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

                                   FORM 10-K/A

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                         COMMISSION FILE NUMBER: 0-20117
                          ENCYSIVE PHARMACEUTICALS INC.
             (Exact name of Registrant as specified in its charter)


                DELAWARE                            13-3532643
        (State of Incorporation)                 (I.R.S. Employer
                                               Identification Number)


                            6700 WEST LOOP, 4TH FLOOR
                              BELLAIRE, TEXAS 77401
                                 (713) 796-8822
   (Address and telephone number of principal executive offices and zip code)

        Securities Registered Pursuant to Section 12(b) of the Act: NONE

           Securities Registered Pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $.005 PER SHARE
                          -----------------------------
                                 TITLE OF CLASS

                         PREFERRED STOCK PURCHASE RIGHTS
                         -------------------------------
                                 TITLE OF CLASS

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

     The approximate aggregate market value of voting stock held by
nonaffiliates of the registrant is $169,054,000 as of June 28, 2002.

     The number of shares outstanding of each of the registrant's classes of
common stock as of March 12, 2003:

             TITLE OF CLASS                            NUMBER OF SHARES
      -----------------------------                    ----------------
      Common Stock, $.005 par value                       43,916,898


     Documents incorporated by reference:

                      DOCUMENT                              FORM 10-K PARTS
     ----------------------------------------------         ---------------
     Definitive Proxy Statement, to be filed within               III
            120 days of December 31, 2002
                 (specified portions)

================================================================================


              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in and incorporated by reference into this Form 10-K are
forward-looking statements. These forward-looking statements include, without
limitation, statements regarding our estimate of the sufficiency of our existing
capital resources and our ability to raise additional capital to fund cash
requirements for future operations, and regarding the uncertainties involved in
the drug development process and the timing of regulatory approvals required to
market these drugs. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot give any assurance that
such expectations reflected in these forward-looking statements will prove to
have been correct.

     When used in this Form 10-K, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Additional Risk
Factors" and elsewhere in this Form 10-K.

     You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. You should be aware that the occurrence of any of
the events described in the risk factors and elsewhere in this Form 10-K could
substantially harm our business, results of operations and financial condition
and that upon the occurrence of any of these events, the trading price of our
common stock could decline, and you could lose all or part of your investment.

     We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-K after the date of this
Form 10-K.

     This Form 10-K may contain trademarks and service marks of other companies.

                                       2

                                     PART I

ITEM 1 -- BUSINESS

                                    OVERVIEW

     Texas Biotechnology Corporation was incorporated in Delaware in 1989 and is
sometimes referred to in this report as TBC, we or us. We are a
biopharmaceutical company focused on the discovery, development and
commercialization of novel, synthetic, small molecule compounds for the
treatment of a variety of cardiovascular, vascular and related inflammatory
diseases. Our research and development programs are focused on inhibitors (also
referred to as antagonists or blockers) that can interrupt certain disease
processes. Our programs seek to address unmet medical needs in areas where our
compounds will have the greatest likelihood of improving the lives of patients
suffering from cardiovascular diseases, thrombocytopenia, pulmonary arterial
hypertension ("PAH"), heart failure and inflammatory diseases such as asthma.

     Argatroban is our first marketed product. Argatroban was approved by the
U.S. Food and Drug Administration ("FDA") in 2000 for the prophylaxis or
treatment of thrombosis in patients with heparin-induced thrombocytopenia
("HIT") and for patients with or at risk for HIT undergoing percutaneous
coronary intervention ("PCI"). Argatroban was approved in Canada in 2002 for use
as anticoagulant therapy in patients with heparin-induced thrombocytopenia
syndrome ("HITS"). The drug is being marketed in the U.S. and Canada by
GlaxoSmithKline, plc ("GSK") and has been on the market in the U.S. and Canada
since November 2000 and June 2002, respectively. GSK is our development,
manufacturing and marketing partner for Argatroban.

     Presently, we have four major product development programs.

