EPIRUS Biopharmaceuticals (EPRSQ) DEF 14A Definitive proxy

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.               )

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COMBINATORX, INCORPORATED
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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April 23, 2007

Dear Stockholder:

You are cordially invited to attend the 2007 Annual Meeting of Stockholders of CombinatoRx, Incorporated. The meeting will be held on May 31, 2007 at 9:00 a.m. EDT at our offices at 245 First Street, Sixteenth Floor, in Cambridge, Massachusetts (see directions in Appendix A).

Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.

Your vote is very important. Whether or not you plan to attend the meeting, please carefully review the enclosed proxy statement and then cast your vote, regardless of the number of shares you hold. If you are a stockholder of record, you may vote over the Internet, by telephone, or by completing, signing, dating and mailing the accompanying proxy card in the return envelope, or by attending the meeting and voting in person. If your shares are held in street name (held for your account by a broker or other nominee), you will receive instructions from your broker or other nominee explaining how to vote your shares and you will have the option to cast your vote by telephone or over the Internet if your voting instruction form from your broker or nominee includes instructions and a toll-free telephone number or Internet website to do so. In any event, to be sure that your vote will be received in time, please cast your vote by your choice of available means at your earliest convenience.

We hope that you will join us on May 31, 2007. Your continuing interest in CombinatoRx is very much appreciated.

Sincerely,

Alexis Borisy
President and Chief Executive Officer

NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS

Time	9:00 a.m., Eastern Daylight Time
Date	Thursday, May 31, 2007
Place	The offices of CombinatoRx, Incorporated (the “Company” or “CombinatoRx”), 245 First Street, Sixteenth Floor, Cambridge, Massachusetts 02142.
Purpose	1.	To elect Sally Crawford, Michael Kauffman and Richard Pops as Class II members of the Board of Directors, to serve until the Company’s 2010 annual meeting of stockholders and until a successor is duly elected and qualified.
	2.	To ratify the selection of Ernst & Young LLP as the Company’s independent auditors.
	3.	To transact any other business that may properly come before the meeting or any adjournment thereof.
Record Date	The Board of Directors has fixed the close of business on April 5, 2007 as the record date for determining stockholders entitled to notice of and to vote at the meeting
Meeting Admission	All stockholders as of the record date, or their duly appointed proxies, may attend the meeting. If you attend, you will be asked to present valid picture identification such as a driver’s license or passport. If your CombinatoRx stock is held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and this proxy statement is being forwarded to you by your broker or nominee. As a result, your name does not appear on our list of stockholders. If your stock is held in street name, in addition to picture identification, you should bring with you a letter or account statement showing that you were the beneficial owner of the stock on the record date, in order to be admitted to the meeting.

Voting by Proxy If you are a stockholder of record, please submit a proxy card or, for shares held in street name, the voting instruction form you receive from your broker or nominee, as soon as possible so your shares can be voted at the meeting. You may submit your proxy card or voting instruction form by mail. If you are a stockholder of record, you may also vote over the Internet or by telephone. If your shares are held in street name, you will receive instructions from your broker or other nominee explaining how to vote your shares, and you may also have the choice of instructing the record holder as to the voting of your shares over the Internet or by telephone. Follow the instructions on the voting instruction form you received from your broker or nominee.

	By order of the Board of Directors,
	Jason F. Cole, Secretary
April 23, 2007

COMBINATORX, INCORPORATED
245 FIRST STREET
SIXTEENTH FLOOR
CAMBRIDGE, MASSACHUSETTS 02142

PROXY STATEMENT
FOR THE 2007 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 31, 2007
AT 9:00 AM EDT

GENERAL INFORMATION

When are this proxy statement and the accompanying material scheduled to be sent to stockholders?

This proxy statement and accompanying proxy card or, for shares held in street name, voting instruction form, are scheduled to be sent to stockholders beginning on April 23, 2007.

Who is soliciting my vote?

The Board of Directors of CombinatoRx, Incorporated (the “Company” or “CombinatoRx”) is soliciting your vote for the 2007 Annual Meeting of Stockholders.

When is the record date for the Annual Meeting?

The Company’s Board of Directors has fixed the record date for the Annual Meeting as of the close of business on April 5, 2007.

How many votes can be cast by all stockholders?

A total of 28,969,324 shares of common stock of the Company are outstanding on April 5, 2007 and entitled to be voted at the meeting. Each share of common stock is entitled to one vote on each matter.

How do I vote?

If you are a stockholder of record and your shares are registered directly in your name, you may vote:

·By Internet.Access the website of the Company’s tabulator, Computershare, at: www.investorvote.com, using the voter control number that printed on the enclosed proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your Internet vote cannot be completed, and you will receive an error message.

·By Telephone.Call 1-800-652-VOTE (1-800-652-8683) toll-free from the U.S. and Canada, and follow the instructions on the enclosed proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your telephone vote cannot be completed.

·By Mail.Complete and mail the enclosed proxy card in the enclosed postage prepaid envelope to Computershare. Your proxy will be voted in accordance with your instructions. If you sign and return the enclosed proxy but do not specify how you want your shares voted (or unless discretionary authority to cumulate votes is exercised), they will be voted FOR the nominees named herein to the Company’s Board of Directors, FOR the ratification of Ernst & Young LLP as the Company’s independent auditors and will be voted according to the discretion of the proxy holder upon any other business that may properly be brought before the meeting and at all adjournments and postponements thereof.

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·In Person at the Meeting.If you attend the meeting, be sure to bring a form of personal picture identification with you, and you may deliver your completed proxy card in person or you may vote by completing a ballot, which will be available at the meeting.

If your shares of common stock are held in “street name” (held for your account by a broker or other nominee):

·By Internet or By Telephone.You will receive instructions from your broker or other nominee if you are permitted to vote by Internet or telephone.

·By Mail.You will receive instructions from your broker or other nominee explaining how to vote your shares.

·In Person at the Meeting.If you attend the meeting, in addition to picture identification you should both bring an account statement or a letter from the record holder indicating that you owned the shares as of the record date, and contact the broker or other nominee who holds your shares to obtain a broker’s proxy card and bring it with you to the meeting.

What are the Board’s recommendations on how to vote my shares?

The Board of Directors recommends a vote:

·FOR election of the three Class II directors (page 4)

·FOR ratification of selection of Ernst & Young LLP as the Company’s independent auditors  (page 43)

Who pays the cost for soliciting proxies?

CombinatoRx will pay the cost for the solicitation of proxies by the Board of Directors. That solicitation of proxies will be made primarily by mail. CombinatoRx has retained Georgeson Shareholder Services to aid in the distribution and solicitation of proxies for a fee of $1,000, plus expenses. Proxies may also be solicited personally, by telephone, fax or e-mail by employees of CombinatoRx without any remuneration to such individuals other than their regular compensation. CombinatoRx will also reimburse brokers, banks, custodians, other nominees and fiduciaries for forwarding these materials to their principals to obtain the authorization for the execution of proxies.

Can I change my vote?

You may revoke your proxy at any time before it is voted by notifying the Secretary in writing, by returning a signed proxy with a later date, by transmitting a subsequent vote over the Internet or by telephone or by attending the meeting and voting in person. If your stock is held in street name, you must contact your broker or nominee for instructions as to how to change your vote.

What vote is required to approve each item?

The three nominees for election as Class II directors who receive a plurality of the shares voted for election of directors shall be elected directors (Item 1). A majority of votes cast is necessary for ratification of selection of Ernst & Young LLP as the Company’s independent auditors (Item 2).

If there are insufficient votes to approve Proposal(s) 1 or 2, your proxy may be voted by the persons named in the proxy to adjourn the Annual Meeting in order to solicit additional proxies in favor of the approval of such proposals. If the Annual Meeting is adjourned or postponed for any purpose, at any subsequent reconvening of the meeting your proxy will be voted in the same manner as it would have been voted at the original convening of the Annual Meeting unless you withdraw or revoke your proxy. Your

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proxy may be voted in this manner even though it may have been voted on the same or any other matter at a previous session of the Annual Meeting.

How is the vote counted?

Votes cast by proxy or in person at the Annual Meeting will be counted by the persons appointed by CombinatoRx to act as tabulators for the meeting. A majority of the shares entitled to vote at the Annual Meeting constitutes a quorum. The tabulators will count shares represented by proxies that withhold authority to vote for a nominee for election as a director only as shares that are present and entitled to vote for purposes of determining the presence of a quorum. None of the withheld votes will be counted as votes “for” a director. Shares properly voted to “abstain” on a particular matter are considered as shares that are entitled to vote for the purpose of determining a quorum but are treated as having not voted on the matter.

If you hold shares through a broker, bank or other nominee, generally the nominee may vote the shares for you in accordance with your instructions. The broker may not vote the shares held in its name in its discretion on any of the matters presented at the Annual Meeting unless it receives voting instructions from you with respect to these matters. Any matter presented at the Annual Meeting with respect to which a broker, bank or other nominee does not have voting instructions from you will be counted for determining the quorum at the Meeting, but will be considered as not voting on a particular matter.

Could other matters be decided at the Annual Meeting?

CombinatoRx does not know of any other matters that may be presented for action at the Annual Meeting. Should any other business come before the meeting, the persons named on the enclosed proxy will have discretionary authority to vote the shares represented by such proxies in accordance with their best judgment. If you hold shares through a broker, bank or other nominee as described above, they will not be able to vote your shares on any other business that comes before the Annual Meeting unless they receive instructions from you with respect to such matter.

What happens if the meeting is postponed or adjourned?

Your proxy to management may be voted at the postponed or adjourned meeting. You will still be able to change your proxy until it is voted.

What does it mean if I receive more than one proxy card or voting instruction form?

It means that you have multiple accounts at the transfer agent or with brokers. Please complete and return all proxy cards or voting instruction forms to ensure that all of your shares are voted.

Who should I call if I have any additional questions?

If you hold your shares directly, please call Jason F. Cole, Secretary of the Company, at (617) 301-7000. If your shares are held in street name, please contact the telephone number provided on your voting instruction form or contact your broker or nominee holder directly.

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PROPOSAL 1: ELECTION OF DIRECTORS

In accordance with Delaware law and the By-laws, the Board of Directors is divided into three classes of approximately equal size. The members of each class are elected to serve a three-year term with the term of office of each class ending in successive years. Pursuant to the By-laws, the Board of Directors has fixed the number of directors at seven (7), effective at the time of the 2007 annual meeting. Richard Aldrich, Michael Kauffman and Richard Pops are the directors whose terms expire at this Annual Meeting and Sally Crawford, Michael Kauffman and Richard Pops have been nominated for election to the Board of Directors to serve until the 2010 Annual Meeting and until their successors are elected.

It is intended that, unless you give contrary instructions, shares represented by proxies solicited by the Board of Directors will be voted for the election of the three nominees listed below as directors. CombinatoRx has no reason to believe that any nominee will be unavailable for election at the Annual Meeting. In the event that one or more nominees is unexpectedly not available to serve, proxies may be voted for another person nominated as a substitute by the Board of Directors, or the Board of Directors may reduce the number of directors to be elected at the Annual Meeting. Information relating to each nominee for election as director and for each continuing director, including his or her period of service as a director of CombinatoRx, principal occupation and other biographical material is shown below.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE

FOR

EACH OF THESE NOMINEES FOR CLASS II DIRECTOR

(ITEM 1 ON YOUR PROXY CARD)

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DIRECTOR BIOGRAPHIES

CLASS II DIRECTOR NOMINEES	AGE	DIRECTOR SINCE
Sally W. Crawford—Ms. Crawford is a nominee for election as a Class II Director at our 2007 Annual Meeting of Stockholders. From April 1985 until January 1997, Ms. Crawford served as Chief Operating Officer of Healthsource, Inc., a publicly held managed care organization headquartered in New Hampshire. During her tenure at Healthsource, Inc., Ms. Crawford held a variety of positions and responsibilities, including leading that company’s Northern Region operations and marketing efforts. Since January 1997, Ms. Crawford has been a health care consultant in New Hampshire. Ms. Crawford serves on the board of directors for Cytyc Corporation, Exact Sciences Corporation and Chittenden Corporation.	53	New Nominee
Michael Kauffman M.D.—Dr. Kauffman is a Class II director who has served as a member of the CombinatoRx Board of Directors since June 2006. Dr. Kauffman is the President and Chief Executive Officer of EPIX Pharmaceuticals, Inc. Dr. Kauffman joined Predix Pharmaceuticals, Inc., the predecessor to EPIX, in September 2002. From 1997 to 2002, he held a number of senior medical and program leadership positions at Millennium Pharmaceuticals, Inc., including Vice President, Medicine and VELCADE Program Leader as well as co-founder and Vice President of Medicine at Millennium Predictive Medicine, a wholly-owned subsidiary of Millennium. Dr. Kauffman also served as Medical Director at Biogen Corporation (now Biogen Idec). Dr. Kauffman currently serves on the board of directors for EPIX and Bioenvision. Dr. Kauffman received an M.D. and Ph.D. in molecular biology and biochemistry from Johns Hopkins and holds a B.A. in biochemistry from Amherst College. He trained in Internal Medicine at Beth Israel Deaconess and Massachusetts General Hospitals. He is board certified in internal medicine.	43	June 2006
Richard Pops—Mr. Pops is a Class II director who has served as a member of the CombinatoRx Board of Directors since October 2001. Mr. Pops is the Chairman of the Board of Directors of Alkermes, Inc., a biotechnology company. Mr. Pops was the Chief Executive Officer of Alkermes from 1991 until 2007. He also serves on the board of directors for Neurocrine Biosciences, Inc. and Sirtris Pharmaceuticals, Inc. Mr. Pops holds a B.A. in economics from Stanford University.	45	October 2001

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CURRENT DIRECTORS	AGE	DIRECTOR SINCE
Richard Aldrich—Mr. Aldrich is a Class II director who has served as a member of the CombinatoRx Board of Directors since June 2003. Mr. Aldrich’s term as a Class II director expires at the 2007 annual meeting of stockholders and Mr. Aldrich has not been nominated for reelection to the Board of Directors. Since 2001, Mr. Aldrich has been a Managing Director of RA Capital, a fund he founded in 2001 to invest in small-cap public biotechnology companies. From 1989 to 2001, Mr. Aldrich was employed by Vertex Pharmaceuticals, Inc. where he served as the Senior Vice President and Chief Business Officer. Mr. Aldrich serves on the Board of Directors of Sirtris Pharmaceuticals, Inc. Mr. Aldrich holds a B.S. degree in management from Boston College and a MBA from the Tuck School of Business, Dartmouth College.	52	June 2003
Alexis Borisy—Mr. Borisy is a Class I director who has been the Company’s President and Chief Executive Officer since March 2000 and has been a director since March 2000. From 1998 to March 2000, Mr. Borisy was an independent industry consultant, working with senior executives at pharmaceutical and biotech companies in the areas of corporate strategy, portfolio management, and business development. Mr. Borisy holds an A.B. in chemistry from the University of Chicago and an A.M. in chemistry from Harvard University.	35	March 2000
Barbara Deptula—Ms. Deptula is a Class III director who has served as a member of the CombinatoRx Board of Directors since December 2005. Ms. Deptula has been the Executive Vice President of Business Development at Shire PLC since 2004. From 2003 to 2004 she served as President of the biotechnology division of Sicor, Inc., which was subsequently acquired by Teva Pharmaceuticals, Inc. Ms. Deptula also served as the Senior Vice President for commercial and product development at Coley Pharmaceutical Group, Inc. from 2000 to 2003. Ms. Deptula holds a B.S. in pharmacy from the University of Connecticut and an MBA in finance from the University of Chicago Business School.	52	December 2005
Patrick Fortune, Ph.D.—Dr. Fortune is a Class I director who has served as a member of the CombinatoRx Board of Directors since February 2004. Since 2001, Dr. Fortune has been a partner of Boston Millennia Partners, a venture capital firm. From 1999 to 2001, Dr. Fortune was President and Chief Operating Officer of New Era of Networks, Inc. Dr. Fortune serves on the board of directors of Parexel International Corporation and EPIX Pharmaceuticals, Inc. Dr. Fortune holds a B.S. in chemistry from the University of Wisconsin, a MBA from Northwestern University and a Ph.D. in physical chemistry from the University of Wisconsin.	60	February 2004

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CURRENT DIRECTORS	AGE	DIRECTOR SINCE
Frank Haydu—Mr. Haydu is a Class III director who has served as a member of the CombinatoRx Board of Directors since August 2004. Since 2001, Mr. Haydu has been the Managing Director of Valuation Perspectives, Inc., a financial services consulting practice, and since August 2005 has served in a consulting capacity at Source Precision Medicine, a life sciences medical supplier. Until May 2001, Mr. Haydu served as the Chairman of Haydu & Lind, LLC, a senior living development company. Mr. Haydu serves on the board of directors for Moldflow Corporation and iParty Corp. Mr. Haydu holds a B.A. in economics from Muhlenberg College.	59	August 2004

EXECUTIVE OFFICERS

The Company’s executive officers, as of April 20, 2007, their respective ages and their positions are as follows:

Name	Age	Position
Alexis Borisy A.M.	35	President and Chief Executive Officer
Robert Forrester, LL.B.	43	Executive Vice President and Chief Financial Officer
Daniel Grau, M.Phil.	40	Chief Operating Officer
Lynn Baird, Ph.D	59	Senior Vice President, Regulatory, Quality and Clinical Operations
Jason F. Cole, Esq.	34	Senior Vice President, General Counsel and Secretary
Curtis Keith, Ph.D.	36	Senior Vice President, Research

Alexis Borisy A.M. has served as President, Chief Executive Officer and Director of CombinatoRx since March 2000. From 1998 to March 2000 Mr. Borisy was an independent industry consultant, working with senior executives at pharmaceutical and biotech companies in the areas of corporate strategy, portfolio management, and business development. Mr. Borisy holds an A.B. in chemistry from the University of Chicago and an A.M. in chemistry from Harvard University.

