Behorden noch an einem Verfahren vor Schiedsgerichten beteiligt ist. (2) Myogen sichert weiter zu, dass in der Zeit seit dem Ubertragungsstichtag (a) die Geschafte der Gesellschaft nach ordnungsgemaben kaufmannischen Grundsatzen gefuhrt und keine auberordentlichen Geschafte getatigt worden sind, insbesondere keine Vertrage der in vorstehendem Abs. (1) lit. (d) (aa) - (dd) genannten Art; 7 (b) Umfang und Inhalt der Geschaftstatigkeit der Gesellschaft gegenuber dem vorangegangenen Geschaftsjahr 2005 nicht wesentlich geandert worden sind; (c) das Anlage- und Umlaufvermogen der Gesellschaft nach ordnungsgemaben kaufmannischen Grundsatzen erhalten und erganzt worden ist; (d) der Anteil der Forderungen, die wertberichtigt werden mussen, nicht angestiegen ist; (e) keine Pensionsverbindlichkeiten begrundet worden sind; (f) keine aubergewohnlichen Ereignisse eingetreten sind oder drohen, die sich auf die gegenwartige oder zukunftige Geschaftstatigkeit oder das wirtschaftliche Ergebnis der Gesellschaft nachteilig auswirken konnten. SECTION 7 HAFTUNG (1) Ist eine der in Section 6 gegebenen Zusicherungen ganz oder teilweise unrichtig, und ergibt sich daraus fur Wulfing ein geldwerter Nachteil von mehr als 50.000 US$, so kann Wulfing wegen des 50.000 US$ ubersteigenden Nachteils den Kaufpreis angemessen mindern oder Schadenersatz statt der Leistung verlangen. Wulfing kann diese Rechte jedoch nur geltend machen, falls sie zuvor Myogen schriftlich aufgefordert hat, Wulfing innerhalb von zehn Kalendertagen nach Zugang der Aufforderung so zu stellen, wie sie stehen wurde, wenn die Zusicherung richtig gewesen ware, und diese Frist, gleich aus welchem Grund, fruchtlos verstrichen ist. (2) Ist eine der in Section 6 Abs. 2 gegebenen Zusicherungen ganz oder teilweise unrichtig, kann Wulfing auf eine Minderung des Kaufpreises nach Mabgabe des vorstehenden Absatzes (1) ganz oder teilweise verzichten und stattdessen verlangen, dass die Gesellschaft so gestellt wird, wie sie stehen wurde, wenn die Zusicherung richtig gewesen ware. Solche Anspruche konnen dann jedoch nur geltend gemacht werden, soweit die Wulfing oder der Gesellschaft erwachsenen Nachteile nicht durch die Auflosung von in der vorlaufigen Bilanz 2005 enthaltenen Ruckstellungen ausgeglichen worden sind oder ausgeglichen werden konnen. 8 (3) Die Anspruche und Rechte gemab vorstehenden Abs. (1) und (2) sind in ihrer Gesamtheit auf den Kaufpreis gemab Section 4 Abs. (1) begrenzt. (4) Den Parteien ist bewusst, dass im Jahre 2005 der langjahrige Geschaftsfuhrer der Gesellschaft, Herr Karl-Dieter Reusch, wegen Unregelmabigkeiten in seiner Geschaftsfuhrung abberufen, und dass sein Dienstverhaltnis zur Gesellschaft beendet wurde. Myogen hat alle ihr moglichen Anstrengungen unternommen, um diese Unregelmabigkeiten vollstandig aufzuklaren und, wo notig und moglich, ihnen abzuhelfen. Sollte sich wider Erwarten ein bislang unbekannter Schaden fur die Gesellschaft aus oder in Zusammenhang mit der Geschaftsfuhrertatigkeit von Herrn Reusch herausstellen, so haftet Myogen dafur nicht, es sei denn, Myogen hatte den fraglichen Schaden bei Abschluss dieses Vertrages gekannt oder kennen mussen. (5) Myogen verpflichtet sich, Wulfing alle der Gesellschaft aus den Geschaftsjahren bis einschlieblich 2005 erwachsenden Steuernachzahlungsforderungen zu erstatten. Auf diese Erstattungsanspruche findet keine der in vorstehenden Abs. (1), (2) und (3) festgelegten Beschrankungen Anwendung. Sie gelten nicht als "geldwerter Nachteil" im Sinne dieser Absatze; Myogen haftet fur sie in vollem Umfang. Diese Anspruche verjahren mit Ablauf des 31.12.2011. (6) Soweit in diesem Vertrag nicht anders geregelt, verjahren die jeweiligen Anspruche der Parteien aus diesem Vertrag mit Ablauf des 27. Januar 2007. SECTION 8 ABWEHR VON ANSPRUCHEN (1) Wulfing ist verpflichtet, Myogen unverzuglich schriftlich zu unterrichten, falls Dritte irgendwelche Anspruche gegen Wulfing oder die Gesellschaft, die zu einer Haftung von Myogen nach Section 7 fuhren konnten, geltend gemacht oder angedroht haben. Wulfing hat Myogen alle sachdienlichen Unterlagen zuganglich zu machen und alle sachdienlichen Auskunfte zu erteilen sowie Myogen Einsicht in die Bucher und Schriften der Gesellschaft zu gewahren, soweit dies erforderlich ist, um die Berechtigung der geltend gemachten oder angedrohten Anspruche zu beurteilen. (2) Die Parteien werden sich uber die Abwehr der in Abs. 1 genannten Anspruche verstandigen. Myogen ist in angemessener Weise Gelegenheit zu geben, sich 9 an der Abwehr dieser Anspruche zu beteiligen. Wulfing hat Myogen zu gestatten, die Anspruche im eigenen Namen und auf eigene Rechnung abzuwehren, falls Wulfing, gleich aus welchem Grund, nicht bereit ist, die Abwehr der Anspruche selbst vorzunehmen und eine Abwehr der Anspruche nicht den berechtigten geschaftlichen Interessen Wulfings zuwiderlauft. SECTION 9 ARBEITSVERHALTNISSE Wulfing ist