     -    Endothelin Antagonist Program. We are developing sitaxsentan, an
          endothelin(A) receptor antagonist, or ET(A), for the treatment of PAH.
          During June 2000, we formed a partnership, ("ICOS-TBC"), with ICOS
          Corporation ("ICOS") to develop and commercialize ET(A) receptor
          antagonists. During 2002, ICOS-TBC successfully completed a Phase
          IIb/III clinical trial in PAH with sitaxsentan. TBC3711, a second
          generation ET(A), has previously completed Phase I clinical trials and
          may be developed for cardiovascular or other diseases. In January
          2003, ICOS announced that they had reached a conclusion that joint
          development of the endothelin receptor antagonist program by ICOS-TBC
          should not continue. ICOS and TBC are currently negotiating the terms
          pursuant to which TBC could independently continue the program. The
          financial terms of this transaction are subject to ongoing
          negotiations between the two companies.

     -    Thrombosis. During 2002, we completed a Phase II human clinical trial
          for Argatroban as a mono-therapy treatment for acute ischemic stroke.
          The clinical trial met the primary endpoint based on safety. In light
          of a lack of a positive overall efficacy trend and the high risk and
          high costs associated with stroke trials, it is unlikely that we will
          proceed independently with a full Phase III program. Currently,
          Argatroban is being evaluated, in a clinical trial, in combination
          with recombinant tissue Plasminogen Activator ("rt-PA") as a new
          approach to the treatment of acute ischemic stroke by an investigator
          at the University of Texas Medical School at Houston.

     -    Vascular Inflammation Program. Revotar Biopharmaceuticals AG
          ("Revotar"), our majority owned German affiliate located in Berlin is
          developing a selectin antagonist, bimosiamose, for the treatment of
          asthma and psoriasis. The intravenous form of the drug demonstrated
          positive anti-inflammatory effects in Phase II clinical trials.
          Revotar was formed during 2000, to further the development of this
          program. Revotar has completed Phase I clinical trials for asthma
          utilizing an inhaled form of bimosiamose. A Phase IIa clinical trial
          is currently being conducted with an inhaled form of bimosiamose and a
          Phase IIa clinical trial in psoriasis is planned to commence during
          2003, using a topical formulation. A Phase IIa proof-of-concept
          clinical trial in psoriasis, completed during 2002 with an injectable
          form of bimosiamose, demonstrated signs of activity. We are also
          conducting research with respect to other cell adhesion molecules
          including vascular cell adhesion molecule, or VCAM, junctional
          adhesion molecules, or JAM 2/3 and several integrins including very
          late antigen 4, or VLA-4, (alpha)4(beta)7 and others to develop
          antagonists for the treatment of asthma, rheumatoid arthritis,
          multiple sclerosis, restenosis and inflammatory bowel disease. We have
          signed a collaboration and license agreement for the VLA-4 program
          with Schering-Plough LTD and

                                       3

          Schering-Plough Corporation (collectively "Schering-Plough") and have
          received a milestone from Schering-Plough for nominating a compound as
          a clinical candidate. Additionally, we are conducting research on
          backup VLA-4 antagonists for Schering-Plough under this agreement.

     -    Vascular Disease. Many disease processes involve changes in blood
          vessels and heart tissue. There are numerous mediators, like
          endothelin, which may contribute to the development of these diseases.
          Several of these act through G-protein coupled receptors, GPCRs, to
          carry out their action. We are conducting research on urotensin and
          other GPCRs to identify inhibitors which could be useful in treating
          diseases including congestive heart failure, ("CHF"), ischemic stroke
          and acute myocardial infarction.


                                BUSINESS STRATEGY

     The key elements of our business strategy are as follows:


Maximize sales of Argatroban

     Our marketing, manufacturing and distribution partner, GSK, began selling
Argatroban in the U.S. during November 2000, and in Canada during June 2002, as
an anticoagulant for prophylaxis or treatment of thrombosis in patients with
HIT. In addition:

     -    during 2002, we received approval from the FDA on our supplementary
          New Drug Application ("sNDA") for Argatroban for use in patients, with
          or at risk for HIT, undergoing PCI;

     -    during 2002, GSK created a hospital based sales force and initiated
          programs to increase its sales efforts on Argatroban in the U.S. and
          Canada that could have a positive effect on our royalties from GSK;

     -    Argatroban is currently being evaluated, in a clinical trial, in
          combination with rt-PA as a new approach to the treatment of acute
          ischemic stroke by an investigator at the University of Texas Medical
          School at Houston. Argatroban is approved and sold in Japan by
          Mitsubishi Pharma Corporation ("Mitsubishi"), the licensor of
          Argatroban as mono-therapy for an indication of acute ischemic stroke;
          and

     -    we have completed initial studies to evaluate the use of Argatroban in
          hemodialysis patients and in PCI.