Robert Forrester, LL.B. has served as our Executive Vice President and Chief Financial Officer since February 2004. Mr. Forrester served as Senior Vice President, Finance and Corporate Development at Coley Pharmaceutical Group from 2000 to September 2003. Mr. Forrester was a Managing Director of the proprietary investment group at MeesPierson, part of the Fortis Group, from 1994 to 2000. Prior to MeesPierson, Mr. Forrester worked for BZW, UBS and Clifford Chance LLP. Mr. Forrester holds a LL.B. from Bristol University.

Daniel Grau, M.Phil has served as our Chief Operating Officer since January 2007. During 2006, he was our Senior Vice President of Commercial Operations. From 2004 to 2005 he was our Vice President of Commercial Operations. From 2001 to 2004 he was our Vice President of Corporate Development and Strategy. Prior to joining us, Mr. Grau was a management consultant in the healthcare industry from 1998 to 2001, advising U.S. and Japanese pharmaceutical companies. Mr. Grau earned his B.A. in English Literature from Davidson College and holds a M.Phil. in philosophy from Yale University.

Lynn Baird, Ph.D. has served as our Senior Vice President, Regulatory, Quality and Clinical Operations since April 2006. Dr. Baird served as Senior Vice President Regulatory Affairs and Quality Systems and Senior Vice President of Development at Dyax Corp. from September 2001 to April 2006. Prior to Dyax, she was Vice President of Regulatory Affairs at Reprogenesis, Inc. and its successor Curis, Inc. Her previous experience also includes positions at CytoTherapeutics, Inc., Johnson and Johnson and Creative BioMolecules. Dr. Baird received her Ph.D. in microbiology and immunology from Virginia Commonwealth University and a M.S. in Chemistry and a B.S. in psychology from Virginia Polytechnic Institute.

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Jason F. Cole, Esq. has served as our Senior Vice President, General Counsel and Secretary since January 2006. From 1999 to 2006, Mr. Cole was a corporate and securities attorney at Ropes & Gray LLP. Mr. Cole earned his A.B. in Government from Dartmouth College and holds a J.D. from Columbia University School of Law.

Curtis T. Keith, Ph.D. has served as our Senior Vice President of Research since December 2004. From 2000 to 2004, he was our Vice President of Research. Prior to his employment with us, he completed his Ph.D. in chemistry and chemical biology from Harvard University. Dr. Keith also holds a B.Sc. in biochemistry from McGill University in Canada.

THE BOARD OF DIRECTORS AND ITS COMMITTEES

Director Independence

As required by the listing standards of the Nasdaq Stock Market (“Nasdaq”), the Board of Directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each of Messrs. Aldrich, Fortune, Haydu, Kauffman and Pops and Ms. Crawford and Ms. Deptula are “independent” within the meaning of the rules and regulations of Nasdaq. To make this determination, our Board of Directors reviews all relevant transactions or relationships between each director, and CombinatoRx, its senior management and its independent auditors. During this review, the Board considers whether there are any transactions or relationships between directors or any member of their immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder) and members of our senior management or their affiliates. The Board consults with the Company’s general counsel and corporate counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent Nasdaq listing standards, as in effect from time to time. Messrs. Aldrich, Fortune, Haydu, Kauffman and Pops and Ms. Crawford and Ms. Deptula do not have any relationships with CombinatoRx other than being a director and/or a shareholder of CombinatoRx. Each of the independent directors will be designated as a “Non-Management Director” since none of the independent directors are officers of CombinatoRx or any of its affiliates. Mr. Borisy, our President and Chief Executive Officer, is not “independent” within the meaning of the Nasdaq listing standards.

Board Meetings and Attendance

The Company’s Board of Directors held eight meetings during the fiscal year ended December 31, 2006. Each of the Company’s directors attended at least 75% of the meetings of the Board of Directors and the committees of the Board of Directors on which he or she served during the fiscal year ended December 31, 2006 (in each case, which were held during the period for which he or she was a director and/or a member of the applicable committee). CombinatoRx encourages its directors to attend the Annual Meetings of Stockholders and believes that attendance at the Annual Meeting of Stockholders is just as important as attendance at meetings of the Board of Directors and its committees. CombinatoRx typically schedules Board of Directors and committee meetings to coincide with the dates of its Annual Meetings. All of the members of the Board of Directors attended the 2006 Annual Meeting of the Stockholders held on June 1, 2006.

Board Committees

The Board of Directors has a standing Audit, Compensation and Corporate Governance and Nominating Committee, each of which is comprised solely of independent directors, and is described more fully below. The charters for the Audit, Compensation and Corporate Governance and Nominating Committee are all available on our website (www.combinatorx.com) under “Investors” at “Corporate Governance.”

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Audit Committee

Mr. Frank Haydu is the chairperson and Dr. Patrick Fortune and Dr. Michael Kauffman are the other members of the Company’s Audit Committee. Mr. Jacob Goldfield was a member of the Audit Committee until his resignation from the Board of Directors in April 2006. The Board of Directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each member of the Company’s Audit Committee, each of whom is a Non-Management Director, is “independent” within the meaning of the rules and regulations of Nasdaq. Furthermore, as required by the rules and regulations of the Securities and Exchange Commission (the “SEC”), no member of the Audit Committee receives, directly or indirectly, any consulting, advisory, or other compensatory fees from CombinatoRx other than Board and Committee fees and grants of stock options. The Board of Directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that Mr. Haydu is an “audit committee financial expert” within in the meaning of the rules and regulations of the SEC. The Audit Committee operates pursuant to a written charter.

The primary purposes of the Company’s Audit Committee are to: (a) assist the Board of Directors in its oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the qualifications and independence of the Company’s independent auditors, and (iv) the performance of the Company’s internal audit function and independent auditors; (b) appoint, evaluate, compensate, retain and oversee the Company’s independent auditors and the audit process (including receiving and reviewing reports from the independent auditors and resolving any disagreements between management and the independent auditors regarding financial reporting) and to approve or pre-approve all audit, audit-related and other services, if any, to be provided by the independent auditors; (c) review with management, internal auditors and the independent auditors, the Company’s internal controls and its financial and critical accounting practices; and (d) prepare the report required to be prepared by the Audit Committee pursuant to the rules of the SEC for inclusion in the Company’s annual proxy statement. The Audit Committee and the Board of Directors have established procedures for the receipt, retention, and treatment of complaints received by CombinatoRx regarding accounting, internal accounting controls, or auditing matters and for confidential, anonymous submission by CombinatoRx employees of concerns regarding questionable accounting or auditing matters, which are described under “Policies on Reporting Concerns Regarding Accounting and Other Matters and on Communicating with Non-Management Directors.” The Audit Committee also has the authority to hire independent counsel and other advisors to carry out the Audit Committee’s duties, and CombinatoRx is required to provide appropriate funding, as the Audit Committee determines, to compensate the independent auditors and any advisors retained by the Audit Committee.

During the fiscal year ended December 31, 2006, the Audit Committee met seven times. The report of the Audit Committee is included in this Proxy Statement under “Report of the Audit Committee.”

Compensation Committee

Mr. Richard Pops is the chairperson and Ms. Barbara Deptula and Dr. Fortune are the other members of the Company’s Compensation Committee. Dr. Christopher Moller was a member of the Compensation Committee until his resignation from the Board of Directors in February 2006. The Board of Directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each member of the Company’s Compensation Committee is “independent” within the meaning of the rules and regulations of  Nasdaq. The primary purposes of the Company’s Compensation Committee are to: (a) review and approve corporate goals and objectives relevant to compensation of the Company’s Chief Executive Officer and the other executive officers and evaluate the performance of the Chief Executive Officer and the other executive officers in light of these goals and objectives, and based on such evaluation, make recommendations to the Board of Directors for the compensation of the Company’s Chief Executive Officer and the other executive officers; (b) make recommendations to the Board of

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Directors with respect to the administration and amendment to the Company’s incentive compensation and equity-based compensation plans that are subject to the approval of the Board of Directors; (c) assist the Board of Directors in its oversight of the development, implementation and effectiveness of the Company’s policies and strategies relating to recruiting, retention, career development and progression, succession and employment practices; (d) make recommendations regarding compensation of the Board of Directors, and (e) prepare the report required to be prepared by the Compensation Committee pursuant to the rules of the SEC for inclusion in the Company’s annual proxy statement. The Compensation Committee also has the authority to retain consultants or other experts to assist in the assessment of senior executive compensation and to hire independent counsel and other advisors to carry out the Compensation Committee’s duties.

During the fiscal year ended December 31, 2006, the Company’s Compensation Committee met eight times. The report of the Compensation Committee is included in this Proxy Statement under “Compensation Committee Report.”

Corporate Governance and Nominating Committee

Mr. Richard Aldrich is the chairperson, and Ms. Deptula and Mr. Haydu are the other members of the Company’s Corporate Governance and Nominating Committee. Mr. Douglas Cole was a member of the Corporate Governance and Nominating Committee until his resignation from the Board of Directors in June 2006. The Board of Directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each member of the Company’s Corporate Governance and Nominating Committee is “independent” within the meaning of the rules and regulations of  Nasdaq.

The primary purposes of the Corporate Governance and Nominating Committee are to: (a) recommend individuals to the Board of Directors for nomination, election or appointment as members of the Board of Directors and its committees, consistent with the criteria included in the Company’s Corporate Governance Guidelines; (b) establish policies for stockholders to recommend candidates for consideration for nomination as a member of the Board of Directors; (c) oversee the evaluation of the performance of the Board of Directors; (d) oversee the Chief Executive Officer’s and other senior management’s succession plans; and (e) take a leadership role in shaping the Company’s corporate governance, including developing and reviewing on an on-going basis the Corporate Governance Guidelines. In identifying and recommending nominees for positions on the Board of Directors, the Corporate Governance and Nominating Committee places primary emphasis on the criteria set forth under “Selection and Composition of Board of Directors” in the Company’s Corporate Governance Guidelines, namely: (1) ethics, integrity, values, expertise, skills and knowledge useful to the oversight of the Company’s business; (2) the independence standards of  Nasdaq, (3) diversity of viewpoints, backgrounds, experiences and other demographics; (4) business or other relevant experience, particularly in the areas of accounting and finance, management, corporate governance and the pharmaceutical and drug development industry; and (5) the extent to which the interplay of the nominee’s expertise, skills, knowledge and experience with that of the other members of the Board of Directors will build a Board of Directors that is effective, collegial and responsive to the operations and interests of CombinatoRx.

The Corporate Governance and Nominating Committee does not set specific, minimum qualifications that nominees must meet in order to be recommended to the Board of Directors, but rather believes that each nominee should be evaluated based on his or her individual merits, taking into account the needs of CombinatoRx and the composition of the Board of Directors. Members of the Corporate Governance and Nominating Committee discuss and evaluate possible candidates in detail and suggest individuals to explore in more depth. Once a candidate is identified whom the Committee want to seriously consider and move toward nomination, the Chairperson of the Corporate Governance and Nominating Committee enters into a discussion with that candidate.

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The Corporate Governance and Nominating Committee will consider candidates recommended by stockholders. The policy adopted by the Corporate Governance and Nominating Committee provides that candidates recommended by stockholders are given appropriate consideration in the same manner as other candidates. Stockholders who wish to submit candidates for director for consideration by the Corporate Governance and Nominating Committee for election at the Company’s 2008 Annual Meeting of Stockholders may do so by submitting in writing such candidates’ names, in compliance with the procedures and along with the other information required by the Company’s By-laws, to Jason F. Cole, Secretary, CombinatoRx, Incorporated, 245 First Street, Sixteenth Floor, Cambridge, Massachusetts  02142 for receipt between March 2 and April 1, 2008.

During fiscal year ended December 31, 2006, the Corporate Governance and Nominating Committee met five times.

Non-Management Director Meetings

In addition to the meetings of the committees of the Board of Directors described above, in connection with the Board of Directors meetings, the Company’s non-management directors met four times in executive session during the fiscal year ended December 31, 2006. A rotating member of the Board of Directors presided at these executive sessions. The Audit Committee and the Board of Directors have established a procedure whereby interested parties may make their concerns known to Non-Management Directors, which is described under “Policies on Reporting Concerns Regarding Accounting and Other Matters and on Communicating with Non-Management Directors.”

AUDIT COMMITTEE REPORT (1)

The Audit Committee has reviewed the Company’s audited financial statements for the fiscal year ended December 31, 2006 and has discussed these statements with management and Ernst & Young LLP, the Company’s independent registered public accounting firm. The Company’s management is responsible for the preparation of the Company’s financial statements and for maintaining an adequate system of disclosure controls and procedures and internal control over financial reporting for that purpose. Ernst & Young LLP is responsible for expressing an opinion on the conformity of the audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. The Audit Committee is responsible for providing independent, objective oversight of the Company’s accounting functions and internal controls.

The Audit Committee also received from, and discussed with, Ernst & Young LLP the written disclosures and other communications that the Company’s independent registered public accounting firm is required to provide to the Audit Committee, including the matters required to be discussed by Statement on Auditing Standards 61 (Communication with Audit Committees), which we refer to as SAS 61. SAS 61 (as codified in AU Section 380 of the Codification of Statements on Auditing Standards) requires our independent registered public accounting firm to discuss with the Audit Committee, among other things, the following

·methods to account for significant unusual transactions;

·the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus;

·the process used by management in formulating particularly sensitive accounting estimates and the basis for the independent registered public accounting firm’s conclusions regarding the reasonableness of those estimates; and

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·disagreements with management regarding financial accounting and reporting matters and audit procedures.

Ernst & Young LLP also provided the Audit Committee with the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). Independence Standards Board Standard No. 1 requires independent registered public accounting firms annually to disclose in writing all relationships that in their professional opinion may reasonably be thought to bear on independence, to confirm their perceived independence and engage in a discussion of independence. The Audit Committee has reviewed this disclosure and has discussed with Ernst & Young their independence from CombinatoRx.

Based on its discussions with management and our independent registered public accounting firm, and its review of the representations and information provided by management and our independent registered public accounting firm, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the Securities and Exchange Commission.

Respectfully submitted by the

Audit Committee,

Frank Haydu, Chairperson

Patrick Fortune

Michael Kauffman

(1)This Section is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any filing of CombinatoRx under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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COMPENSATION DISCUSSION AND ANALYSIS

This section discusses the principles underlying our executive compensation decisions and the most important factors relevant to an analysis of these decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by our executive officers and places in perspective the data presented in the tables and other quantitative information that follows this section.

Compensation Committee

As described in the “Board Committees—Compensation Committee” section above, the purpose of the CombinatoRx Compensation Committee is to develop and review compensation policies and practices applicable to executive officers, review and recommend goals for the Chief Executive Officer and evaluate his performance in light of these goals, review and evaluate goals and objectives for other officers, oversee and evaluate the Company’s equity incentive plans and review and approve the creation or amendment of such plans and make recommendations to the Board of Directors regarding Board of Directors’ compensation. Under its charter, the Compensation Committee has the power and authority to retain consultants or other experts to assist in the assessment of senior executive compensation and to hire independent counsel and other advisors to help the Compensation Committee carry out its duties.  CombinatoRx is financially responsible for the fees of any advisor or consultant engaged by the Compensation Committee.