bekannt, dass die Gesellschaft derzeit Arbeitsverhaltnisse mit Herrn Ernst Schneider und Herrn Marcus Behrens unterhalt. SECTION 10 ARZNEIMITTELRECHTLICHE ERFORDERNISSE (1) Uber die arzneimittelrechtliche Situation der Gesellschaft sind Wulfing am Tag der Unterzeichnung dieses Vertrages folgende Tatsachen bekannt: - Die Gesellschaft ist Inhaberin der in ANLAGE 7 zu diesem Vertrag aufgefuhrten Zulassungen. - Als Zulassungsinhaberin verfugt die Gesellschaft uber ein Pharmakovigilanzsystem, das von der Firma Icon Clinical Research, King's Court, The Broadway, Winchester, Hampshire SO23 9BE, U.K., aufrechterhalten wird; Stufenplan- und Informationsbeauftragte im Sinne des Arzneimittelgesetzes ist Frau Dr. Susanne Becker, die bei Icon Clinical Research beschaftigt ist - Den Vertrieb der Arzneimittel in Deutschland ubernimmt die CARINOPHARM GmbH, die alle arzneimittelrechtlichen Anforderungen, insbesondere das Vor und Aufrechterhalten einer Pharmahaftpflichtversicherung, erfullt. Eine Auflistung aller Distributionsvertrage ist diesem Vertrag als ANLAGE 8 beigefugt. - Die Arzneimittel fur alle Lander, in denen die Arzneimittel zugelassen sind, werden von der Wulfing Pharma GmbH hergestellt, die ebenfalls alle arzneimittelrechtlichen Anforderungen erfullt. 10 (2) Daruber hinaus gehende Informationen hinsichtlich der arzneimittelrechtlichen Situation der Gesellschaft liegen Wulfing nicht vor. Sollten aus einem Versaumnis Myogens oder der Gesellschaft, welches vor Abschluss dieses Vertrages lag, Anspruche gegen die Gesellschaft und oder Wulfing entstehen oder behordliche Genehmigungen zuruckgenommen werden, kann der hierdurch entstehende Schaden unbeschadet des Section 6 Abs. 1 lit. (e) geltend gemacht werden. Sollten wegen der Anteilsubertragung neue Erlaubnisantrage erforderlich sein oder werden, so wird Myogen Wulfing dabei, falls erforderlich, in zumutbarem Umfang unterstutzen. SECTION 11 GARANTIE Wulfing Pharma ubernimmt gegenuber Myogen die selbstandige Garantie fur die Erfullung der Zahlungsverpflichtungen Wulfings aus dem vorliegenden Vertrag. SECTION 12 ANDERUNGEN IN FIRMA UND VERTRETUNGSVERHALTNISSEN (1) Wulfing verpflichtet sich, unverzuglich nach Wirksamwerden dieses Vertrages alle derzeit noch eingetragenen Geschaftsfuhrer der Gesellschaft abzuberufen und ihnen so weit Entlastung zu erteilen, wie dies noch nicht geschehen ist. Wulfing verpflichtet sich ferner, unverzuglich nach Wirksamwerden dieses Vertrages, jedoch spatestens 90 Tage nach Unterzeichnung dieses Vertrages die Firma der Gesellschaft in "InnoCardio GmbH" zu andern sowie die vorstehenden Anderungen in Firma und Vertretungsverhaltnissen formgerecht zum Vollzug im Handelsregister anzumelden. (2) Im Innenverhaltnis haftet Wulfing Myogen wegen samtlicher Anspruche Dritter, die vom Tage der Unterzeichnung dieses Vertrages bis zur Eintragung der Namensanderung gemab vorstehendem Abs. (1) wegen der Tatigkeit oder eines Produkts der Gesellschaft erstmals geltend gemacht werden. Fur denselben Zeitraum verpflichtet sich Wulfing, im Hinblick auf die Produkte der Gesellschaft eine Produkthaftpflichtversicherung mit einer Deckungssumme von mindestens 10.000.000 US$ zu unterhalten. 11 SECTION 13 SCHLUSSBESTIMMUNGEN (1) Sollte eine Bestimmung dieses Vertrages unwirksam oder undurchfuhrbar sein oder eine Lucke aufweisen, so beruhrt dies die Gultigkeit des Vertrages im Ubrigen nicht. Die Parteien werden die unwirksame oder undurchfuhrbare Bestimmung durch diejenige ersetzen oder die Lucke durch diejenige Bestimmung fullen, die dem wirtschaftlichen Zweck und Ergebnis der unwirksamen, undurchfuhrbaren oder luckenhaften Bestimmung am nachsten kommt. (2) Anderungen und Erganzungen dieses Vertrages bedurfen der Schriftform, soweit nicht die notarielle Form vorgeschrieben ist. Auf das Erfordernis der Schriftform kann nur schriftlich verzichtet werden. (3) Dieser Vertrag unterliegt dem Recht der Bundesrepublik Deutschland. Fur alle Streitigkeiten aus und im Zusammenhang mit diesem Vertrag oder uber seine Wirksamkeit ist der ordentliche Rechtsweg gegeben; ausschlieblicher Gerichtsstand ist Berlin. II. Nunmehr erklarte der Erschienene zu 1., handelnd wie angegeben fur Myogen: Unter Verzicht auf alle Form- und Fristbestimmungen halte ich hiermit eine Gesellschafterversammlung der Myogen GmbH ab und beschliebe mit allen Stimmen: Der in Teil I. dieser Urkunde vereinbarten Ubertragung von Geschaftsanteilen sowie allen sonstigen dort getroffenen Vereinbarungen wird hiermit unter jedem rechtlichen Gesichtspunkt zugestimmt. III. Sodann erklarte der Erschienene zu 1., handelnd wie angegeben fur Myogen: Die Gesellschaft verfugt nicht uber Grundbesitz. 