Complete the clinical development of sitaxsentan and commercialize the compound
worldwide

     We intend to initiate a pivotal Phase III clinical trial with sitaxsentan
in 2003 with the goal of filing a new drug application with the FDA for use of
sitaxsentan in patients with PAH. We intend to commercialize the compound on a
worldwide basis by ourselves or through licensee arrangements:

     -    During 2002, ICOS-TBC completed a Phase IIb/III clinical trial to
          assess the safety and efficacy of sitaxsentan in patients with New
          York Heart Association ("NYHA") class II, III and IV PAH. Based on the
          results of this clinical trial and meeting with the FDA, TBC believes
          that development of sitaxsentan should be continued.

     -    In January 2003, ICOS announced that they had reached a conclusion
          that joint development of the endothelin receptor antagonist program,
          through ICOS-TBC, should not continue. ICOS has indicated that it is
          willing to transfer the endothelin antagonist program in its entirety,
          including sitaxsentan, to us. The financial terms of this transaction
          are subject to ongoing negotiations between the two companies. This
          will allow us to increase our ownership and the potential commercial
          benefit of the program from 50% to 100%.


Focus on the identification and development of new drugs for the treatment of
diseases involving the vascular endothelium

     Injury to the vascular endothelium is a common cause of many of the most
profound diseases affecting patients today, such as ischemic heart disease,
hypertension, congestive heart failure, and asthma. By concentrating on this
area, we can be relatively efficient in our drug discovery, development and
commercialization efforts. This efficiency extends to the following areas:

                                       4

     -    Research -- Our efforts are predominantly focused toward the treatment
          and prevention of interrelated diseases of the vascular endothelium,
          exploiting our research group's expertise in the area of vascular
          biology;

     -    Computer aided drug design -- We utilize computers to rapidly develop
          drug candidates derived from our vascular biological efforts and to
          identify new targets from information discovered by the Human Genome
          Project; and

     -    Clinical investigators and consultants -- We work with key opinion
          leaders and consultants experienced in vascular diseases to assist in
          clinical development, product planning and the regulatory approval
          process.


Focus on the identification and development of small molecule drug candidates

     Synthetic, small molecule therapeutics have several advantages over protein
and peptide based large molecules. Small molecules generally are not
immunogenic, can typically be protected with composition-of-matter patents and
can be produced by conventional lower cost pharmaceutical manufacturing methods.


Participate in the sales and marketing in the United States and Canada of the
drugs we develop

     In the biopharmaceutical industry, a substantial percentage of the profits
generated from successful drug development are typically retained by the entity
directly involved in the sales and marketing of the drug. Licensing our drug
candidates to a third party who will complete development and provide sales and
marketing resources in exchange for upfront payments, milestone payments and a
royalty on sales may reduce some of our risks, particularly for diseases outside
our strategic interest or in territories outside of the United States and
Canada. In the future, however, we may decide that the risk-return profile
favors developing and then marketing and selling products on a co-promotion
basis or by ourselves. Therefore, when and if we deem it appropriate, we intend
to participate in the sales and marketing of our products in the United States
and Canada.

                                       5

                THERAPEUTIC PROGRAMS AND PRODUCTS IN DEVELOPMENT

     The following table summarizes the potential therapeutic indications and
development status for certain of our clinical, preclinical and research product
candidates and is qualified in its entirety by the more detailed information
appearing elsewhere in this Form 10-K.



                         TARGET COMPOUND/                                                                    COMMERCIALIZATION
      PROGRAM               DOSE FORM                      INDICATION                    STATUS(1)              RIGHTS(2)
      -------            ----------------                  ----------                    ---------           -----------------
                                                                                               
 THROMBOSIS         ARGATROBAN
                    Intravenous                    Anticoagulant therapy for          Marketed product     GlaxoSmithKline
                                                   prophylaxis or treatment of
                                                   patients with HIT

                    Intravenous                    Anticoagulant  therapy for         Marketed product     GlaxoSmithKline
                                                   patients, with or at risk for
                                                   HIT, undergoing PCI

 VASOSPASM/         ENDOTHELIN(A) RECEPTOR
 HYPERTENSION       ANTAGONIST
                    Sitaxsentan (TBC11251)
                    Oral                           Pulmonary Arterial Hypertension    Phase III            Encysive Pharmaceuticals