Mr. Pops, as chairman of the Compensation Committee, is responsible for setting the agenda for meetings in consultation with management. Our Compensation Committee annually evaluates the performance, and determines the compensation, of the Chief Executive Officer and the other executive officers of CombinatoRx based upon a review of the performance of the Company and a review of each of their individual performances compared to predetermined goals and objectives. The Compensation Committee also compares the salaries of each CombinatoRx executive officer with a select group of other biotechnology companies to assess how their total compensation package compares to industry averages.

Our Chief Executive Officer has the authority and responsibility to establish and approve compensation for all CombinatoRx employees, other than CombinatoRx executive officers. Our Compensation Committee retains the authority for establishing all matters with respect to the compensation of our executive officers. Our Chief Executive Officer provides to the Compensation Committee an annual performance review of each executive officer, which the Compensation Committee considers in its determination of compensation for such individuals. Our Chief Executive Officer and Chief Financial Officer also recommend to the Compensation Committee options and restricted stock awards to be granted to existing employees, subject to specific criteria previously established by the Compensation Committee. From time to time, to Compensation Committee has delegated to the Chief Executive Officer, Chief Financial Officer and Senior Vice President and General Counsel the authority to make grants of a limited pool of stock options to new employees or for retention purposes, as long as such grants are not greater than 30,000 shares of common stock and are not made to executive officers. All other grants of stock options and restricted stock are made by the Compensation Committee.

Compensation Consultant

In the fourth quarter of 2006, our Compensation Committee retained the services of Watson Wyatt, a compensation consulting firm, to evaluate our executive officers’ salaries, cash incentive bonuses and equity-based compensation and provide a report to the Compensation Committee.  This evaluation included benchmarking executive compensation against that of 27 comparable newly public or small capitalization biotechnology companies, including Acadia Pharmaceuticals Inc., Alexza Pharmaceuticals, Inc., Alnylam Pharmaceuticals, Inc., Altus Pharmaceuticals Inc., Ariad

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Pharmaceuticals, Inc., Coley Pharmaceutical Group, Inc., CoTherix, Inc., Cypress Bioscience Inc., Cytokinetics, Inc., Dyax Corp., Exelixis Inc., Idenix Pharmaceuticals, Inc., Indevus Pharmaceuticals, Inc., Metabasis Therapeutics, Inc., Momenta Pharmaceuticals, Inc., Novacea, Inc., Oscient Pharmaceuticals Corporation, Panacos Pharmaceuticals, Inc., Renovis, Inc., Santarus, Inc., Senomyx, Inc., Somaxon Pharmaceuticals, Inc., Sunesis Pharmaceuticals, Inc., Tercica, Inc.,  Threshold Pharmaceuticals, Inc., Viacell, Inc. and Vical Incorporated. The group of peer companies was determined based upon an analysis of various factors such as geographic location, similar  stage of clinical development programs, comparable employee headcount, market capitalization, revenue and net loss.  Our Compensation Committee realizes that benchmarking the Company’s compensation against the compensation earned at comparable companies may not always be appropriate, but believes that engaging in a comparative analysis of the Company’s compensation practices is useful at this point in the life cycle of the Company. This report indicated that the Company’s compensation of its executive officers was at or near the median of executives with similar roles at comparable recently public and small-capitalization biotechnology companies.

Roles of Executives in Establishing Compensation

At the direction of the Compensation Committee, our Chief Financial Officer and our General Counsel discussed with Watson Wyatt the duties of each executive officer of CombinatoRx and provided Watson Wyatt with complete historical compensation information requested by Watson Wyatt as part of its evaluation of the Company’s executive compensation programs and policies. The information included each executive officer’s title, salary, bonus, option and restricted stock grants and benefits for the preceding three-year period. Our Chief Executive Officer, Chief Financial Officer and General Counsel met with the members of the Compensation Committee, to review their performance and the performance of the other executive officers during the year. During these meetings, our Chief Executive Officer and our Chief Financial Officer discussed with the members of the Compensation Committee recommendations regarding the salaries and bonuses to be paid to the executive officers of CombinatoRx for the fiscal year ended December 31, 2006 as well as proposed stock option grants.

At its January 17, 2007, meeting and after receipt of the recommendations of our Chief Executive Officer and Chief Financial Officer and the Watson Wyatt evaluation, the Compensation Committee met in executive session with no members of management present.  During this meeting, the Compensation Committee reviewed Watson Wyatt’s evaluation of executive compensation and the recommendations of our Chief Executive Officer and Chief Financial Officer and determined the base salaries for each executive officer of CombinatoRx for 2007, established the target cash bonus compensation plan for 2007, and determined the amount of stock options to be awarded to certain executive officers and other CombinatoRx employees.

Compensation Philosophy and Executive Compensation Policies

The CombinatoRx executive compensation program is designed to reward, attract, retain and motivate experienced, industrious and well-qualified executive officers who will promote the Company’s research, product development, business development and financial  efforts and provide long-term shareholder value. In establishing executive compensation levels, the Compensation Committee is guided by a number of considerations. Because CombinatoRx is in the process of developing its portfolio of product candidates, and due to the volatile nature of biotechnology stocks, the Compensation Committee believes that traditional performance criteria, such as net income, profit margins and share price are inappropriate for evaluating and rewarding the efforts of the CombinatoRx executive officers. Rather, the Compensation Committee bases executive compensation on the achievement of certain research, product development, corporate partnering, financial, strategic planning and other goals of the Company and the executive officers. In establishing compensation levels, the Compensation Committee also evaluates each

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officer’s individual performance using certain objective and subjective criteria, which may vary for each executive officer based on his business group or area of responsibility. Objective criteria may include continued innovation in the discovery and advancement of new product candidates, development and progress towards commercialization of our product candidates, implementation of financing strategies and establishment of strategic development collaborations with third parties, and meeting pre-clinical or clinical milestone objectives. Subjective performance criteria may include an executive officer’s ability to motivate others, develop the skills necessary to facilitate the growth of CombinatoRx as it matures, recognize and pursue new business opportunities and initiate programs to enhance the Company’s growth and success. The Compensation Committee also considers the Company’s overall long-term and short-term performance when establishing compensation parameters. In making its evaluations, the Compensation Committee consults on an informal basis with other members of the Board of Directors and, with respect to officers other than the Chief Executive Officer, reviews the recommendations of the Chief Executive Officer.

In setting compensation policies and determining compensation levels, the Compensation Committee also recognized and takes into account the high demand for well-qualified personnel in the biotechnology industry. Given such demand, the Compensation Committee strives to maintain total compensation levels which are competitive with the compensation of other executives in the biotechnology and pharmaceutical industry. To that end, the Compensation Committee reviews data obtained from a generally available outside survey of compensation and benefits in the biotechnology industry prepared by Radford Consulting, an internally prepared survey based on peer biotechnology companies’ proxy statements, the benchmarking information provided by Watson Wyatt and personal knowledge regarding executive compensation at comparable companies.

The Compensation Committee believes that stock ownership by management is beneficial in aligning management’s and shareholders’ interests in the enhancement of shareholder value. Accordingly, the Compensation Committee to date has sought to provide a significant portion of total executive compensation in the form of stock options and restricted stock grants. The Compensation Committee has not, however, targeted a range or specific number of options for each executive position. Rather, it makes its decisions based on its evaluation of the above-mentioned surveys and the general experience of the Compensation Committee members.

Key Elements of Compensation

The major elements of the CombinatoRx compensation program are base salary, annual cash incentive and stock options and restricted stock grants. We fix the base salary of each of our executives at a level we believe enables us to hire and retain individuals in a competitive environment and rewards individual performance and contribution to our overall business goals. We designed the cash incentive bonuses for each of our executives to focus them on achieving key clinical, operational and/or financial objectives within a yearly time horizon, as described in more detail below. We use stock options and restricted stock grants to reward long-term performance, to incent executive officers to attain multi-year goals and as retention tools. These stock options and restricted stock awards are intended to produce significant value for each executive if the Company’s performance is outstanding and if the executive has an extended tenure.

We view the three components of our executive compensation as related but distinct. Although our Compensation Committee does review total compensation, we believe that components must work together to enable the creation of shareholder value over both short and long term periods. We determine the appropriate level for each compensation component based in part, but not exclusively, on our view of internal equity and consistency, individual performance and other information we deem relevant, such as the survey data and Watson Wyatt report referred to above. We believe that, as is common in the biotechnology sector, stock option and other equity awards are the primary motivator in attracting and

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retaining executives and that salary and cash incentive bonuses are secondary considerations. Except as described below, our Compensation Committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of compensation. This is due to the small size of our executive team and the need to tailor each executive’s award to attract and retain that executive.

Our Compensation Committee’s current intent is to perform annually a strategic review of our executive officers’ cash compensation and share and option holdings to determine whether they provide adequate incentives and motivation to our executive officers to meet company goals and provide value to shareholders and whether they adequately compensate our executive officers relative to comparable officers in other companies. Our Compensation Committee’s most recent review occurred in December 2006, and utilized the report from Watson Wyatt. Compensation Committee meetings typically have included, for all or a portion of each meeting, not only the committee members but also our Chief Executive Officer, our Chief Financial Officer, our Director of Human Resources and our General Counsel, who acts as Secretary for the meetings. For compensation decisions, including decisions regarding the grant of equity compensation relating to executive officers (other than our Chief Executive Officer), the Compensation Committee typically considers the recommendations of our Chief Executive Officer.

We account for the equity compensation expense for our employees under the rules of SFAS 123R, which requires us to estimate and record an expense for each award of equity compensation over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.

Under Section 162(m) of the Internal Revenue Code, publicly held corporations may be prohibited from deducting as an expense for federal income tax purposes total compensation in excess of $1 million paid to certain executive officers in a single year. However, until we achieve sustained profitability, the availability to us of a tax deduction for compensation expense is not material to our financial position. Section 162(m) provides an exception for qualifying “performance-based” compensation, including compensation attributable to certain stock options. The Company expects to keep “nonperformance-based” compensation within the $1 million limit in order that all executive compensation will be fully deductible; however, the valuation of stock option and restricted stock grants in the future is uncertain and may cause nonperformance-based compensation to exceed the deductibility limit. Although the Compensation Committee considers the net cost to the Company in making all compensation decisions (including, for this purpose, the potential limitation on deductibility of executive compensation), there is no assurance that compensation realized with respect to any particular award will qualify as “performance-based” compensation. It is not anticipated that any executive officer’s annual compensation will exceed $1 million, and the Company has accordingly not made any plans to qualify for any compensation deductions under Section 162(m) of the Internal Revenue Code.

Base Salary

The Compensation Committee seeks to establish base salaries which are competitive for each position and level of responsibility with those of executive officers at various other biotechnology companies of comparable size and stage of development. As part of this process, the Compensation Committee takes into account the base salaries paid by similarly situated companies in the field of biotechnology and the base salaries of other private and public companies with which we believe we compete for talent. Increases in annual salaries are based on demonstrated levels of core job competency, effectiveness in performing essential job requirements and competitive base salary position compared to the relevant market. The Compensation Committee does not use a specific formula based on these criteria but instead makes an evaluation of each executive officer’s contributions in light of all such criteria.

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Discretionary Cash Bonus

The Compensation Committee believes that discretionary cash bonuses are useful on a case by case basis to motivate and reward executive officers. Bonuses for executive officers are not guaranteed, but to date have been awarded from time to time, generally annually, only at the discretion of the Compensation Committee. Cash bonuses are used to bring annual cash compensation into a competitive range with comparable positions at comparable companies and to reward high performance. In the past, criteria for bonuses for executive officers ranged from success in conducting clinical trials, entering into new collaboration agreements, progress with research and preclinical development or success in attracting capital.

Each year the Compensation Committee establishes a target bonus amount for each executive based on achievement of corporate goals and individualized objective and subjective criteria. These criteria are established by the Compensation Committee and approved by the full Board of Directors on an annual basis, and include specific objectives relating to the achievement of clinical, research, regulatory, business and/or financial milestones. The achievement of these objectives by CombinatoRx and its executive officers and their relative weightings are relevant to the Compensation Committee’s decision-making with respect to overall compensation, but are not the sole basis for the Compensation Committee’s determination of executive compensation.

The approved CombinatoRx corporate goals for bonus and other compensation for 2006 included: (i) selecting product candidates to be advanced into phase 2b clinical trials, (ii) completing a number of ongoing clinical trials, (iii) selecting new product candidates to enter clinical trials, (iv) advancing new pre-clinical product candidates into significant non-clinical testing, (v) developing commercial formulation prototypes for phase 2b product candidates, (vi) financial goals around year-end cash, cash equivalents and short-term investment balances and (vii) entry into significant new business development or collaboration agreements.

In determining bonus and other compensation of executive officers for 2006, the Compensation Committee determined that these corporate goals were met or exceeded in the aggregate, and in the case of certain executive officers, that their individual goals were met or exceeded, resulting in the bonus compensation disclosed in the Summary Compensation Table below.

The approved CombinatoRx corporate goals for bonus and other compensation for 2007 are consistent with the CombinatoRx 2007 goals disclosed to shareholders in January 2007:

·Advancing our product pipeline with two product candidates moving into later-stage clinical development, which are planned to be CRx-102 in rheumatoid arthritis and osteoarthritis and CRx-170 in chronic pain;

·Refreshing our product candidate pipeline with three new product candidates dosed in human clinical trials, which are planned to be CRx-191 and CRx-197 in topical dermatology and  CRx-401 in Type 2 diabetes;

·Reloading the late-preclinical product candidate pipeline from our research programs;

·Introducing next-generation product candidates;

·Maintaining the Company’s financial strength by achieving the following financial milestones for the fiscal year ended December 31, 2007:

·Revenue of between $13 million and $15 million;

·Net loss (excluding SFAS 123R expenses) of between $48 million and $53 million; and

·Cash, cash equivalents, short-term investments and restricted cash of between $70 million and $80 million.

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Each of these goals have separate minimum, target and maximum achievement levels, which constitute confidential commercial or financial information of CombinatoRx, which if disclosed, could cause competitive harm to CombinatoRx. In addition, individual objective and subjective goals and criteria for each of the CombinatoRx executive officers other than the Chief Executive Officer have been determined by the Chief Executive Officer. The target cash incentive bonus amount for each of the executive officers named in the Summary Compensation Table below in 2007 is as follows:

·Alexis Borisy, President and Chief Executive Officer: up to 50% of base salary

·Robert Forrester, Executive Vice President and Chief Financial Officer: up to 40% of base salary

·Daniel Grau, Chief Operating Officer: up to 40% of base salary

·Curtis Keith, Senior Vice President, Research: up to 30% of base salary

Stock Options and Restricted Common Stock Awards

Grants of stock options and awards of restricted common stock under the CombinatoRx equity compensation plans are designed to align the long-term interests of our executives with CombinatoRx shareholders and to assist in the retention of executives. As stock options granted by the Company generally become exercisable over a four-year period and forfeiture provisions with respect to restricted common stock awards generally lapse over a four-year period, their ultimate value is dependent upon the long-term appreciation of the Company’s stock price and the executive’s continued employment with the Company. In addition, grants of stock options and awards of restricted common stock may result in an increase in executive officers’ equity interests in the Company, thereby providing such persons with the opportunity to share in the future value they are responsible for creating.

When granting stock options and awarding restricted common stock, the Compensation Committee considers the relative performance and contributions of each executive officer compared to that of other officers within the Company with similar levels of responsibility. The number of options and awards granted to each executive officer is generally determined by the Compensation Committee on the basis of data obtained from a generally available outside survey of stock option grants and restricted common stock awards in the biotechnology industry, an internally prepared survey of peer biotechnology companies’ proxy statements, the benchmarking information provided by Watson Wyatt and personal knowledge of the Compensation Committee members regarding executive stock options and restricted common stock awards at comparable companies.

The authority to make equity grants and cash bonus awards to executive officers rests with our Compensation Committee, although, as noted above, the Compensation Committee does consider the recommendations of its Chief Executive Officer in setting the compensation of our other executives and from time-to-time the Compensation Committee has delegated to the Chief Executive Officer, Chief Financial Officer and General Counsel the authority to make grants of a limited pool of stock options to new employees or for retention purposes, as long as such grants are not greater than 30,000 shares of common stock and are not made to executive officers and are reported to the Compensation Committee at the first meeting subsequent to effecting such grants. All of our option grants made prior to our initial public offering, including all grants to executives, were made under our Amended and Restated 2000 Stock Option Plan. All of our stock option and restricted stock grants to our executive officers since our initial public offering have been made under our Amended and Restated 2004 Equity Incentive Plan. Beginning with our initial public offering on November 9, 2005, we determined the exercise price of our stock option grants based on the average of the high and low sale prices of our common stock on the the Nasdaq Global Market on the date of grant.  As of September 5, 2006, we determine the exercise price of our stock option grants based on the closing market value of our common stock as reported on the Nasdaq Global Market

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on the date of grant. The value of the shares subject to our 2006 option grants to executive officers is reflected in the “Summary compensation table” and “Grants of plan-based awards” tables below.