12 Der Notar wies auf folgendes hin: Nach Section 16 GmbHG gilt der Gesellschaft gegenuber nur derjenige als Erwerber, dessen Erwerb unter Nachweis des Ubergangs bei der Gesellschaft angemeldet ist; der Erwerber haftet neben dem Verauberer fur die zur Zeit der Anmeldung auf den Geschaftsanteil ruckstandigen Leistungen. Wenn und soweit die Verauberung nach den gesetzlichen Vorschriften und/oder den Bestimmungen des Gesellschaftsvertrages genehmigungsbedurftig und/oder anzeigepflichtig ist, werden die Beteiligten das Entsprechende selbst veranlassen. Zustimmungs- und Genehmigungserklarungen sollen spatestens mit Eingang beim Notar allen Beteiligten gegenuber unmittelbar rechtswirksam werden. Uber die steuerlichen Auswirkungen der in dieser Urkunde enthaltenen Vereinbarungen haben sich die Beteiligten jeweils selbst unterrichtet. Die Kosten dieser Urkunde und ihrer Durchfuhrung tragt die Kauferin. Jede beteiligte Partei tragt die Kosten ihrer rechtlichen und/oder steuerlichen Beratung selbst. DIESE NIEDERSCHRIFT WURDE DEN ERSCHIENENEN IN GEGENWART DES NOTARS VORGELESEN, DURCH DEN NOTAR IN DIE DIE ENGLISCHE SPRACHE UBERSETZT, VON DEN ERSCHIENENEN GENEHMIGT UND VON IHNEN UND DEM NOTAR - WIE FOLGT - EIGENHANDIG UNTERSCHRIEBEN: /S/ JOHN R. JULIAN (MYOGEN, INC.) - ------------------------------------- /S/ LUTZ H. HOLZ (WULFING HOLDING GMBH, WULFING PHARMA GMBH) - ------------------------------------- [ENGLISH TRANSLATION PROVIDED PURSUANT TO RULE 12B-12 OF THE SECURITIES EXCHANGE ACT OF 1934] REFERENCE CODE UR-NR. _____ /2006 PK Transacted in Bonn on January 27, 2006 Before the undersigning DR PETER KEMP NOTARY PUBLIC WITH OFFICIAL SEAT IN BONN appeared today: 1. Mr. JOHN R. JULIAN, a business executive, born on August 11, 1944, business address: 7575 W. 103rd Ave., Suite 102, Westminster, CO 80021-5436, U.S.A., having given proof of his identity to the Notary by his official passport, herein acting not in his own name, but as Senior Vice President Commercial Development, authorized to sole representation, on behalf of MYOGEN, INC., a corporation under the laws of the State of Delaware/U.S.A., with registered office in Wilmington, Delaware/U.S.A., Postal Address: 7575 W. 103rd Ave., Suite 102, Westminster, CO 80021-5436, U.S.A. having submitted a Secretary's Certificate of Myogen, Inc., dated January 20,2006, which shall be attached to this document as EXHIBIT 1, - hereafter referred to as "MYOGEN" - -2- 2. Mr. LUTZ H. HOLZ, born on August 24, 1965, business address: Bethelner Landstrabe 18, 31028 Gronau, having given proof of his identity to the Notary by his official identity card, herein acting not in his own name, but as managing director, authorized to solely represent the following companies, and exempt from the restrictions set forth in sec. 181 of the German Civil Code, on behalf of (a) WULFING HOLDING GMBH with business seat in Gronau/Leine, registered in the Commercial Register at Hildesheim Court of First Instance under HRB 15291, - hereafter referred to as "WULFING" - (b) WULFING PHARMA GMBH with business seat in Gronau/Leine, registered in the Commercial Register at Hildesheim Court of First Instance under HRB 15238, - hereafter referred to as "WULFING PHARMA" - Postal address of both companies: Bethelner Landstrabe 18, 31028 Gronau. As the Notary has ascertained, the person appeared at 1. does not have sufficient control of the German language. The officiating Notary, who has sufficient control of the English language, therefore translated the following text, paragraph by paragraph, into the English language. A written translation into the English language was handed out to the parties and ATTACHED to this record. I. -3- The parties appearing, acting in their capacities as stated hereinbefore, made oral statements to be recorded in writing by the Notary, for the conclusion of the following CONTRACT OF PURCHASE AND CESSION: PREAMBLE Myogen is a public pharmaceutical enterprise which, inter alia, operates a project for the development of a form of oral administration to patients of the active ingredient enoximone for the treatment of chronical heart insufficiency. The substance enoximone was licensed from Aventis Pharmaceuticals Inc. (formerly Hoechst Marion Roussel, Inc.) with business seat at 300 Somerset Corporate Blvd., Bridgewater, New Jersey 08807, U.S.A. At the same time, Myogen acquired the rights and permits relating to "Perfan i.v.", the sterile form of enoximone which is admitted in several European countries. For the market in Europe and the Middle East, "Perfan i.v." is currently distributed, by order of Myogen GmbH, via distribution partners. For this purpose, Myogen, itself being licensee in respect of the active component of "Perfan i.v.", has granted a sublicense to Myogen GmbH (Sales and Supply Agreement dated February 1, 2000). Myogen intends to reorganize its activities in Europe and the Middle East, and therefore intends to sell Myogen GmbH and the product "Perfan i.v.". This is to be implemented in two steps: on the one hand, Myogen will revoke the sublicense granted to Myogen GmbH and terminate the Sales and Supply Agreement dated February 1, 2000, and will