                    TBC3711
                    Oral                           Pulmonary Arterial Hypertension    Phase I completed    Encysive Pharmaceuticals


                    UROTENSIN RECEPTOR             Various                            Research             Encysive Pharmaceuticals
                    ANTAGONIST

                    OTHER GPCRS                    Various                            Research             Encysive Pharmaceuticals

 VASCULAR           SELECTIN ANTAGONIST (BEING
 INFLAMMATION       DEVELOPED BY REVOTAR)
                    Bimosiamose (TBC1269)

                    Inhaled                        Asthma                             Phase IIa            Revotar

                    Topical-US                     Psoriasis and atopic dermatitis    Phase IIa            Encysive Pharmaceuticals
                    Topical-Outside US             Psoriasis and atopic dermatitis    Phase IIa            Revotar

                    VCAM/VLA-4 ANTAGONIST
                    TBC4746
                    Oral                           Asthma                             Preclinical          Schering Plough
                                                   Multiple Sclerosis                 Preclinical          Schering Plough
                                                   Rheumatoid Arthritis               Preclinical          Schering Plough

                    (ALPHA)4(BETA)7 ANTAGONIST
                    TBC3804
                    Oral                           Inflammatory Bowel Disease         Research             Encysive Pharmaceuticals

                    OTHER CELL ADHESION MOLECULES  Various                            Research             Encysive Pharmaceuticals


(1)  Preclinical compounds are compounds undergoing toxicology and
     pharmaceutical development in preparation for human clinical testing.
     Research compounds are compounds undergoing basic evaluation and
     optimization to establish a lead clinical candidate.
(2)  Royalties are paid to Mitsubishi for sales of Argatroban and could possibly
     be paid to Revotar for Bimosiamose, but we receive royalties for Argatroban
     from GlaxoSmithKline. There is a possibility that in the future we could
     receive royalties from Revotar and Schering Plough.

                                       6

                               THROMBOSIS PROGRAM
                                   ARGATROBAN

     Background. Thrombosis, the lodging of a blood clot in a vessel, causes
various vascular diseases, depending on the location of the clot. An arterial
clot may lead to heart attack if lodged in a coronary artery, or stroke if
lodged in an artery that supplies oxygen to the brain. Venous clots occur
principally in the arms or legs (deep vein thrombosis), and may cause local
inflammation, chronic pain and other complications. In some cases, a venous clot
can cause lung injury (pulmonary embolism) by migrating from the veins to the
lungs.

     Thrombosis can be treated surgically or through drug therapy with
anticoagulant and thrombolytic drugs. Anticoagulant drugs prevent clots from
forming. Heparin and aspirin are the most widely used antithrombotic drugs.

     Heparin, first discovered over 80 years ago, is the most widely used
injectable anticoagulant. In the U.S., approximately ten million patients
annually receive therapeutic heparin to treat a variety of conditions that
require inhibition of the body's natural clotting mechanism. Each year over
300,000 of these patients develop a profound immunological reaction to heparin
that is known as heparin-induced thrombocytopenia. The condition is
characterized by a paradoxical tendency to form clots. That puts the patient at
risk of major complications such as acute myocardial infarction, ischemic
stroke, amputation or death. It is also very difficult to administer heparin
dosages.

     Current Therapies. In conjunction with GSK, we obtained approval for
Argatroban as an anticoagulant for prophylaxis or treatment of thrombosis in
patients with HIT in the U.S. and Canada. GSK began marketing Argatroban in the
U.S. in November 2000. Argatroban is a synthetic direct thrombin inhibitor that
directly and selectively binds to and inactivates thrombin in the blood plasma.
Argatroban is manufactured and marketed in Japan by Mitsubishi where it is
approved as a treatment for ischemic stroke, peripheral arterial occlusion and
hemodialysis in patients with antithrombin III deficiency, a clotting disorder
that does not respond to heparin. Since the product's introduction in 1990, more
than 200,000 patients have been treated with Argatroban in Japan. Other
measures, such as inline filters, are sometimes used to remove clots, but are
highly invasive and involve patient trauma. Simply stopping heparin alone may be
insufficient, as a significant number of patients will progress to experience
severe outcomes. Clinical studies that we conducted in the U.S. have shown a
significant correlation between the administered dose of Argatroban and the
degree of anticoagulation achieved. This is potentially important as it suggests
that the relationship between dose and effect of Argatroban is generally very
predictable over the expected dose-range. As a result, we believe there is
little risk of either insufficient or excessive anticoagulation occurring from
small dose changes of Argatroban. Other product advantages for Argatroban
include a rapid onset of action, a relatively short half-life and an absence of
immunogenicity.