We do not have any program, plan or obligation that requires us to grant equity or bonus compensation to any executive on specified dates. The Compensation Committee has adopted and maintained a practice to award stock options only at specific times in order to avoid any claim that grants to executive officers were initiated during periods potentially advantageous to them. During its January meeting, the Compensation Committee grants stock options to a broad group of employees, including executive officers, in amounts determined by the Compensation Committee. At its July meeting, the Compensation Committee makes grants to the executive officers and to certain employees who have performed at a high level and deserve recognition. Other than the annual grants described above, the Compensation Committee will only consider additional grants for new employees, employees who are promoted or granted additional responsibilities or, more rarely, employees who have performed at a level that warrants recognition.

On January 17, 2007, the following executive officers named in the Summary Compensation Table below in 2007 were granted stock options with an exercise price of $8.79 per share:

·Alexis Borisy, President and Chief Executive Officer: 150,000 shares of common stock

·Robert Forrester, Executive Vice President and Chief Financial Officer: 90,000 shares of common stock

·Daniel Grau, Chief Operating Officer: 50,000 shares of common stock

·Curtis Keith, Senior Vice President, Research: 56,250 shares of common stock

Severance and Change in Control Benefits

Each of our executive officers has entered into a written employment agreement with CombinatoRx and has a provision in his or her employment agreement providing for certain severance benefits in the event of termination without cause, as well as a provision providing for the acceleration of his or her then unvested options in the event of termination without cause following a change in control of the Company. These severance and acceleration provisions are described in the “Employment Agreements” section below, and certain estimates of these change of control benefits are provided in “Estimated Payments and Benefits Upon Termination” below.

Our original employment agreements with Mr. Borisy, Mr. Forrester, Mr. Grau, Dr. Lessem and Dr. Keith were approved by our Board of Directors and entered into at various times prior to our initial public offering. As a result, the specific termination, severance, change-in-control and other terms of these agreements vary in a number of ways. The terms of these agreements resulted primarily from the need to attract the particular executive to work for CombinatoRx while it was a private company, or to retain the particular executive over the course of employment with CombinatoRx as the company grew and its business needs changed.  Renewals of the agreements with Dr. Lessem and Dr. Keith after their expiration in 2006 and after our initial public offering were approved by the Compensation Committee to retain the services of these executives.

Our Board of Directors and its Compensation Committee determined that employment agreements with key executive officers are necessary and desirable to accomplish a variety of objectives. The employment agreements, other than Mr. Forrester’s and Dr. Lessem’s, contain change of control benefits that are structured on a “double-trigger” basis, meaning that before an executive officer can receive a change of control payment: (1) a change of control must occur and (2) within a specified period of such change of control, the executive officer’s employment must be terminated without cause. The employment agreements for Mr. Forrester and Dr. Lessem contain change of control benefits that are structured on a

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“single-trigger” basis, meaning that an executive officer can receive a change of control payment immediately upon the occurrence of a change of control. These provisions were included to motivate our executive officers to act in the best interests of the stockholders by removing the distraction of post change in control uncertainties faced by the executive officers with regard to his continued employment and compensation. We believe that the change of control provisions provided in the various executive officer employment agreements are attractive enough to maintain continuity and retention of key management personnel and is consistent with the Company’s compensation philosophy.

Each of Messrs. Forrester and Grau have agreed not to compete with us during the term of their employment and for a period of one year after their employment ends, and Mr. Borisy and Drs. Lessem and Keith have agreed not to compete with us during the term of his employment and for a period of two years thereafter. These provisions protect CombinatoRx from the executive officer resigning from CombinatoRx and using the essential scientific knowledge gained while working for CombinatoRx to compete against us.

Other Benefits

Our executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, group life and disability insurance and our 401(k) plan with matching contributions, in each case on the same basis as our other employees. There were no special benefits or perquisites provided to any executive officer in 2006, other than the payment of parking expenses for Messrs. Borisy, Forrester and Grau and Drs. Lessem and Keith.

Conclusion

The Compensation Committee will continue to develop, analyze and review its methods for aligning executive management’s long-term compensation with the benefits generated for shareholders. The Compensation Committee believes the idea of creating ownership in CombinatoRx helps align management’s interests with the interests of shareholders. The Compensation Committee has no pre-determined timeline for implementing new or ongoing long-term incentive plans. New plans are reviewed, discussed and implemented as the Compensation Committee feels it is necessary and/or appropriate as a measure to incentivize, retain and/or reward CombinatoRx executive officers.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors of CombinatoRx has reviewed and discussed with management the information contained in the Compensation Discussion and Analysis section of this Proxy Statement and recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE:

Richard Pops (Chairman)

Barbara Deptula

Patrick Fortune

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth all of the compensation awarded to, earned by, or paid to the Company’s “principal executive officer”, “principal financial officer” and the three other highest paid executive officers (our “named executive officers”) for the year ended December 31, 2006:

Name and Principal Position	Year	Salary ($)	Stock Awards ($)(1)			Option Awards ($)(2)		Non-Equity Incentive Plan Compensation ($)			All Other Compensation ($)			Total ($)
Alexis Borisy	2006	350,000		121,701	(4)		994,018		200,000	(5)		12,606	(6)	1,678,325
President and Chief
Executive Officer
Robert Forrester	2006	270,000		60,851	(7)		580,659		135,000	(5)		12,267	(6)	1,058,778
Executive Vice President
and Chief Financial Officer
Daniel Grau	2006	245,000		243,569	(8)		416,100		200,000	(5)		11,698	(6)	1,116,365
Chief Operating Officer
Jan Lessem, M.D., Ph.D.	2006	320,000		36,510	(9)		463,477		—			920,769	(6)	1,740,756
Former Chief													(10)
Medical Officer(3)													(11)
Curtis Keith, Ph.D.	2006	235,000		60,851	(12)		471,314		75,000	(5)		11,914	(6)	854,079
Senior Vice President,
Research

(1)Amount reflects the compensation cost for the year ended December 31, 2006 of the named executive officer’s awards of restricted common stock, calculated in accordance with SFAS 123(R). For purposes of this calculation, we have disregarded the estimate of forfeitures related to service-based vesting conditions. There can be no assurance that the SFAS 123(R) amounts will ever be realized by the executive. See notes 2 and 8 of “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K filed with the SEC on March 15, 2007 for a discussion of assumptions made by the Company in determining the grant date fair value and compensation costs of our equity awards.

(2)Amount reflects the compensation cost for the year ended December 31, 2006 of the named executive officer’s stock options, calculated in accordance with SFAS 123(R) and using a Black-Scholes valuation model for 2006 awards, using SFAS 123 for 2005 awards and using APB No. 25 for awards prior to 2005. For purposes of this calculation, we have disregarded the estimate of forfeitures related to service-based vesting conditions. There can be no assurance that the accounting compensation costs will ever be realized by the executive. See notes 2 and 8 of “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K filed with the SEC on March 15, 2007 for a discussion of assumptions made by the Company in determining the grant date fair value and compensation costs of our stock option grants.

(3)Dr. Lessem retired from employment with the Company, effective January 31, 2007.

(4)Represents the compensation expense incurred by us in fiscal year 2006 in connection with a grant of 50,000 shares of restricted common stock to Mr. Borisy on January 26, 2006, calculated in accordance with SFAS 123R.

(5)Bonus amounts for performance during the fiscal year ended December 31, 2006 were determined by the Compensation Committee on January 17, 2007 and paid in January 2007.

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(6)Amount represents payment of parking expenses, group term life, accidental death and dismemberment and disability insurance premiums, and matching contributions under our 401(k) plan for the year ended December 31, 2006 as follows:

Name	Parking			Insurance			401(k) Match
A. Borisy		$	2,790		$	1,016		$	8,800
R. Forrester		$	2,790		$	677		$	8,800
D. Grau		$	2,448		$	448		$	8,800
J. Lessem		$	2,448		$	703		$	8,800
C. Keith		$	2,448		$	666		$	8,800

(7)Represents the compensation expense incurred by us in fiscal year 2006 in connection with a grant of 25,000 shares of restricted common stock to Mr. Forrester on January 26, 2006, calculated in accordance with SFAS 123R.

(8)Represents the compensation expense incurred by us in fiscal year 2006 in connection with a grant of 50,000 shares of restricted common stock to Mr. Grau on January 26, 2006, calculated in accordance with SFAS 123R.

(9)Represents the compensation expense incurred by us in fiscal year 2006 in connection with a grant of 15,000 shares of restricted common stock to Dr. Lessem on January 26, 2006, calculated in accordance with SFAS 123R.

(10) Includes a $50,000 housing stipend.

(11) Includes the following amounts paid or payable to Dr. Lessem in connection with his cessation of employment on January 31, 2007: base salary continuation of $320,000, a one-time payment of $100,000, continued payment of medical and dental insurance premiums until July 31, 2008 with an estimated value of $10,022, accelerated vesting of stock options held by Dr. Lessem exercisable for 76,785 shares of the Company’s common stock, with incremental value to Dr. Lessem as of January 31, 2007 of $379,446 and accelerated vesting of 3,750 shares of restricted stock held by Dr. Lessem, with incremental value to Dr. Lessem as of January 31, 2007 of $31,350. Also includes a payment in the amount of $18,000 as a non-creditable retainer for services to be rendered by Dr. Lessem under a consulting agreement entered into between the Company and Dr. Lessem.

(12)Represents the compensation expense incurred by us in fiscal year 2006 in connection with a grant of 25,000 shares of restricted common stock to Dr. Keith on January 26, 2006, calculated in accordance with SFAS 123R.

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Grants of Plan-Based Awards

The following table shows information regarding grants of equity awards during the fiscal year ended December 31, 2006 to the Company’s named executive officers.

	Grant	Estimated Future Payouts Under Non-Equity Incentive Plan Awards		All Other Stock Awards: Number of Shares of Stock or Units			All Other Option Awards: Number of Securities Underlying Options			Exercise or Base Price of Option Awards			Grant Date Fair Value of  Stock and Option
Name	Date	Target ($)(1)		(#)			(#)			($/Sh)			Awards (2)
Alexis Borisy	—		175,000		—			—			—			—
President and Chief	1/26/06		—		50,000	(3)		—			—			$	524,500
Executive Officer	7/12/06		—		—			50,000	(4)		8.35	(5)		$	248,835
Robert Forrester	—		108,000		—			—			—			—
Executive Vice	1/26/06		—		25,000	(3)		—			—			$	262,250
President and Chief	7/12/06		—		—			25,000	(4)		8.35	(5)		$	124,418
Financial Officer
Daniel Grau	—		73,500		—			—			—			—
Chief Operating Officer	1/26/06		—		50,000	(6)		—			—			$	524,500
	7/12/06		—		—			18,750	(4)		8.35	(5)		$	93,313
Jan Lessem, M.D. Ph.D.	—		128,000		—			—			—			—
Former Chief Medical	1/26/06		—		15,000	(8)		—			—			$	157,350
Officer (7)	7/12/06		—		—			18,750	(4)		8.35	(5)		$	93,313
Curtis Keith, Ph.D.	—		70,500		—			—			—			—
Senior Vice President,	1/26/06		—		25,000	(3)		—			—			$	262,250
Research	7/12/06		—		—			18,750	(4)		8.35	(5)		$	93,313

(1)   Represents the target amount of each executive’s cash incentive bonus for 2006, as established by the Compensation Committee and described in “Compensation Discussion and Analysis” above.

(2)   Represents the fair value of each stock award or stock option as of the date it was granted, in accordance with SFAS 123(R) and using a Black-Scholes valuation model.

(3)   Subject to certain conditions specified in the relevant Restricted Stock Award Agreement, the restricted stock will vest with respect to 25% of the shares on January 26, 2007, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter. On January 17, 2007, the executive and the Company amended their Restricted Stock Award Agreement such that the restricted stock will vest with respect to 25% of the shares on January 26, 2007, with the remainder vesting in increments of 25% on each January 26 thereafter.

(4)   The options will vest with respect to 25% of the shares on July 12, 2007, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(5)   The fair value exercise price of this stock option grant was determined by the Company based on the average of the high and low sale prices of its common stock on the Nasdaq Global Market on the grant date. The closing price of the Company’s common stock on the grant date was $8.05.

(6)   Subject to certain conditions specified in the Restricted Stock Award Agreement between Mr. Grau and the Company, the restricted stock for Mr. Grau will vest with respect to 50% of the shares on January 26, 2007, with the remainder vesting in increments of 12.5% at the end of each three-month period thereafter. On January 17, 2007, Mr. Grau and the Company amended the Restricted Stock Award Agreement such that 100% of the restricted stock will vest on January 26, 2008.

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(7)   Dr. Lessem retired from employment with the Company, effective January 31, 2007.

(8)   Subject to certain conditions specified in the relevant Restricted Stock Award Agreement, the restricted stock will vest with respect to 25% of the shares on January 26, 2007, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

Outstanding Equity Awards at Fiscal Year-End

The following table shows grants of stock options and grants of unvested restricted stock awards outstanding on December 31, 2006, the last day of our fiscal year, to each of the named executive officers.

	Option Awards									Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
Alexis Borisy		—		—			—		—		50,000	(2)		433,000
President and Chief		25,714		0			0.8694		3/1/12		—			—
Executive Officer		57,143		0			0.875		6/27/13		—			—
		32,143		10,714	(3)		0.875		2/26/14		—			—
		98,571		98,572	(4)		1.3125		12/8/14		—			—
		50,000		150,000	(5)		8.21		12/15/15		—			—
		0		50,000	(6)		8.35		7/12/16		—			—
Robert Forrester		—		—			—		—		25,000	(2)		216,500
Executive Vice		114,257		53,572	(7)		0.875		2/26/14		—			—
President and Chief		47,857		47,857	(4)		1.3125		12/8/14		—			—
Financial Officer		21,875		65,625	(5)		8.21		12/15/15		—			—
		0		25,000	(6)		8.35		7/12/16		—			—
Daniel Grau		—		—			—		—		50,000	(8)		433,000
Chief Operating Officer		5,669		0			0.875		6/20/12		—			—
		10,715		0			0.875		6/27/13		—			—
		19,642		7,143	(3)		0.875		2/26/14		—			—
		22,501		25,714	(4)		1.3125		12/8/14		—			—
		1,484		16,328	(9)		1.3125		7/1/15		—			—
		27,500		82,500	(5)		8.21		12/15/15		—			—
		0		18,750	(6)		8.35		7/12/16		—			—
Jan Lessem, M.D, Ph.D.		—		—			—		—		15,000	(11)		129,900
Former Chief Medical		74,642		26,786	(12)		0.875		9/1/13		—			—
Officer (10)		40,000		40,000	(4)		1.3125		12/8/14		—			—
		14,375		43,125	(5)		8.21		12/15/15		—			—
		0		18,750	(6)		8.35		7/12/16		—			—
Curtis Keith, Ph.D.		—		—			—		—		25,000	(2)		216,500
Senior Vice President,		29,792		0			0.8694		5/3/11		—			—
Research		54,286		0			0.8694		3/1/12		—			—
		22,857		0			0.875		6/27/13		—			—
		21,428		7,143	(3)		0.875		2/26/14		—			—
		47,857		47,857	(4)		1.3125		12/8/14		—			—
		21,875		65,625	(5)		8.21		12/15/15		—			—
		0		18,750	(6)		8.35		7/12/16		—			—

(1)   The market value of the restricted stock awards is determined by multiplying the number of shares times $8.66, the closing price of our common stock on the Nasdaq Global Market on December 29, 2006, the last trading day of 2006.

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(2)   Subject to certain conditions specified in the relevant Restricted Stock Award Agreement, the restricted stock will vest with respect to 25% of the shares on January 26, 2007, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter. On January 17, 2007, the executive and the Company amended his Restricted Stock Award Agreement such that the restricted stock will vest with respect to 25% of the shares on January 26, 2007, with the remainder vesting in increments of 25% on each January 26 thereafter.