conclude, in a separate document, a Sale and Sublicense Agreement with Wulfing, the object of which will be the transfer of trademark rights on one hand and, inter alia, the granting of a license for distribution rights on the other; on the other hand, Wulfing will take over Myogen GmbH. The latter transaction is the object of the following agreement. SEC. 1 CAPITAL INTEREST Under reference code HRB 8745, the Commercial Register at Bonn Court of First Instance lists MYOGEN GMBH -4- (hereafter: the "COMPANY"), whose registered office is in Bonn. The capital stock of the company is 25,000 Euro. The capital stock is paid in full. No shareholder contributions are outstanding. Myogen holds a share in the Company in the nominal amount of 25,000.00 Euro (twenty-five thousand Euro), equivalent to the Company's entire capital stock. SEC. 2 SALE AND CESSION Myogen hereby sells to Wulfing its shares in the company as described in detail in sec. 1, and assigns these shares to Wulfing who accepts the cession. The sale shall take commercial effect, on January 1st, 2006, 12.00 a.m. (the "EFFECTIVE DATE"), the cession shall take immediate effect in rem. SEC. 3 ANNUAL REPORTS (1) The confirmed Annual Report (annual balance sheet with profit and loss account, situation report) of the Company as at December 31, 2004 (hereafter: "2004 ANNUAL REPORT", "2004 BALANCE SHEET"), has been made available to Wulfing prior to the conclusion of this contract. (2) Myogen has established, and agreed with Wulfing, a preliminary Balance Sheet of the Company as at December 31, 2005 (hereafter: "2005 PRELIMINARY BALANCE SHEET"). The 2005 Preliminary Balance Sheet was submitted in the course of this recording and shall be attached to this document as EXHIBIT 2. SEC. 4 PURCHASE PRICE The purchase price for the share hereby sold amounts to: 50,487 US$ (FIFTY THOUSAND FOUR HUNDRED EIGHTY SEVEN US DOLLARS ONLY). The purchase price shall be due for payment on February 10, 2006, to an account to be specified by Myogen. -5- SEC. 5 PROFIT Wulfing shall be entitled to the company's profits up to the end of the 2005 fiscal year, including profits from preceding fiscal years which have not been distributed among the shareholders, and reserves formed out of profits which have not been reduced. SEC. 6 ASSURANCES BY MYOGEN (1) Myogen assures that on the Effective Date, (a) the statements contained in sec. 1 above are correct, that Myogen is entitled to freely dispose of the share hereby sold, and that said share is not encumbered by any third party's rights; (b) the 2004 Annual Report has been established according to the (German) generally accepted accounting principles and in full respect of balance sheet continuity, and that they reflect the financial standing and situation and the profit situation of the Company in correspondence with the real circumstances; (c) the Company is not aware of any circumstances which could give rise to doubts as to the correct establishment of the 2005 Preliminary Balance Sheet; (d) the Company is not bound by: (aa) contracts with managing directors, employees, consultants or other persons which oblige it to payment of an annual remuneration exceeding the amount of 150,000 US$ or of a share in the turnover or in the profit, to the extent that such contracts are not listed in EXHIBIT 3 to this Contract; -6- (bb) lease agreements, tenancy or other contracts, the duration of which exceeds one year, or which would cause annual expenditures by the Company of more than 40,000 US$, to the extent that such contracts are not listed in EXHIBIT 4 to this Contract; (cc) contracts - as licensor or licensee - relating to industrial property rights or other unprotected knowledge or inventions (know-how), to the extent that such contracts are not listed in EXHIBIT 5 to this Contract; (dd) contracts which, as a result of the transfer of the Company's shares, may be terminated, modified or supplemented by any third party, to the extent that such contracts are not listed in EXHIBIT 6 to this Contract; (e) the Company - notwithstanding sec. 10 (Requirements under Pharmaceutical Law) hereafter - holds any and all public law licenses and permits which are necessary for the continuation of the Company's business, that these licenses and permits have not been withdrawn or revoked, that there are no circumstances which give rise to the assumption that those licenses or permits might be withdrawn or revoked, and that the Company's business is being managed in accordance with these licenses and permits; (f) no claims of liability in connection with the production or distribution of "Perfan i.v." have been brought or announced against the Company; (g) the Company is a party neither to any proceedings in state courts or before state authorities nor to an arbitration procedure. (2) Furthermore, Myogen assures that since the Effective Date, (a) the Company's management has been in