(3)   The option vested as to 25% of the shares on December 11, 2004, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(4)   The option vested as to 25% of the shares on December 8, 2005, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(5)   The option vested as to 25% of the shares on December 15, 2006, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(6)   The option vests as to 25% of the shares on July 12, 2007, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(7)   The option vested as to 25% of the shares on February 23, 2005, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(8)   Subject to certain conditions specified in the Restricted Stock Award Agreement between Mr. Grau and the Company, the restricted stock for Mr. Grau will vest with respect to 50% of the shares on January 26, 2007, with the remainder vesting in increments of 12.5% at the end of each three-month period thereafter. On January 17, 2007, Mr. Grau and the Company amended the Restricted Stock Award Agreement such that 100% of the restricted stock will vest on January 26, 2008.

(9)   The option vested as to 25% of the shares on July 1, 2006, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(10) Dr. Lessem retired from employment with the Company, effective January 31, 2007.

(11) Subject to certain conditions specified in the relevant Restricted Stock Award Agreement, the restricted stock will vest with respect to 25% of the shares on January 26, 2007, with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

(12) The option vested as to 6.25% of the shares on December 1, 2003 with the remainder vesting in increments of 6.25% at the end of each three-month period thereafter.

Option Exercises and Stock Vested

The following table shows the number of shares acquired upon exercise of options by each named executive officer during the year ended December 31, 2006. No shares of restricted stock held by named executive officers vested during the year ended December 31, 2006.

	Option awards
	Number of
	shares acquired		Value realized
Name	on exercise(#)		on exercise($)
Alexis Borisy		20,000		149,532
Robert Forrester		3,600		27,448
Daniel Grau		38,269		255,082
Jan Lessem M.D., Ph.D.		6,000		55,110
Curtis Keith, Ph.D.		21,636		160,752

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Option Repricings

The Company has not engaged in any option repricings or other modifications to any of its outstanding equity awards during fiscal year ended December 31, 2006.

Employment Agreements

We have entered into employment agreements with each of Alexis Borisy, our President and Chief Executive Officer, Robert Forrester, our Executive Vice President and Chief Financial Officer, Daniel Grau, our Chief Operating Officer, Jan Lessem, M.D., Ph.D., our former Chief Medical Officer and Curtis Keith, Ph.D., our Senior Vice President, Research. Termination for cause is generally defined in each of these employment agreement as (i) conviction of a felony, (ii) willful failure to perform, or gross negligence in the performance of the executive’s duties and responsibilities, which failure or negligence continues after 30 days’ notice setting forth the failure in reasonable detail, (iii) material breach of any provision of the employment agreement, which remains uncured thirty days after notice, or (iv) material fraudulent conduct by the executive with respect to CombinatoRx. Good reason is defined in Mr. Borisy’s and Mr. Forrester’s employment agreements as (i) material breach by CombinatoRx of any of the material provisions of the employment agreement, including reduction in the executive’s base salary or in his position, duties responsibilities or authority, or (ii) relocation of the employee’s place of employment to a point beyond a 35-mile radius of the Company’s then current office. In the employment agreements for Messrs. Borisy, Forrester and Grau and Dr. Keith, a change in control is defined as (i) a sale, merger or consolidation after which securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities have been transferred to or acquired by a person or persons different from the persons who held such percentage of the total combined voting power immediately prior to such transaction, (ii) the sale, transfer or other disposition of all or substantially all of the Company’s assets to one or more persons (other than a wholly owned subsidiary of the company or a parent company whose stock ownership after the transaction is the same as the Company’s ownership before the transaction), or (iii) an acquisition, merger or similar transaction or a divestiture of a substantial portion of the Company’s business after which the executive officer’s role is not substantially the same as such role prior to the transaction. Each of these agreements is further summarized below.

Alexis Borisy — Mr. Borisy is employed as our President and Chief Executive Officer pursuant to an employment agreement. Under the employment agreement, Mr. Borisy is entitled to receive an annual base salary that is subject to increase from time to time by the Board of Directors. Mr. Borisy is also entitled to an annual bonus based on Mr. Borisy’s and the Company’s performance against reasonably attainable goals determined by the Board of Directors in consultation with Mr. Borisy. In addition, the Board of Directors may in its discretion make an annual grant of stock options to Mr. Borisy based on his performance and the Company’s performance against reasonably attainable goals. Either Mr. Borisy or CombinatoRx may terminate his employment for any reason on 60 days’ notice. If CombinatoRx terminates Mr. Borisy without cause or if he terminates his employment for good reason, he is entitled to a lump sum payment equal to six months of his then current base salary, six months of the premium cost of participation in the Company’s medical and dental plans, subject to applicable law and plan terms, and accelerated vesting of 100% of his options and restricted stock which remain unvested on the date of termination.  In the event CombinatoRx terminates Mr. Borisy without cause or Mr. Borisy terminates for good cause within two years following a change of control, with change of control defined in the employment agreement, CombinatoRx is obligated to pay Mr. Borisy a lump sum payment equal to 24 months of his then current base salary and 24 months of the premium cost of participation in the Company’s medical and dental benefit plans, subject to applicable law and plan terms, and 100% of all unvested options and restricted stock held by Mr. Borisy will be accelerated to fully vest. In the event of a change of control, CombinatoRx is also obligated to pay any excise tax imposed under Section 4999 of the Internal Revenue Code on Mr. Borisy’s payments or benefits paid by us.

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Robert Forrester — Mr. Forrester is employed as our Chief Financial Officer pursuant to an employment agreement. Under the employment agreement, Mr. Forrester is entitled to receive an annual base salary that is subject to further annual determination by the CombinatoRx Compensation Committee, based on the recommendation of the Chief Executive Officer. Mr. Forrester is also entitled, upon the recommendation of the Company’s Chief Executive Officer to an annual performance-based bonus, either in cash or stock options, to be granted at the Company’s discretion. Either Mr. Forrester or CombinatoRx may terminate his employment for any reason on 60 days’ notice. If CombinatoRx terminates Mr. Forrester’s employment without cause or if Mr. Forrester terminates his employment for good reason, with cause and good reason defined in the employment agreement, he will be entitled to a lump sum payment equal to his base salary and the cost of fringe benefits for 12 months after the date of termination and accelerated vesting of 25% of the stock options and restricted stock which remain unvested at termination for each year of Mr. Forrester’s employment. If during any portion of the three last months of the 12-month period after termination by us without cause or Mr. Forrester’s termination for good reason Mr. Forrester is employed in a comparable full-time position with at least equal compensation, he is obligated to refund to us the severance pay for the portion of the three months that he is so employed. In the event of a change of control, with change of control defined in the employment agreement, CombinatoRx is obligated to pay Mr. Forrester twice his then base salary for 12 months in a lump sum at the closing of the change of control. If a change of control occurs, CombinatoRx is also obligated to accelerate vesting of all unvested stock options and restricted stock granted to Mr. Forrester and to pay any excise tax imposed under Section 4999 of the Internal Revenue Code on Mr. Forrester’s payments or benefits paid by us.

Daniel Grau — Mr. Grau is employed as our Chief Operating Officer pursuant to an employment agreement. Under the employment agreement, Mr. Grau is entitled to receive an annual bonus based on Mr. Grau’s performance and the Company’s performance against reasonably attainable goals determined by the Compensation Committee after consultation with our Chief Executive Officer. Either Mr. Grau or CombinatoRx may terminate his employment for any reason. If CombinatoRx terminates Mr. Grau without cause, as defined in the employment agreement, he is entitled to a lump sum payment equal to his then current base salary for six months following the date of termination and accelerated vesting of 100% of his stock options and restricted stock which remain unvested on the date of termination. In the event of a termination without cause within two years following a change of control, with change of control defined in the employment agreement, CombinatoRx is obligated to pay Mr. Grau twenty-four months of his then current base salary, twenty-four months of the premium cost of participation in the Company’s medical and dental plans, subject to applicable law and plan terms, and 100% of all unvested stock options and restricted stock held by Mr. Grau will be accelerated to fully vest.

Jan Lessem — Dr. Lessem was employed as our Chief Medical Officer until his retirement effective January 31, 2007 pursuant to an employment agreement. On January 12, 2007 the Company entered into a Transition Agreement with Dr. Lessem in connection with his retirement. Under the Transition Agreement, the Company agreed to continue to provide Dr. Lessem’s base salary of $320,000 for a period of 12 months, and to provide Dr. Lessem with a one-time payment in the amount of $100,000. In addition, under the Transition Agreement the Company agreed to accelerate the vesting of stock options held by Dr. Lessem exercisable for 76,785 shares of the Company’s common stock and 3,750 shares of restricted stock held by Dr. Lessem. Using the closing price of the Company’s common stock on the Nasdaq Global Market on January 31, 2007 of $8.36, the accelerated vesting of stock options held by Dr. Lessem exercisable for 76,785 shares of the Company’s common stock provided incremental value to Dr. Lessem as of January 31, 2007 of $379,446 and the accelerated vesting of 3,750 shares of restricted stock held by Dr. Lessem provided incremental value to Dr. Lessem as of January 31, 2007 of $31,350. The Company also agreed to pay its portion of the COBRA medical insurance and dental premiums for Dr. Lessem and his spouse until July 31, 2008, with an estimated value of $10,022.

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In connection with Dr. Lessem’s retirement, the Company also entered into a consulting agreement pursuant to which Dr. Lessem agrees to provide consulting services to the Company regarding clinical and scientific matters. The consulting agreement is effective as of February 1, 2007, has an initial term of until December 31, 2007 and may be terminated by either party upon written notice. In connection with the consulting agreement, Dr. Lessem will be paid an $18,000 non-creditable retainer for services to be rendered by him under the consulting agreement.

Curtis Keith — Dr. Keith is employed as our Senior Vice President, Research pursuant to an employment agreement. Under the employment agreement, Dr. Keith is entitled to receive an annual base salary that is subject to increase from time to time by the Board of Directors at its discretion, and an annual bonus based on Dr. Keith’s performance and the Company’s performance against reasonably attainable goals determined by the Board of Directors after consultation with Dr. Keith, with a target bonus of 30% of base salary. Under the agreement, the Board of Directors may also at its discretion annually grant stock options to Dr. Keith based on his performance and the Company’s performance against reasonably attainable goals. Either Dr. Keith or CombinatoRx may terminate his employment for any reason on 60 days’ notice. If CombinatoRx terminates Dr. Keith without cause, as defined in the employment agreement, he is entitled to a lump sum payment equal to his then current base salary for 6 months following the date of termination and accelerated vesting of 100% of his stock options and restricted stock which remain unvested on the date of termination. In the event of a termination without cause within two years following a change of control, with change of control defined in the employment agreement, CombinatoRx is obligated to pay Dr. Keith six months of his then current base salary, six months of the premium cost of participation in the Company’s medical and dental plans, subject to applicable law and plan terms, and 100% of all unvested stock options and restricted stock held by Dr. Keith will be accelerated to fully vest.

The employment agreements with all of the Company’s named executive officers contain confidentiality, invention assignment and non-competition provisions.

Severance and Change in Control Arrangements

See “Employment Agreements” above for a description of the severance and change in control arrangements for Messrs. Borisy, Forrester, Grau and Drs. Lessem and Keith.

The Compensation Committee of our Board of Directors, as plan administrator of our Amended and Restated 2000 Stock Option Plan and our Amended and Restated 2004 Incentive Plan, has the authority to provide for accelerated vesting of the shares of common stock subject to outstanding options held by our named executive officers and any other person in connection with certain changes in control of the Company.

Estimated Payments and Benefits Upon Termination

The amount of compensation and benefits payable to each named executive officer in various termination and change in control situations has been estimated in the tables below. The value of the option and restricted stock vesting acceleration was calculated for each of the tables below based on the assumption that the change in control and the executive’s employment termination occurred on December 29, 2006. The closing price of the Company’s stock on the Nasdaq Global Market as of December 29, 2006, was $8.66, which was used as the value of the Company’s stock in the change in control. The value of the option vesting acceleration was calculated by multiplying the number of unvested option shares subject to vesting acceleration as of December 29, 2006 by the difference between the closing price of the Company’s stock as of December 29, 2006 and the exercise price for such unvested option shares. The value of the restricted stock vesting acceleration was calculated by multiplying the number of

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unvested shares of restricted stock subject to vesting acceleration as of December 29, 2006 by the closing price of the Company’s stock as of December 29, 2006.

Alexis Borisy

The following table describes the potential payments and benefits upon employment termination for Alexis Borisy, the Company’s President and Chief Executive Officer, as if his employment terminated as of December 29, 2006, the last business day of our last fiscal year.

																	Termination by
																	company without
																	cause or voluntary
																	resignation for
																	good reason in
	Voluntary				Voluntary				Termination				Termination				connection with or
Executive benefits and	resignation not				resignation				by company				by company				following change
payments upon termination	for good reason				for good reason				not for cause				for cause				in control
Compensation:
Base salary		$	58,333	(1)		$	175,000	(2)		$	175,000	(2)		—				$	700,000	(3)
Target cash incentive bonus		$	175,000	(4)		$	175,000	(4)		$	175,000	(4)		—				—
Stock options
unvested and accelerated		—				$	890,666	(5)		$	890,666	(5)		—				$	890,666	(5)
Restricted stock
unvested and accelerated		—				$	433,000	(6)		$	433,000	(6)		—				$	433,000	(6)
Tax Gross-Up Payment		—				—				—				—				$	482,340	(7)
Benefits and perquisites:
Health care continuation		—				$	4,865	(8)		$	4,865	(8)		—				$	18,740	(9)
Accrued vacation pay		$	5,385	(10)		$	5,385	(10)		$	5,385	(10)		$	5,385	(10)		$	5,385	(10)
Total		$	238,718			$	1,683,916			$	1,683,916			$	5,385			$	2,530,131

(1)Salary for required 60 days’ prior written notice of resignation, or 60 days’ pay in lieu of notice.

(2)Six months of base salary prior to the termination, payable in a lump sum.

(3)Twenty-four months of base salary prior to the termination, payable in a lump sum.

(4)Target bonus for 2006, assuming bonus compensation is earned and unpaid.

(5)Acceleration of 100% of Mr. Borisy’s then unvested options.

(6)Acceleration of 100% of Mr. Borisy’s then unvested restricted stock.

(7)Represents lump sum payment payable to Mr. Borisy if any compensation payable in connection with a change in control is subject to the excise tax provided by Section 4999 of the Internal Revenue Code of 1986. The gross-up figures assume a December 31, 2006 change in control and termination date. For purposes of these figures, the following are included as parachute payments: cash severance payable upon the termination in connection with the change of control, the value of any benefits continuation due in the event of such termination, and the value of the acceleration of outstanding equity awards, all determined in accordance with applicable federal tax regulations. Any earned but unpaid salary, vacation or similar pay due following the termination is not treated as a parachute payment. In addition, these figures assume that all outstanding stock options are cashed out in the assumed transaction for an amount equal to the excess, if any, of $8.66 (the closing price of our common stock on December 29, 2006, the last business day of the year) over the exercise per share under the stock option, multiplied by the number of shares subject to the option. These figures assume that no amounts will be discounted as attributable to reasonable compensation and no value is

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attributed to the executive executing a non-competition agreement in connection with the assumed termination of employment.

(8)Payment of the COBRA health and dental insurance premiums for Mr. Borisy and his dependents for up to 6 months.

(9)Payment of the COBRA health and dental insurance premiums for Mr. Borisy and his dependents for up to 24 months.

(10) Based on four vacation days available to Mr. Borisy at December 31, 2006.

Robert Forrester

The following table describes the potential payments and benefits upon employment termination for Robert Forrester, the Company’s Executive Vice President and Chief Financial Officer, as if his employment terminated as of December 29, 2006, the last business day of our last fiscal year.

	Voluntary				Voluntary				Termination				Termination				Upon the occurrence
Executive benefits and	resignation not				resignation				by company				by company				of a change
payments upon termination	for good reason				for good reason				not for cause				for cause				in control
Compensation:
Base salary		$	45,000	(1)		$	315,000	(2)		$	315,000	(2)		—				$	540,000	(3)
Stock options unvested and accelerated		—				$	402,985	(4)		$	402,985	(4)		—				$	805,969	(5)
Restricted Stock unvested and accelerated		—				$	108,250	(6)		$	108,250	(6)		—				$	216,500	(7)
Tax gross-up payment		—				—				—				—				$	0	(8)
Benefits and perquisites:
Health care continuation		—				$	9,904	(9)		$	9,904	(9)		—				—
Accrued vacation pay		$	5,192	(10)		$	5,192	(10)		$	5,192	(10)		$	5,192	(10)		$	5,192	(10)
Total		$	50,192			$	841,331			$	841,331			$	5,192			$	1,567,661

(1)Salary for required 60 days’ prior written notice of resignation.

(2)Salary for required 60 days’ prior written notice of resignation or termination without cause, plus 12 months of base salary prior to the termination, payable in a lump sum. Three months’ severance may be recovered by the Company if Mr. Forrester is employed during the 12-month period following termination in a comparable full-time position with at lease equal compensation.

(3)Twice the amount of 12 months of base salary prior to the change in control, payable in a lump sum.

(4)Acceleration of 50% of Mr. Forrester’s then unvested options (25% for each full year of employment with the Company).

(5)Acceleration of 100% of Mr. Forrester’s then unvested options.

(6)Acceleration of 50% of Mr. Forrester’s then unvested restricted stock (25% for each full year of employment with the Company).

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(7)Acceleration of 100% of Mr. Forrester’s then unvested restricted stock.

(8)Represents lump sum payment payable to Mr. Forrester if any compensation payable in connection with a change in control is subject to the excise tax provided by Section 4999 of the Internal Revenue Code of 1986. The gross-up figures assume a December 31, 2006 change in control and termination date. For purposes of these figures, the following are included as parachute payments: cash severance payable upon the termination in connection with the change of control, the value of any benefits continuation due in the event of such termination, and the value of the acceleration of outstanding equity awards, all determined in accordance with applicable federal tax regulations. Any earned but unpaid salary, vacation or similar pay due following the termination is not treated as a parachute payment. In addition, these figures assume that all outstanding stock options are cashed out in the assumed transaction for an amount equal to the excess, if any, of $8.66 (the closing price of our common stock on December 29, 2006, the last business day of the year) over the exercise per share under the stock option, multiplied by the number of shares subject to the option. These figures assume that no amounts will be discounted as attributable to reasonable compensation and no value is attributed to the executive executing a non-competition agreement in connection with the assumed termination of employment.

(9)Payment of the COBRA health and dental insurance premiums for Mr. Forrester and his dependents for up to 12 months.

(10) Based on five vacation days available to Mr. Forrester at December 31, 2006.

Daniel Grau

The following table describes the potential payments and benefits upon employment termination for Daniel Grau, the Company’s Chief Operating Officer, as if his employment terminated as of December 29, 2006, the last business day of our last fiscal year.

													Termination by
													company without
					Termination				Termination				cause in connection
Executive benefits and	Voluntary				by company				by company				with or following
payments upon termination	resignation				not for cause				for cause				change in control
Compensation:
Base salary		—				$	122,500	(1)						$	490,000	(2)
Stock options unvested and accelerated		—				$	407,449	(3)						$	407,449	(3)
Restricted Stock unvested and accelerated		—				$	433,000	(4)						$	433,000	(4)
Benefits and perquisites:
Health care continuation		—				$	4,685	(5)						$	18,740	(6)
Accrued vacation pay		$	942	(7)		$	942	(7)		$	942	(7)		$	942	(7)
Total		$	942			$	968,576			$	942			$	1,350,131	(8)

(1)Six months of base salary prior to the termination, payable in a lump sum.

(2)Twenty-four months of base salary prior to the termination, payable in a lump sum.

(3)Acceleration of 100% of Mr. Grau’s then unvested options.

(4)Acceleration of 100% of Mr. Grau’s then unvested restricted stock.

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(5)Payment of the COBRA health and dental insurance premiums for Mr. Grau and his dependents for up to 6 months.

(6)Payment of the COBRA health and dental insurance premiums for Mr. Grau and his dependents for up to 24 months.

(7)Based on one vacation day available to Mr. Grau at December 31, 2006.

(8)To the extent compensation payable to Mr. Grau in connection with a change in control is subject to the excise tax provided by Section 4999 of the Internal Revenue Code of 1986, Mr. Grau may elect to either pay such excise tax or have such payments reduced to the extent necessary so he shall not be liable for any such excise tax.

Jan Lessem, M.D., Ph.D.

On January 12, 2007 the Company entered into a Transition Agreement with Dr. Lessem in connection with his retirement, effective January 31, 2007, the terms of which are described above under “Employment Agreements.”

Curtis Keith, Ph.D.

The following table describes the potential payments and benefits upon employment termination for Curtis Keith, Ph.D., the Company’s Senior Vice President, Research, as if his employment terminated as of December 29, 2006, the last business day of our last fiscal year.

													Termination by
													company without
					Termination				Termination				cause in connection
Executive benefits and	Voluntary				by company				by company				with or following
payments upon termination	resignation				not for cause				for cause				change in control
Compensation:
Base salary		$	39,167	(1)		$	117,500	(2)		—				$	117,500	(2)
Target cash incentive bonus		$	70,500	(3)		$	70,500	(3)		—				—
Stock options unvested and accelerated		—				$	442,581	(4)		—				$	442,581	(4)
Restricted Stock unvested and accelerated		—				$	216,500	(5)		—				$	216,500	(5)
Benefits and perquisites:
Health care continuation		—				$	1,663	(6)		—				$	1,663	(6)
Accrued vacation pay		$	904	(7)		$	904	(7)		$	904	(7)		$	904	(7)
Total		$110,571				$	849,648			$	904			$	779,148	(8)

(1)Salary for required 60 days’ prior written notice of resignation, or 60 days’ pay in lieu of notice.

(2)Six months of base salary prior to the termination, payable in a lump sum.

(3)Target bonus for 2006, assuming bonus compensation is earned and unpaid.

(4)Acceleration of 100% of Dr. Keith’s then unvested options.

(5)Acceleration of 100% of Dr. Keith’s then unvested restricted stock.

(6)Payment of the COBRA health and dental insurance premiums for Dr. Keith for up to 6 months.

(7)Based on one vacation day available to Dr. Keith at December 31, 2006.

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(8)To the extent compensation payable to Dr. Keith in connection with a change in control is subject to the excise tax provided by Section 4999 of the Internal Revenue Code of 1986, Dr. Keith may elect to either pay such excise tax or have such payments reduced to the extent necessary so he shall not be liable for any such excise tax.

DIRECTOR COMPENSATION

Non-Employee Director Compensation Policy

Commencing after the consummation of our initial public offering on November 9, 2005, in accordance with our existing non-employee director compensation policy, non-employee directors received $3,000 per quarter in director fees for their services as directors, plus $1,000 per Board of Directors or committee meeting attended. The chairperson of the audit committee also received $5,000 per year for his or her service. The chairpersons of the Compensation Committee and the corporate governance and nominating committee each received $3,000 per year for his or her services. In addition, non-employee directors were entitled to receive options under the Company’s 2000 Stock Option Plan, as amended, or our 2004 Incentive Plan, to purchase 22,857 shares of our common stock upon election to the Board of Directors and options to purchase 5,714 shares of our common stock for service at each annual meeting of stockholders. The exercise price of all options granted to non-employee directors was not less than the fair market value of our common stock on the date of the grant. Options expire ten years after the date of grant and become exercisable, 25% on the first anniversary of the date of grant and in increments of 6.25% at the end of each three-month period thereafter, except that in the event of a change of control the option may, upon the determination of the Compensation Committee, accelerate and become immediately exercisable.

On September 28, 2006, based on the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors adopted a new non-employee director compensation policy, to replace the previous non-employee director compensation policy, which went into effect upon our initial public offering on November 9, 2005.

Under the terms of the revised director compensation policy, effective October 1, 2006, non-employee directors will each receive an annual cash retainer in the amount of $25,000, payable quarterly, for their service as directors. Each non-employee director will also receive an annual cash retainer of $5,000, payable quarterly, for each standing committee of the Board of Directors they serve on.  The chairperson of the audit committee will receive an additional $10,000 per year for his or her service and the chairpersons of the Compensation Committee and the Nominating and Corporate Governance Committee each will receive $5,000 per year for his or her service.

Under the terms of the revised director compensation policy, effective October 1, 2006, non-employee directors will also be entitled to receive options under our Amended and Restated 2004 Incentive Plan to purchase 25,000 shares of Company common stock upon initial election or appointment to the Board of Directors and an annual grant of options to purchase 12,500 shares of our common stock for service at and after each annual meeting of stockholders. The exercise price of all options granted to non-employee directors may not be less than 100% of the fair market value of our common stock on the date of the grant. All options granted pursuant to the revised director compensation policy expire ten years after the date of grant and, in the case of grants upon initial election or appointment, become exercisable, 25% on the first anniversary of the date of grant and in increments of 6.25% at the end of each three-month period thereafter, except that in the event of a change of control the options may, upon the determination of the compensation Committee, accelerate and become immediately exercisable. Option grants made pursuant to the revised director compensation policy on an annual basis will become fully exercisable on the first anniversary of the date of grant.

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On September 28, 2006, in order to bring the prior annual option grants to non-employee directors in line with the revised director compensation policy, the Compensation Committee of the Board of Directors granted non-qualified stock options under the Company’s Amended and Restated 2004 Incentive Plan to Mr. Richard Aldrich, Ms. Barbara Deptula, Mr. Patrick Fortune, Mr. Frank Haydu and Mr. Richard Pops to purchase 6,786 shares of Company common stock at an exercise price of $6.11 per share. Such options will fully vest on June 1, 2007.

In connection with the adoption of the revised director compensation policy, the Compensation Committee retained the executive compensation consulting firm of Watson Wyatt to benchmark non-employee director compensation. The report provided by Watson Wyatt indicated that the Company’s compensation of non-employee directors was below the median compensation for comparable peer companies. The report compared our non-employee director compensation with that of 16 comparable companies, including Acadia Pharmaceuticals, Inc., Alnylam Pharmaceuticals, Inc., Anadys Pharmaceuticals, Inc., Ariad Pharmaceuticals Inc., CuraGen Corporation, Genta Incorporated, Idenix Pharmaceuticals, Inc., ISIS Pharmaceuticals, Inc., Metabasis Therapeutics, Inc., Momenta Pharmaceuticals, Inc., NitroMed, Inc., Novavax Inc., Panacos Pharmaceuticals, Inc., Sciclone Pharmaceuticals, Inc., Trimeris, Inc. and Viacell, Inc. and Vical Incorporated, analyzing various factors such as geography, employee headcount, capitalization, product candidate pipeline, and therapeutic focus. Our Compensation Committee realizes that benchmarking the Company’s outside directors compensation against the compensation earned at comparable companies may not always be appropriate, but believes that engaging in a comparative analysis of the Company’s compensation practices is useful at this point in the life cycle of the Company.

CombinatoRx also reimburses members of the Board of Directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. Directors who are also CombinatoRx employees receive no additional compensation for serving as directors.

Director Compensation

The following table shows the compensation earned by each of our non-employee directors for the year ended December 31, 2006:

	Fees earned or			Option
Name	paid in cash($)			awards($)(5)				Total($)
Richard Aldrich		$	30,000		$	13,725	(6)	$	43,725
Douglas G. Cole(1)		$	9,000		—			$	9,000
Barbara Deptula		$	31,750		$	45,036	(7)	$	76,786
Patrick Fortune		$	33,750		$	13,725	(8)	$	47,475
Jacob Goldfield(2)		$	8,000		—			$	8,000
Frank Haydu		$	37,000		$	111,597	(9)	$	148,597
Michael Kauffman(3)		$	13,490		$	17,128	(10)	$	30,618
Christopher Moller(4)		$	2,700		—			$	2,700
Richard Pops		$	32,000		$	162,493	(11)	$	194,493

(1)Dr. Cole resigned from our Board of Directors effective June 1, 2006.

(2)Mr. Goldfield resigned from our Board of Directors effective April 12, 2006 

(3)Dr. Kauffman was appointed to our Board of Directors effective June 1, 2006.

(4)Dr. Moller resigned from our Board of Directors effective February 20, 2006 

(5)This column reflects the compensation cost for the year ended December 31, 2006 of each director’s options, calculated in accordance with SFAS 123(R) and using a Black-Scholes valuation model for

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2006 awards, using SFAS 123 for 2005 awards and using APB No. 25 for awards prior to 2005. For purposes of this calculation, we have disregarded the estimate of forfeitures related to service-based vesting conditions.  There can be no assurance that the accounting compensation costs will ever be realized by the director. See notes 2 and 8 of “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K filed with the SEC on March 15, 2007 for a discussion of assumptions made by the Company in determining the grant date fair value and compensation costs of our stock option grants.

(6)As of December 31, 2006, Mr. Aldrich held options to purchase an aggregate of 115,357 shares of our common stock, 96,428 shares of which were vested as of December 31, 2006.

(7)As of December 31, 2006, Ms. Deptula held options to purchase an aggregate of 41,057 shares of our common stock, 11,415 shares of which were vested as of December 31, 2006.

(8)As of December 31, 2006, Dr. Fortune held options to purchase an aggregate of 12,500 shares of our common stock, 0 shares of which were vested as of December 31, 2006.

(9)As of December 31, 2006, Mr. Haydu held options to purchase an aggregate of 41,071 shares of our common stock, 16,071 shares of which were vested as of December 31, 2006.

(10) As of December 31, 2006, Mr. Kauffman held options to purchase an aggregate of 22,857 shares of our common stock, 0 shares of which were vested as of December 31, 2006.

(11) As of December 31, 2006, Mr. Pops held options to purchase an aggregate of 95,928 shares of our common stock, 72,000 shares of which were vested as of December 31, 2006.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As of December 31, 2006, the Compensation Committee consisted of Mr. Pops, as Chairman, Ms. Deptula and Dr. Fortune. None of the current members of the Compensation Committee is or was an officer or employee of CombinatoRx. During 2006, none of the Company’s executive officers served as a director or member of the Compensation Committee of any other entity whose executive officers served on the CombinatoRx Board of Directors or Compensation Committee.

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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the amount of common stock of CombinatoRx beneficially owned, directly or indirectly, as of March 31, 2007, by (i) each current director of CombinatoRx and each nominee director, (ii) each named executive officer of CombinatoRx, (iii) all directors and named executive officers of CombinatoRx as a group, and (iv) each person who is known to CombinatoRx to beneficially own more than five percent (5%) of the outstanding shares of common stock of CombinatoRx, and the percentage of the common stock outstanding represented by each such amount. All shares of common stock shown in the table reflect sole voting and investment power except as otherwise noted. Unless otherwise indicated, the address for each person listed below is c/o CombinatoRx, Incorporated, 245 First Street, Sixteenth Floor, Cambridge, Massachusetts 02142.

Beneficial ownership is determined by the rules of the Securities and Exchange Commission and includes voting or investment power of the securities. As of March 31, 2007, CombinatoRx had 28,907,764 shares of common stock outstanding. Shares of common stock subject to options or other rights to purchase which are now exercisable or are exercisable within 60 days after March 31, 2007 are to be considered outstanding for purposes of computing the percentage ownership of the persons holding these options or other rights, but are not to be considered outstanding for the purpose of computing the percentage ownership of any other person.

Name and Address of Beneficial Owner	Number of Shares Beneficially Owned		Percentage of Shares Beneficially Owned
5% Stockholders
Funds advised by T. Rowe Price Associates, Inc.(1)		1,995,799		6.9	%
Angiotech Pharmaceuticals, Inc.(2)		1,948,051		6.7	%
Funds managed by Boston Millennia Partners(3)		1,481,996		5.1	%
Directors and Named Executive Officers
Alexis Borisy(4)		612,494		2.1	%
Robert Forrester(5)		238,268		*
Daniel Grau(6)		152,354		*
Curtis Keith(7)		279,188		*
Richard Aldrich(8)		102,857		*
Sally Crawford		0		*
Barbara Deptula(9)		12,843		*
Patrick Fortune(10)		1,481,996		5.1	%
Frank Haydu(11)		19,642		*
Michael Kauffman		0		*
Richard Pops(12)		73,428		*
All current named executive officers and directors as a group (11 persons)(13)		2,966,820		9.9	%

*Represents holdings of less than 1%

(1)The address for T. Rowe Price Associates, Inc. (Price Associates) is 100 East Pratt Street, Baltimore, Maryland 21202. Number of shares beneficially owned by Price Associates is as of December 31, 2006, as disclosed in a Schedule 13G filed with the SEC. These securities are owned by various individual and institutional investors which Price Associates serves as investment adviser for with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.

(2)The address for Angiotech Pharmaceuticals, Inc. is 1618 Station Street, Vancouver, British Columbia, Canada V6A 1B6.