accordance with the (German) generally agreed business principles, and that no extraordinary transactions have been made, especially, that no contracts of the types specified at para. (1) lit. (d) (aa) - (dd) have been concluded; (b) the extent and the object of the Company's commercial activity has not been substantially changed since the preceding 2005 fiscal year; -7- (c) the fixed and current assets of the company have been conserved and supplemented in accordance with the (German) generally agreed business principles; (d) the share of claims which have to be adjusted in value has not increased; (e) no pension claims have been established; (f) there have been no extraordinary events which could have negative effects on the current or future business activity or the economical result of the Company, and no such events are to be expected. SEC. 7 LIABILITY (1) If any of the assurances given in sec. 6 above should be entirely or partially incorrect, and if this causes Wulfing a monetary detriment of more than 50,000 US$, then Wulfing shall be entitled to appropriately reduce the purchase price, or claim compensation for failure to perform, in respect of the detriment exceeding 50,000 US$. However, Wulfing shall only be entitled to claim these rights on condition that if it has, prior to its claim, asked Myogen in writing to put Wulfing, within ten calendar days from the date of reception of the claim, in such a position as if the assurance had been correct, and that this deadline has expired to no avail, no matter for which reason. (2) If any of the assurances given in sec. 6 para. 2 above should be entirely or partially incorrect, then Wulfing shall be entitled to abstain, entirely or partially, from claiming a reduction of the purchase price under para. (1) above, and to claim instead for the Company to be put in such a position as if the assurance would have been correct. However, such claims may then only be made to the extent that the detriment caused to Wulfing or to the Company has not been or cannot be compensated by the reduction of provisions contained in the 2004 Balance Sheet. (3) The aggregate amount of the rights and claims set forth in paras. (1) and (2) above is limited to the purchase price as set forth in sec. 4 para. (1). (4) The parties are aware of the fact that in 2005, the long-standing managing director of the Company, Mr. Karl-Dieter Reusch, was dismissed because of irregularities in his management, and that his employment relationship with the -8- Company was terminated. Myogen has made any and all possible efforts to comprehensively clear up said irregularities, and, where necessary and possible, to remedy them. Should it turn out unexpectedly that a damage hitherto unknown was caused to the Company by or in connection with the management activities of Mr. Reusch, Myogen cannot be held responsible for such damage unless Myogen would have known, or would have been under the legal obligation to know, said damage at the time of conclusion of this Contract. (5) Myogen shall reimburse to Wulfing any and all supplementary tax payments for the period up to the end of 2005 which the Company might have to make. The limitations set forth in paras. (1), (2) and (3) above do not apply to these reimbursement claims. These claims shall not be deemed "monetary detriment" for the purpose of said paragraphs; Myogen shall be liable for these claims without limitation. They shall become statute-barred on January 1st, 2012, 12:00 a.m. (6) Unless otherwise stated in this Contract, and unless otherwise provided by mandatory rules of law, all claims shall become statute-barred on January 27th, 2007. SEC. 8 DEFENCE AGAINST THIRD PARTIES' CLAIMS (1) Should any third party bring or threaten to bring any claims against Wulfing or the Company which might result in Myogen's liability under sec. 7 above, Wulfing shall notify Myogen immediately in writing. Wulfing shall make available to Myogen any and all suitable documents, provide to Myogen all suitable information and disclose to Myogen company records and documentation to such an extent as is necessary to assess the justification of the claims brought or threatened to be brought. (2) The parties shall make suitable arrangements as to the defence against the claims mentioned in para. (1) above. Myogen shall be given appropriate opportunity to participate in the defence against such claims. Should Wulfing, no matter for which reason, not be prepared to institute by itself the defence against the claims, and should the defence against the claims not be contrary to Wulfing's own due business interests, Wulfing shall allow Myogen to institute the defence against the claims in Myogen's own name and on its own behalf. -9- SEC. 9 EMPLOYMENT RELATIONSHIPS It is known to Wulfing that the Company currently maintains employment relationships with Mr. Ernst Schneider and Mr. Marcus Behrens. SEC. 