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(3)The address for Boston Millennia Partners is 30 Rowes Wharf, Boston, MA 02110. Consists of 6,335 shares held by Boston Millennia Associates II Partnership; 175,215 shares held by Boston Millennia Partners GmbH & Co. KG; 1,230,438 shares held by Boston Millennia Partners II Limited Partnership; 58,941 shares held by Boston Millennia Partners II-A Limited Partnership; and 11,067 shares held by Strategic Advisors Fund Limited Partnership. A. Dana Callow, Robert S. Sherman and Martin J. Hernon are general partners and Patrick Fortune, one of our directors, is a partner of Glen Partners II Limited Partnership, the general partner of Boston Millennia Partners II Limited Partnership, Boston Millennia Associates II Partnership, Boston Millennia Partners II-A Limited Partnership and Strategic Advisors Fund Limited Partnership. Messrs. Callow, Sherman and Hernon are managing directors of Boston Millennia Verwaltungs GmbH, the general partner of Boston Millennia Partners GmbH & Co. KG. Messrs. Callow, Sherman and Hernon may be deemed to have shared voting, investment and dispositive power with respect to these shares. Messrs. Callow, Sherman, Hernon and Fortune disclaim beneficial ownership of the shares held by each of the Boston Millennia funds, except to the extent of any pecuniary interest therein.

(4)Consists of 283,924 shares of common stock, 37,500 shares of restricted common stock and 291,070 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(5)Consists of 6,250 shares of common stock, 18,750 shares of restricted common stock, and 213,268 shares of common stock underlying options exercisable within 60 days of March 31, 2006.

(6)Consists of 50,000 shares of restricted common stock and 102,354 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(7)Consists of 49,107 shares of common stock, 18,750 shares of restricted common stock, and 211,331 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(8)Consists of 102,857 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(9)Consists of 12,843 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(10)       Consists of 6,335 shares held by Boston Millennia Associates II Partnership; 175,215 shares held by Boston Millennia Partners GmbH & Co. KG; 1,230,438 shares held by Boston Millennia Partners II Limited Partnership; 58,941 shares held by Boston Millennia Partners II-A Limited Partnership; and 11,067 shares held by Strategic Advisors Fund Limited Partnership. Patrick Fortune, one of our directors, is a partner of Glen Partners II Limited Partnership, the sponsor of some of these investment funds. Mr. Fortune disclaims beneficial ownership of the shares held by each of the Boston Millennia funds, except to the extent of his pecuniary interest therein.

(11)       Consists of 19,642 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(12)       Consists of 73,428 shares of common stock underlying options exercisable within 60 days of March 31, 2007.

(13)       See footnotes 5-12 above.

REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS

In April 2007, the Board of Directors adopted a written policy and procedures for the review, approval and ratification of transactions involving CombinatoRx and “related persons” (directors and executive officers or their immediate family members, or shareholders beneficially owning more than five percent of the common stock). The policy covers all transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in which the Company or any of its subsidiaries was, is or will be a participant, in which the amount involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest.

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All related person transactions are reviewed and, as appropriate, may be approved or ratified by the Audit Committee, or if time is of the essence, the Chair of the Audit Committee. If a director is involved in the transaction, he or she may not participate in any review, approval or ratification of such transaction. Related person transactions are approved by the Audit Committee only if, based on all of the facts and circumstances, they are in, or not inconsistent with, the best interests of the Company and our shareholders, as the Committee determines in good faith. The Audit Committee takes into account, among other factors it deems appropriate, whether the transaction is on terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. The Audit Committee may also impose such conditions as it deems necessary and appropriate on the Company or the related person in connection with the transaction. In the case of a transaction presented to the Audit Committee for ratification, the Audit Committee may ratify the transaction or determine whether rescission of the transaction is appropriate.

We did not have a written policy regarding the review and approval of related person transactions during  2006. However, the General Counsel monitored the Company’s activities for new related party transactions and also reviewed director’s and officer’s questionnaires relating to any such transactions and determined that no new related person transactions were entered into during 2006.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1, 2006, CombinatoRx has engaged in the following transactions with its directors, officers and holders of more than five percent of its voting securities and their affiliates

Research and License Agreement with Angiotech Pharmaceuticals, Inc.

CombinatoRx has entered into and continues to perform under a research and license agreement dated as of October 5, 2005, with Angiotech Pharmaceuticals, Inc., a holder of more than 5% of our common stock. Under the research and license agreement we have granted Angiotech an exclusive, royalty-bearing license to up to ten compounds to be selected by Angiotech from our portfolio of clinical and preclinical product candidates or Chalice database, as well as an option to purchase the same rights to an additional five compounds. This license is for Angiotech’s research, development and potential commercialization of the licensed compounds as drug components to be used in Angiotech’s field with medical devices or interventional medicine products to treat conditions in specific areas of the human body. In addition, we have agreed to use our cHTS technology in a joint research project with Angiotech to screen in different disease-specific assays combinations of compounds that may be developed and commercialized by Angiotech for use in combination with medical devices or with interventional medicine products in Angiotech’s field. We have granted Angiotech an exclusive, royalty-bearing license to the intellectual property from the joint research in Angiotech’s field of use in combination with medical devices and interventional medicine products to treat conditions in specific areas of the human body, and we have an exclusive, non-royalty bearing license to such intellectual property for use outside of Angiotech’s field.

Under the research and license agreement, Angiotech paid us a $27.0 million up-front license execution fee, and Angiotech purchased $15.0 million of our stock in a related transaction. We may also receive payments from Angiotech of $7.0 million if they elect to extend the research project beyond 30 months to a total term of five years and up to $10.0 million upon Angiotech’s election to receive a license to up to five additional compounds, beyond the initial ten compounds, from our portfolio of clinical and preclinical product candidates or Chalice database for development. In addition, for each compound licensed to Angiotech that is discovered through the research project or through Angiotech’s selection of compounds from our portfolio of clinical and preclinical product candidates or Chalice database, we may also receive up to $30.0 million in milestone payments if certain development and regulatory approval milestones are met, as well as royalties on any future product sales incorporating the compounds.

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During the period of the research project and for one year thereafter, or, if the Angiotech research and license agreement is terminated, for one year after such termination, we have agreed not to enter into any agreement to license or grant rights to any compound to a third party in defined areas of Angiotech’s field. We may enter into an agreement that grants rights in Angiotech’s field other than these defined areas if such grant of rights is materially broader than or different from Angiotech’s field and such agreement is not entered into for the purpose of granting rights to use our intellectual property in Angiotech’s field. In addition, during such period of time, we have also agreed not to perform cHTS screening using the same screens performed pursuant to the Angiotech research project, or grant a license or other rights to use our intellectual property to third parties operating primarily in the Angiotech field.

The research and license agreement will remain in effect during the period of the research project, which may range from thirty months to five years, and as long as Angiotech is either conducting preclinical research, doing clinical development or commercializing a licensed compound that requires the payment of a royalty to us.

In connection with the research and license agreement with Angiotech, we also entered into a stock purchase agreement with Angiotech under which in exchange for $15.0 million we issued to Angiotech 1,363,636 shares of Series E preferred stock that automatically converted into 1,948,051 shares of our common stock upon the closing of our initial public offering on November 9, 2005. On December 1, 2006, CombinatoRx filed, upon the request of Angiotech Pharmaceuticals, Inc., a registration statement on Form S-3 covering their resale of the 1,948,051 shares of common stock held by them. This registration statement was declared effective by the SEC on December 13, 2006.

CombinatoRx (Singapore) Pte. Ltd.

On August 16, 2005, we formed a subsidiary in Singapore, CombinatoRx (Singapore) Pte. Ltd., for the purpose of conducting our discovery and development of product candidates to treat infectious diseases. We own 51% of the subsidiary’s capital stock. Pursuant to a Subscription and Shareholders Agreement, BioMedical Sciences Investment Fund Pte Ltd, an affiliate of Bio*One Capital Pte Ltd, a biomedical sciences investment management company associated with Singapore’s Economic Development Board (EDB), has invested $2.5 million in shares of convertible, redeemable preferred stock of the subsidiary, which represents on an as-converted basis 49% of the subsidiary’s capitalization. BioMedical Sciences further committed to invest up to an additional $17.5 million in the subsidiary through the purchase of a series of convertible promissory notes, $5.5 million of which were purchased concurrently with its investment in the subsidiary’s preferred stock and $3.5 million of which were purchased on June 8, 2006. BioMedical Sciences has agreed to provide the remaining $8.5 million in funding through the purchase of additional series of notes through December 31, 2009, provided our subsidiary achieves certain milestones related to the development of infectious disease product candidates.

In addition to the funding from BioMedical Sciences, on April 19, 2006, the subsidiary received approval for a grant from the Singapore EDB Biomedical Sciences Group for up to approximately $5.8 million to support infectious disease drug research and development. The grant covers a percentage of qualifying costs of the research and development project on a reimbursement basis. Qualifying costs include salaries, equipment, scientific consumables and intellectual property costs. Reimbursement for these costs under the grant is subject to the satisfaction of certain conditions by the subsidiary, including completion of the development project for infectious disease within a specified timeline, spending specified amounts on the project, the completion of other development milestones and the maintenance of specified levels of employment in Singapore. Subject to agreed upon audit rights by the EDB, cumulative qualifying costs are reimbursed upon application until 70% of the initial grant amount has been submitted by the subsidiary. The remaining 30% of the award may be paid by the EDB once the Company completes the research and development project. The grant extends through September 30, 2010. If the subsidiary breaches a condition of the grant, after good faith negotiations, the EDB may recover previously released

39

grant funds from the subsidiary. In addition, the EDB retains the right to change the terms and conditions of the grant as deemed necessary by the EDB.

Under a Services Agreement between us and our subsidiary, we have agreed to provide assay development and screening services for the subsidiary aimed at the discovery and development of combination therapies for the treatment of infectious disease, over a four year period. The subsidiary will employ clinical research and development personnel in Singapore to conduct research based on the results of our initial screenings. The Services Agreement provides for the assignment to the subsidiary of all intellectual property rights covering novel therapeutic combination therapies for infectious disease discovered through our work under the Agreement, in exchange for cash payments to us from the subsidiary of up to approximately $7.3 million over four years and a 2.5% royalty on sales of all products covered by any patent right assigned to the subsidiary. If the subsidiary determines not to advance any product candidate discovered through our initial screening activities under the Services Agreement into initial clinical trials and to initiate screening in a second infectious disease therapeutic area, we have agreed to loan the subsidiary an amount sufficient to cover 50% of the cost of the additional screening, in the form of a note subordinated in payment to the BioMedical Sciences notes. The Services Agreement provides for the grant back to us by the subsidiary of a fully paid, exclusive license under all intellectual property rights assigned by us to the subsidiary for use outside of the infectious disease field. As defined in the Services Agreement, the infectious disease field does not include biodefense applications or any topical application for the treatment of acne or impetigo, with the result that we retain all rights for these applications.

Under the Subscription and Shareholders Agreement, we have agreed to provide assay development and screening services in the infectious disease field, as defined, exclusively to the subsidiary during the term of the Services Agreement and not to compete with the subsidiary in the infectious disease field, as defined, in substantially all markets until the earlier of August 19, 2009 or one year after we cease to hold any stock in the subsidiary.

Under the Subscription and Shareholders Agreement, the subsidiary is governed by a five person board of directors, two of whom are appointed by us, two by BioMedical Sciences and one by agreement between us and BioMedical Sciences. Operations of the subsidiary are conducted pursuant to a business plan and budget agreed to by us and BioMedical Sciences. Significant corporate actions by the subsidiary require both our consent and the consent of BioMedical Sciences, as do modifications of any agreement between the subsidiary and us or between the subsidiary and BioMedical Sciences. Neither we nor BioMedical Sciences may sell or transfer our shares in the subsidiary prior to August 19, 2009, except to affiliates. Thereafter, such shares may be transferred only after they are first offered to the subsidiary and to the other party. We also have granted to BioMedical Sciences, and BioMedical Sciences has granted to us, tag along rights to participate in any proposed sale to a third party of shares in the subsidiary.

The preferred stock of our subsidiary held by BioMedical Sciences is entitled to an annual 5% dividend payable upon redemption or liquidation of the subsidiary, and is subject to redemption by the subsidiary for a cash payment equal to 125% of the purchase price of the shares plus accrued, but unpaid, dividends. The notes bear interest at an annual rate of 5% and become due and payable on December 31, 2009, unless we elect through the subsidiary to prepay the notes before that date. If we elect to prepay, the prepayment amount would equal 125% of the outstanding principal balance of the notes plus accrued, but unpaid, interest. The notes are secured by a security interest in all of the non-intellectual property assets of the subsidiary, and by a negative pledge by the subsidiary with respect to its intellectual property rights. We have pledged our shares in the subsidiary as additional collateral for our subsidiary’s obligations to BioMedical Sciences under the notes. We are not obligated to make any cash payment on the notes if the subsidiary fails to do so, but on default by the subsidiary, BioMedical Sciences has the right to convert the notes into our common stock.

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BioMedical Sciences has the option to convert its shares of preferred stock of our subsidiary into our common stock. In addition, upon the proposed redemption of the shares of preferred stock or the prepayment or repayment of any note, BioMedical Sciences may elect to receive in lieu of some or all of the cash otherwise payable to it, shares of our common stock. The notes are convertible into our common stock at the option of BioMedical Sciences only upon maturity, acceleration or default or any proposed prepayment. If at any time the volume-weighted average price of our common stock exceeds $13.50 over the prior 20 consecutive trading days, we may require BioMedical Sciences to convert its shares of preferred stock or the initially issued note into shares of our common stock. The volume-weighted average price of our common stock must exceed $14.47 for 20 consecutive trading days for us to be able to require BioMedical Sciences to convert the note issued to it on June 8, 2006 into our common stock. For any conversion of currently outstanding preferred stock or the originally issued note into or payment satisfied by the issuance of our common stock (other than in the case of default by us or our subsidiary), the price of our common stock for conversion purposes will be $10.803 per share or, in the case of the note issued on June 8, 2006, $11.572 per share. Additional notes issued will convert at a price obtained by dividing the aggregate principal balance of such notes by a 40% premium to the volume-weighted average of the Company’s common stock price based on the trading price of its common stock over the 20 trading days immediately prior to the time such notes issued. If we or our subsidiary are in default at the time of any conversion, the premium will not apply. BioMedical Sciences may not convert its convertible preferred stock or convertible promissory notes to the extent that after such conversion it would own more than 19.9% of our common stock then outstanding.

We have agreed to file, on BioMedical Sciences’s request, at any time after November 9, 2006, a registration statement covering the resale by them of any of our common stock they acquire through conversion or redemption.

Registration Rights

The holders of 1,900,300 shares of CombinatoRx common stock and holders of warrants to purchase up to 96,252 shares of common stock, are entitled to require us to register their shares or participate in a registration of shares by us under the Securities Act. These rights are provided under the terms of various agreements between us and the holders of these shares and warrants. Funds managed by Boston Millennia Partners hold 1,481,996 of these registrable shares. Patrick Fortune, one of our directors, is a partner of Glen Partners II Limited Partnership, the sponsor of the Boston Millennia funds.

Indemnification Agreements

CombinatoRx  has entered into indemnification agreements with each of its current non-employee directors to give such directors additional contractual assurances regarding the scope of the indemnification set forth in the Company’s certificate of incorporation and bylaws and to provide additional procedural protections.

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Other Agreements with Executive Officers, Directors and their Affiliates

The following agreements are in effect with the Company’s executive officers, directors, and their affiliates as of March 31, 2007:

Name of Officer, Director, or Affiliate thereof		Name of Agreement
Dr. Gary Borisy, father of Alexis Borisy	·	Scientific Advisory Board Member Confidentiality, Non-Disclosure and Proprietary Rights Agreement.(1)
	·	Stock Option Agreement to purchase 7,143 shares of our common stock.(2)

(1)CombinatoRx also reimburses Dr. Gary Borisy’s expenses in connection with his service as a Scientific Advisor.

(2)Consists of 7,143 shares with an exercise price of $0.18 pursuant to an agreement dated May 3, 2001.

Alexis Borisy and Curtis Keith each have entered into Founder’s Agreements dated as of January 26, 2001 which provide that, for a period specified by CombinatoRx and an underwriter following the effective date of a registration statement for CombinatoRx common stock, they will not directly or indirectly sell, offer to sell, contract to sell, grant any options to purchase or otherwise transfer or dispose of any securities they hold.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, certain of its officers and persons who own more than 10% of the Company’s common stock to file reports of ownership of, and transactions in, the Company’s common stock with the Securities and Exchange Commission. Based on the Company’s review of the reports it has received, CombinatoRx believes that all of its directors, officers and persons owning more than 10% of the Company’s common stock complied with all reporting requirements applicable to them with respect to transactions in the fiscal year ended December 31, 2006, except for the late filing of a Form 4 on July 12, 2006 relating to the exercise of a stock option on April 24, 2006 by Jan Lessem, our former Chief Medical Officer.

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PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, independent auditors, has been selected by the Audit Committee as auditors for CombinatoRx for the fiscal year ending December 31, 2007. Ernst & Young LLP acted as independent auditors for CombinatoRx for the year ended December 31, 2006. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if he or she desires and to respond to appropriate questions.