10 REQUIREMENTS UNDER PHARMACEUTICAL LAW (1) Regarding the situation of the Company under pharmaceutical law, the following facts are known to Wulfing at the time of the signing of this Contract: - The Company holds the permits as listed in EXHIBIT 7 to this Contract. - In its capacity as permit holder, the Company disposes of a pharmacovigilance system which is maintained by Icon Clinical Research, Kings Court, The Broadway, Winchester, Hampshire SO23 9BE, UK; Dr. Susanne Becker, an employee of Icon Clinical Research, is Responsible Person for the purposes of the Arzneimittelgesetz (the German Drug Law - AMG -). - CARINOPHARM GmbH, which fulfils all requirements under Drug law, especially the conclusion and maintaining of a pharmaceutical third party liability insurance, will take charge of the distribution of the drugs in Germany. A list of all distribution agreements is attached to this Contract as EXHIBIT 8. - Wulfing Pharma GmbH which also fulfils all requirements under Drug law is producer of the drugs for all countries in which the drugs are admitted. (2) Regarding the situation of the Company under Drug law, no information beyond the above is available to Wulfing. Should a default on the part of Myogen or of the Company, which intervened prior to the conclusion of the Contract, give rise to claims against the Company and/or Wulfing, or should permits be revoked by -10- the authorities, damages caused thereby may be claimed irrespective of sec. 6 para. 1 (e). Should new permit applications still be required, in respect of this transfer of shares, at present or in the future, Myogen shall provide reasonable support to Wulfing to the extent that this is necessary. SEC. 11 GUARANTY Wulfing Pharma guarantees to Myogen the fulfilment of the payment obligations of Wulfing under this Contract, this guaranty being legally independent from any other stipulation set forth herein. SEC. 12 CHANGES TO COMPANY NAME AND REPRESENTATION (1) Immediately after this Contract has taken legal effect, Wulfing shall dismiss all managing directors who at present still are registered in the Commercial Register and give them discharge to the extent that this has not already been done. Moreover, immediately after this Contract has taken effect, however no later than 90 days following the signing of this Contract, Wulfing shall change the Company's name to "InnoCardio GmbH" and file the above changes to the Company's name and representation at the Commercial Register in due form. (2) Wulfing shall be liable vis-a-vis Myogen in respect of any and all claims based on the activities or a product of the Company which are brought by a third party for the first time between the date of signature of this Contract and the date of entry of the change of the Company's name in the Commercial Register under para. (1) above. During the same period, Wulfing is obliged to maintain a product liability insurance in respect of the Company's products with a minimum coverage amount of 10,000,000 US$. SEC. 13 FINAL PROVISIONS (1) Should any of the stipulations contained in this Contract be invalid or impracticable or have a lacuna, the validity of the rest of the contract shall remain unaffected hereby. The parties shall replace the invalid or impracticable stipulation, or fill the lacuna, by the stipulation coming nearest to the intended -11- commercial purpose and result of the invalid or impracticable stipulation, or of the stipulation which has a lacuna. (2) Any amendments of and supplements to this contract must be made in writing, unless the notarized form is mandatory. Any waiver of the requirement of the written form may only be made in writing. (3) This contract shall be governed by and construed in accordance with the law of the Federal Republic of Germany. Any and all disputes from and in connection with this contract or as to its validity shall be decided in the state courts; the exclusive place of litigation shall be Berlin. II. The person appeared at 1. above, acting, as specified, for and on behalf of Myogen, now stated as follows: In waiving all formal and time requirements, I hereby hold a meeting of the shareholders of Myogen GmbH and with all votes make the following resolution: Consent is hereby given, in every legal aspect, to the transfer of shares as agreed in part I. of this document, and to any and all other agreements made therein. III. The person appeared at 1. above, acting, as specified, for and on behalf of Myogen, then declared: The Company does not dispose of any real property. The Notary Public advised as follows: -12- Under sec. 16 of the German Law on Limited Liability Companies (GmbH-Gesetz), the Company shall only deem as purchaser that person whose acquisition has been notified to the Company in giving proof of the transfer; the purchaser shall be liable along with the seller for all payments and contributions remaining to be made