The Company’s organizational documents do not require that the stockholders ratify the selection of Ernst & Young LLP as the Company’s independent auditors. CombinatoRx requests such ratification as a matter of good corporate practice. If the stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP, but still may retain them. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of CombinatoRx and its stockholders.

The Audit Committee, or a designated member thereof, pre-approves each audit and non-audit service rendered by Ernst & Young LLP to CombinatoRx pursuant to the Company’s Audit and Non-Audit Pre-Approval Policy.

The following table shows information about fees paid by CombinatoRx to Ernst & Young LLP during the fiscal years ended December 31, 2006 and 2005.

	Fiscal Year 2006			Percentage of 2006 Services Approved by Audit Committee			Fiscal Year 2005			Percentage of 2005 Services Approved by Audit Committee(1)
Audit fees(2)		$	399,100		100	%		$	600,541		27.4	%
Audit-related fees(3).		$	7,860		100	%		$	—		—	%
Tax fees(4)		$	3,830		100	%		$	5,775		—	%
All other fees		$	—		—	%		$	—		—	%
Total fees		$	410,790		100	%		$	606,316		27.2	%

(1)The Company went public on November 9, 2005 and did not perform Audit Committee preapproval processes for services provided by independent auditors before that time.

(2)Audit fees in 2006 include fees in the amount of $36,000 for the Company’s registration statements on Form S-1 and S-3 and related consents, and audit fees in 2005 include fees in the amount of $435,755 for the Company’s registration statements on Form S-1, related comfort letters, consents and responding to SEC comment letters.

(3)Audit-related fees in 2006 relate to agreed upon procedures performed by Ernst & Young LLP for CombinatoRx (Singapore) Pte. Ltd. related to the grant from the Singapore Economic Development Board.

(4)Tax fees include consultation on tax matters related to CombintoRx (Singapore) Pte. Ltd. and other tax planning and advice.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE

FOR

THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT AUDITORS

(ITEM 2 ON YOUR PROXY CARD)

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CODE OF ETHICS AND CONDUCT AND CORPORATE GOVERNANCE GUIDELINES

CombinatoRx has adopted a Code of Ethics and Conduct for its directors, officers and employees, including its President and Chief Executive Officer, Chief Financial Officer and Controller (or persons performing an equivalent function). A copy of the Company’s Code of Ethics and Conduct may be accessed free of charge by visiting the Company’s website at www.combinatorx.com and going to the “Investors—Corporate Governance” section or by requesting a copy in writing from Jason F. Cole, Secretary at the Company’s offices. CombinatoRx intends to post on its website any amendment to, or waiver under, a provision of the Code of Ethics that applies to its President and Chief Executive Officer, Chief Financial Officer or Controller (or persons performing an equivalent function) within four business days following the date of such amendment or waiver.

A copy of the Company’s Corporate Governance Guidelines may also be accessed free of charge by visiting the Company’s website at www.combinatorx.com and going to the “Investors—Corporate Governance” section or by requesting a copy from Jason F. Cole, Secretary at the Company’s offices.

POLICIES ON REPORTING OF CONCERNS REGARDING ACCOUNTING AND OTHER MATTERS AND ON COMMUNICATING WITH NON-MANAGEMENT DIRECTORS

The Board of Directors and the Audit Committee have adopted policies on reporting concerns regarding accounting and other matters and on communicating with the non-management directors. Any person, whether or not an employee, who has a concern about the conduct of CombinatoRx, or any of its people, including with respect to accounting, internal accounting controls or auditing matters, may, in a confidential or anonymous manner, communicate that concern to Mr. Frank Haydu, the chairperson of the Audit Committee, who is the designated contact for these purposes. Contact may be made by writing to him care of the Audit Committee at the Company’s offices at 245 First Street, Sixteenth Floor, Cambridge, MA 02142, by email at frankhaydu@yahoo.com or by calling him at (617) 244-5521. Any interested party, whether or not an employee, who wishes to communicate directly with the presiding director of the executive sessions of our non-management directors, or with our non-management directors as a group, also may contact Mr. Haydu using one of the above methods.

STOCKHOLDER PROPOSALS

Stockholders who wish to present proposals for inclusion in the Company’s proxy materials for the 2007 Annual Meeting of Stockholders may do so by following the procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934 and the Company’s By-laws. To be eligible, the stockholder proposals must be received by the Secretary of CombinatoRx on or before December 26, 2007.

Under the Company’s current By-laws, proposals of business and nominations for directors other than those to be included in the Company’s proxy materials following the procedures described in Rule 14a-8 may be made by stockholders entitled to vote at the meeting if notice is timely given and if the notice contains the information required by the By-laws. Except as noted below, to be timely a notice with respect to the 2008 Annual Meeting of Stockholders must be delivered to the Secretary of CombinatoRx no earlier than March 2, 2008 and no later than April 1, 2008, unless the date of the 2007 Annual Meeting is advanced or delayed by more than thirty (30) days from the anniversary date of the 2006 Annual Meeting, in which event the By-laws provide different notice requirements. Any proposal of business or nomination should be mailed to: Jason F. Cole, Secretary, CombinatoRx, Incorporated, 245 First Street, Sixteenth Floor, Cambridge, Massachusetts 02142.

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WHERE YOU CAN FIND MORE INFORMATION

CombinatoRx files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements, or other information that CombinatoRx files at the SEC’s public reference room at the following location: 100 F Street, N.E., Washington, D.C. 20549.

Please call the SEC at 1-800-732-0330 for further information on the public reference room. The Company’s SEC filings are also available to the public from commercial document retrieval services and at the website maintained by the SEC at http://www.sec.gov.

CombinatoRx may “incorporate by reference” information into this document, which means that CombinatoRx can disclose important information to you by referring to another document filed separately with the SEC. The information incorporated by reference is deemed to be a part of this document, except for any information superseded by information contained directly in this document. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (which Annual Report accompanies this Proxy Statement) was previously filed by CombinatoRx and is incorporated by reference in this Proxy Statement. CombinatoRx also incorporates by reference any documents that it may file with the SEC between the time this Proxy Statement is sent to stockholders and the date of the Annual Meeting.

CombinatoRx may have sent to you some of the documents incorporated by reference, but you can obtain any of them through CombinatoRx, the CombinatoRx website at www.combinatorx.com, the SEC or the SEC’s website described above. Documents incorporated by reference are available from CombinatoRx without charge, including exhibits. Stockholders may obtain documents incorporated by reference into this document by requesting them in writing or by telephone at the following address and telephone number:

CombinatoRx, Incorporated
245 First Street
Sixteenth Floor
Cambridge, Massachusetts  02142
(617) 301-7000
Attention: Jason F. Cole, Secretary

If you would like to request documents from CombinatoRx, please do so promptly in order to receive timely delivery of such documents prior to the Meeting.

You should rely on the information contained or incorporated by reference in this document to vote your shares at the Annual Meeting. CombinatoRx has not authorized anyone to provide you with information that is different from what is contained in this document. This document is dated April 23, 2007. You should not assume that the information contained in this document is accurate as of any date other than that date, and the mailing of this document to stockholders at any time after that date does not create an implication to the contrary. This Proxy Statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make such proxy solicitations in such jurisdiction.

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FORM 10-K

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission has been mailed with this Proxy Statement and is available without charge by writing to:

CombinatoRx, Incorporated
245 First Street
Sixteenth Floor
Cambridge, Massachusetts  02142
(617) 301-7000
Attention: Jason F. Cole, Secretary

IMPORTANT NOTICE REGARDING DELIVERY OF SHAREHOLDER DOCUMENTS

In accordance with a notice sent to certain shareholders of CombinatoRx common stock who share a single address, only one copy of this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 is being sent to that address unless CombinatoRx has received contrary instructions from any shareholder at that address. This practice, known as “householding,” is designed to reduce the Company’s printing and postage costs. However, if any shareholder residing at such an address wishes to receive a separate copy of this Proxy Statement or our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, he or she may contact CombinatoRx, Incorporated, 245 First Street, Sixteenth Floor, Cambridge, Massachusetts 02142, Attention: Jason F. Cole, Secretary Tel: (617) 301-7000, and CombinatoRx will deliver those documents to such shareholder promptly upon receiving the request. Any such shareholder may also contact Jason F. Cole, Secretary, using the above contact information if he or she would like to receive separate proxy statements and annual reports in the future. If you are receiving multiple copies of our Annual Report and proxy statement, you may request householding in the future by contacting Jason F. Cole, Secretary.

OTHER BUSINESS

The Board of Directors knows of no business to be brought before the Annual Meeting which is not referred to in the accompanying Notice of Annual Meeting. Should any such matters be presented, the persons named in the proxy shall have the authority to take such action in regard to such matters as in their judgment seems advisable. If you hold shares through a broker, bank or other nominee as described above, they will not be able to vote your shares on any other business that comes before the Annual Meeting unless they receive instructions from you with respect to such matter.

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APPENDIX A

DIRECTIONS TO 245 FIRST STREET, CAMBRIDGE, MASSACHUSETTS

CombinatoRx, Incorporated
Corporate Headquarters
245 First Street
Sixteenth Floor
Cambridge, Massachusetts
(617) 301-7000

Directions from the MBTA Public Transportation

·Take the Red Line to Kendall Square.

·When exiting the “T,” turn so that you are walking toward Boston. You should see a silver globe in the middle of a small park directly across from the Kendall Square Post Office.

·Cross the road (the intersection of Broadway and Third) and turn right so that you continue to walk toward Boston.

·After you pass the One Main Street building on the left, follow the sidewalk, and take a left over a small bridge. This is First Street.

·Take a left onto Athenaeum Street, our building is 245 First Street, a brick building on the left.

Directions from Logan Airport

·When exiting Logan airport, take Route 1A South through the Callahan/Sumner Tunnel to Boston. Stay in the left lane.

·After you go through the tunnel, remaining in the left lane, go up the ramp and take your second right to Route 93 North.

·Take Exit 26 to Somerville/Cambridge/Back Bay/Storrow Drive. You will now be on Storrow Drive.

·Stay to your left and take the first exit to Charles Street/Beacon Hill/Kendall Square and bear to the right.

·Take your first right onto the Longfellow Bridge, heading over the Charles River.

·At the first set of lights, take a right onto Third Street. Go down Third Street about 1/4 of a mile, and take a right Athenaeum Street, our building is 245 First Street, a brick building on the right.

Directions from the Massachusetts Turnpike

·Take the Mass Pike heading East. Exit to the left at Exit 18, Allston/Cambridge.

·Follow the signs to Cambridge/Somerville (the Doubletree Hotel is on your right). Go over the River Street Bridge (over the Charles River) and take an immediate right onto Memorial Drive.

·Go past Harvard and MIT (on your left).

·At the first fork, bear left and go under the Mass. Ave. bridge.

·At the second fork bear right. (Do not take the Downtown Boston exit.) Continue on Memorial Drive until you come to a traffic light.

A-1

·Take a left at the light onto Binney Street. Go through a set of lights, and take your next left onto Second Street.

·Take a left onto Athenaeum Street, our building is 245 First Street, a brick building on the right.

Directions from I-93 North

·Take I-93 North to Exit 26 Somerville/Cambridge/Back Bay /Storrow Drive. You will now be on Storrow Drive.

·Stay to your left and take the first exit to Charles Street/Beacon Hill/Kendall Square and bear to the right.

·At the first set of lights, take a right onto Third Street. Go down Third Street about 1/4 of a mile, and take a right Athenaeum Street, our building is 245 First Street, a brick building on the right.

Directions from I-93 South

·Take I-93 South to Exit 26 Somerville/Cambridge/Back Bay /Storrow Drive. You will now be on Storrow Drive.

·Stay to your left and take the first exit to Charles Street/Beacon Hill/Kendall Square and bear to the right.

·Take your first right onto the Longfellow Bridge, heading over the Charles River.

·At the first set of lights take a right onto Third Street. Go down Third Street about 1/4 of a mile, and take a right onto Linskey Way.

·Take the first right onto Second Street.

·Take a left onto Athenaeum Street, our building is 245 First Street, a brick building on the right.

Directions from Route 2

·Follow Route 2 to the end.

·Take a right at the lights. The Alewife Red Line “T” station is on your right. Go over the bridge. Shopping centers are on your left and right. You will come to a rotary.

·Stay to the left around the rotary, and then go straight. You will quickly come to another rotary.

·Bear to the right around this rotary.

·Go straight through three sets of lights. After the third set of lights, stay to the left.

·At the fourth set of lights, take a left onto Memorial Drive. Continue on Memorial Drive. The Charles River is on your right.

·Go past Harvard and MIT (on your left).

·At the first fork, bear left and go under the Mass. Ave. bridge.

·At the second fork bear right. (Do not take the Downtown Boston exit.)  Continue on Memorial Drive until you come to a traffic light.

·Take a left at the light onto Binney Street. Go through a set of lights, and take your next left onto Second Street.

·Take a left onto Athenaeum Street, our building is 245 First Street, a brick building on the right.

A-2

MR A SAMPLE

DESIGNATION (IF ANY)

ADD 1

ADD 2

ADD 3

ADD 4

ADD 5

ADD 6

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000000000.000000 ext            000000000.000000 ext

000000000.000000 ext            000000000.000000 ext

000000000.000000 ext            000000000.000000 ext

Electronic Voting Instructions

You can vote by Internet or telephone! Available 24 hours a day, 7 days a week!

Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.

VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.

Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on May 30, 2007.

	Vote by Internet · Log on to the Internet and go to www.investorvote.com · Follow the steps outlined on the secured website.
	Vote by telephone · Call to free 1-800-652-VOTE (8683) within the United State, Canada & Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the call. · Follow the instructions provided by the recorded message.

Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. x

Annual Meeting Proxy Card

IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.

A Proposals — The Board of Directors recommends a vote FOR the listed nominees and FOR Proposal 2.

1. Election of Class II Directors:	For	Withhold		For	Withhold		For	Withhold
01 - Sally Crawford	o	o	02-Michael Kauffman	o	o	03 - Richard Pops	o	o

	For	Against	Abstain
2. To ratify the appointment by the Audit Committee of the Board of Directors of Emst & Young LLP, an independent registered public accounting firm, as the Company’s independent auditors for the fiscal year ending December 31, 2007.	o	o	o

B Non-Voting Items

Change of Address — Please print new address below.

C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below

Please sign exactly as your name(s) appear(s) hereon. All holders must sign. When signing as attorney, executor, administrator or other fiduciary, please give your full title as such. Joint owners should each sign personally. If a corporation, please sign in full corporate name, by authorized officer. If a partnership, please sign in partnership name by authorized person.

Date (mm/dd/yyyy) — Please print date below.	Signature 1 — Please keep signature within the box.	Signature 2 — Please keep signature within the box.
/    /    /

C 1234567890	J N T	MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND
3 1 A V	0 1 2 4 3 5 1	MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND

IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.

Proxy — CombinatoRx, Incorporated

ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 31, 2007 at 9:00 a.m.

This Proxy is Solicited on behalf of the Board of Directors of CombinatoRx, Incorporated (the “Company”)

The undersigned, having received notice of the annual meeting of stockholders and the proxy statement therefor and revoking all prior proxies, hereby appoints each of Robert Forrester and Jason F. Cole (with full power of substitution), as proxies of the undersigned, to attend the annual meeting of stockholders of the Company to be held on Thursday, May 31, 2007, at the offices of the Company, 245 First Street, 16th Floor, Cambridge, Massachusetts 02142, and any adjourned or postponed session thereof, and there to vote and act as indicated upon the matters on the reverse side in respect of all shares of common stock which the undersigned would be entitled to vote or act upon, with all powers the undersigned would possess if personally present.

You can revoke your proxy at any time before it is voted at the annual meeting by (i) submitting another properly completed proxy bearing a later date; (ii) giving written notice of revocation to the Secretary of the Company; (iii) if you submitted a proxy through the Internet or by telephone, by submitting a proxy again through the Internet or by telephone prior to the close of the Internet voting facility or the telephone voting facility; or (iv) voting in person at the annual meeting.  If the undersigned hold(s) any of the shares of common stock in fiduciary, custodial or joint capacity, this proxy is signed by the undersigned in every such capacity as well as individually.

The shares of common stock of CombinatoRx, Incorporated (the “Company”) represented by this proxy will be voted as directed by the undersigned for the proposals herein proposed by the Company.  If no direction is given with respect to any proposal specified herein, this proxy will be voted FOR the proposal.  In their discretion, the proxies are authorized to vote upon any other business that may properly come before the meeting or any adjournment thereof.

PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED PRE-PAID ENVELOPE.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)