in respect of the share. Should, under statutory law, and/or under the stipulations of the articles of association of the Company, this sale require an authorization and/or a notification, the parties shall take by themselves the appropriate measures. Any and all declarations of consent and authorization shall take legal effect, as against all of the parties, at the latest on the date of their reception by the Notary Public. Each of the parties has sought individual advice as to the tax effects of the agreements contained in this document. The costs of this document and its execution shall be borne by Wulfing. Each of the parties shall bear by itself the costs of legal and/or tax advice that it has sought. THIS RECORD, INCLUDING THE EXHIBITS, WAS READ OUT TO THE PARTIES APPEARING IN PRESENCE OF THE NOTARY, TRANSLATED BY THE NOTARY INTO THE ENGLISH LANGUAGE, AUTHORIZED BY THE PERSONS APPEARED AND SIGNED BY THEM AND THE NOTARY BY THEIR OWN HAND AS FOLLOWS: /S/ JOHN R. JULIAN (FOR MYOGEN, INC.) - ------------------------------------- /S/ LUTZ H. HOLZ (FOR WULFING HOLDING GMBH AND WULFING PHARMA GMBH) - ------------------------------------- EX-23.1 4 d33922exv23w1.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements on Form S-3 (333-129750 and 333-120063) and Form S-8 (333-110695, 333-112560 and 333-121975) of Myogen, Inc. of our reports dated March 10, 2006, with respect to the consolidated financial statements of Myogen, Inc. as of December 31, 2005 and the year then ended, Myogen, Inc. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Myogen, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2005. /s/ Ernst & Young LLP Denver, Colorado March 10, 2006 EX-23.2 5 d33922exv23w2.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.2 Consent of Independent Registered Public Accounting Firm We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-129750 and 333-120063) and the Registration Statements on Form S-8 (Nos. 333-110695, 333-112560 and 333-121975) of Myogen, Inc. of our report dated March 15, 2005, except as to the impact of the discontinued operations disclosed in Note 4 for which the date is March 10, 2006, relating to the consolidated financial statements which appear in this Form 10-K. PricewaterhouseCoopers LLP Denver, Colorado March 10, 2006 EX-31.1 6 d33922exv31w1.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(A) EXHIBIT 31.1 CERTIFICATION I, J. William Freytag, certify that: 1. I have reviewed this Annual Report on Form 10-K of Myogen, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (A) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (B) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (C) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (D) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (A) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (B) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2006 /s/ J. William Freytag ----------------------------------------------- President, Chief Executive Officer and Chairman (Principal Executive Officer) EX-31.2 7 d33922exv31w2.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A) EXHIBIT 31.2 CERTIFICATION I, Joseph L. Turner, certify that: 1. I have reviewed this Annual Report on Form 10-K of Myogen, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (A) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (B) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (C) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (D) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (A) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (B) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2006 /s/ Joseph L. Turner ------------------------------------------------ Senior Vice President, Finance & Chief Financial Officer (Principal Financial Officer) EX-32.1 8 d33922exv32w1.txt SECTION 1350 CERTIFICATION EXHIBIT 32.1 CERTIFICATION Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C.ss. 1350, as adopted), J. William Freytag, the Chief Executive Officer of Myogen, Inc. (the "COMPANY"), and Joseph L. Turner, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge: 1. The Company's Annual Report on Form 10-K for the period ended December 31, 2005, to which this Certification is attached as Exhibit 32.1 (the "PERIODIC REPORT"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the periods covered by the Periodic Report. Dated: March 15, 2006 /s/ J. William Freytag /s/ Joseph L. Turner - ----------------------------- ----------------------------- Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) A signed original of this written statement required by Section 906 has been provided to Myogen, Inc. and will be retained by Myogen, Inc. and furnished to the Securities and Exchange Commission ("SEC") or its staff upon request. This certification "accompanies" the Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. -----END PRIVACY-ENHANCED MESSAGE-----


	Page Number in
	this Form 10-K

Reports of Independent Registered Public Accounting Firms		F-2
Consolidated Balance Sheets		F-4
Consolidated Statements of Operations		F-5
Consolidated Statements of Changes in Stockholders’ Equity/(Deficit)		F-6
Consolidated Statements of Cash Flows		F-12
Notes to Consolidated Financial Statements		F-13


(1)		Indicates Management Contract or Compensatory Plan or Arrangement.

=		We have been granted confidential treatment with respect to the omitted portions of this agreement.

+		We have applied for confidential treatment with respect to portions of this agreement. Omitted portions have been filed separately with the Securities and Exchange Commission.

#		The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Myogen, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.


		Page

PART I
ITEM 1.	BUSINESS		2
ITEM 1A.	RISK FACTORS		22
ITEM 1B.	UNRESOLVED STAFF COMMENTS		43
ITEM 2.	PROPERTIES		44
ITEM 3.	LEGAL PROCEEDINGS		44
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		44

PART II
ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCK HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		44
ITEM 6.	SELECTED FINANCIAL DATA		46
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		47
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK		63
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		64
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		64
ITEM 9A.	CONTROLS AND PROCEDURES		65
ITEM 9B.	OTHER INFORMATION		66

PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		66
ITEM 11.	EXECUTIVE COMPENSATION		67
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		67
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		67
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		67

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENTS SCHEDULES		68
Sale and Sublicense Agreement
Stock Purchase Agreement
Consent of Ernst & Young LLP
Consent of PricewaterhouseCoopers LLP
Certification of Principal Executive Officer Required by Rule 13a-14(a)
Certification of Principal Financial Officer Required by Rule 13a-14(a)
Section 1350 Certification


																			Deficit
														Notes			Other		Accumulated
	Series B Convertible								Additional			Deferred		Receivable			Comprehensive		During the			Total
	Preferred Stock				Common Stock				Paid-in			Stock-Based		from			Income		Development			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Compensation		Stockholders			(Loss)		Stage			Equity
	(In thousands, except share and per share data)

Net loss		—	$	—		—	$	—	$	—		$	—	$	—		$	—	$	(71	)	$	(71	)

Balance at December 31, 1996		—		—		—		—		—			—		—			—		(71	)		(71	)
Comprehensive income:
Net loss		—		—		—		—		—			—		—			—		(286	)		(286	)

Total comprehensive loss																				(286	)		(286	)

Balance at December 31, 1997		—		—		—		—		—			—		—			—		(357	)		(357	)
Issuance of common stock for cash and notes receivable		—		—		680,000		1		15			—		(7	)		—		—			9
Issuance of common stock in exchange for license agreements		—		—		46,542		—		23			—		—			—		—			23
Issuance of common stock for notes receivable		—		—		147,907		—		74			—		(74	)		—		—			—
Comprehensive income:
Net loss		—		—		—		—		—			—		—			—		(1,991	)		(1,991	)

Total comprehensive loss																				(1,991	)		(1,991	)

Balance at December 31, 1998		—		—		874,449		1		112			—		(81	)		—		(2,348	)		(2,316	)
Payments on notes receivable from stockholders		—		—		—		—		—			—		6			—		—			6
Receipt of funds for par value of restricted stock		—		—		—		—		—			—		—			—		—			—
Other		—		—		—		—		—			—		—			—		—			—
Accretion of mandatorily redeemable convertible preferred stock		—		—		—		—		(112	)		—		—			—		(216	)		(328	)
Comprehensive income:
Net loss		—		—		—		—		—			—		—			—		(3,319	)		(3,319	)

Total comprehensive loss																				(3,319	)		(3,319	)

Balance at December 31, 1999		—		—		874,449		1		—			—		(75	)		—		(5,883	)		(5,957	)
Issuance of Series B convertible preferred stock		803,606		1		—		—		1,104			—		—			—		—			1,105
Warrants issued in conjunction with note payable		—		—		—		—		11			—		—			—		—			11
Issuance of common stock in August 2000 at $0.50 per share upon the exercise of options		—		—		4,354		—		2			—		—			—		—			2
Issuance of common stock in November 2000 at $0.50 per share upon the exercise of options		—		—		10,542		—		5			—		—			—		—			5
Issuance of common stock in December 2000 at $1.15 per share upon the exercise of options		—		—		3,000		—		4			—		—			—		—			4