     Clinical Trial Status. During 2002, we completed a multi-center,
placebo-controlled Phase II clinical trial (ARGIS-I) for the use of Argatroban,
as monotherapy, in patients with ischemic stroke. During February 2003, we
reported the Phase II trial results that met the primary endpoint related to
safety. In light of a lack of an overall efficacy trend, and the high risk and
high costs associated with stroke trials, it is unlikely that Texas
Biotechnology will proceed independently with a full Phase III program. However,
given the relatively positive safety outcome, and the high rate of stroke
occurrence in HIT patients, some physicians may choose to use Argatroban in
place of heparin in some patient populations. Currently, Argatroban is being
evaluated in a clinical trial, in combination with rt-PA as a new approach to
the treatment of acute ischemic stroke by an investigator at the University of
Texas Medical School at Houston. Argatroban is approved and sold in Japan by
Mitsubishi, the licensor of Argatroban, as mono-therapy for an indication of
acute ischemic stroke. With GSK, we are conducting clinical trials to evaluate
the use of Argatroban in hemodialysis patients and for use in PCI.

     Competition in HIT. Primary competitors for Argatroban in its initial
indication are Refludan(R) (lepirudin), marketed by Berlex Laboratories,
Orgaran(R) (danaparoid sodium), manufactured by N.V. Organon, a unit of Akzo
Nobel, and Angiomax (R) (bivalirudin) manufactured by The Medicines Company.

     Refludan(R) (lepirudin, Berlex). This product received approval in Europe
in 1997 and in the U.S. in 1998 for anticoagulation in patients with HIT to
prevent further thromboembolic (clotting) complications. Refludan(R) has been
associated with the development of an adverse immune response in up to 40% of
patients receiving Refludan(R). Several cases of anaphylaxis have been reported
upon re-exposure to Refludan(R). Although the full clinical impact of
development of these antibodies is unknown, we understand that the anticoagulant
effects of Refludan(R) may

                                       7

become unpredictable in patients developing these antibodies. Additionally
Refludan(R) is renally excreted while Argatroban is hepatically excreted. Berlex
has stated they plan to submit for a HIT prevention label claim in the future.

     Orgaran(R) (danaparoid sodium, N.V. Organon). This product is a low
molecular weight heparinoid, a heparin-like compound extracted from pigs. The
product was approved in the U.S. in 2001 for prevention of deep venous
thrombosis following hip surgery. However, approximately one in ten HIT patients
receiving Orgaran(R) will develop the HIT syndrome exactly as if the patient
received heparin. Orgaran(R) is not approved in the U.S. for HIT and is used on
an off-label basis only.

     Angiomax(R) (bivalirudin, The Medicines Company). This product received
approval in the U.S. in 2001 for use as an anticoagulant in patients with
unstable angina undergoing percutaneous transluminal coronary angioplasty
("PTCA"). Angiomax(R) represents the third direct thrombin inhibitor approved in
the U.S. Angiomax(R) is not approved for the treatment of HIT. The Medicines
Company has stated their intention to expand the Angiomax(R) label to include
the treatment and prevention of HIT.

     Other Indications. Argatroban may be useful in other disease settings where
predictable anticoagulation is desired. Argatroban may be effective in
hemodialysis and PCI, particularly in patients who develop problems when given
heparin.

     Competition for Argatroban in Other Indications. Competitors for Argatroban
in other applications include:

     -    Revasc(R) (desirudin, Aventis/Novartis A.G.), recombinant hirudin, is
          approved in Europe for the prevention of deep vein thrombosis
          following hip surgery, but has been associated with intracranial
          hemorrhage and antibody production;

     -    Melagatran (AstraZeneca plc) is in Phase III trials and is being
          developed as a treatment for deep vein thrombosis. They have stated
          that they intend to file an NDA during 2003; and

     -    Arixtra(R) (pentasaccharide, Sanofi-Synthelabo) was approved in the
          U.S. in 2002 for the prevention of deep vein thrombosis and pulmonary
          embolism.

                                       8

                         VASOSPASM/HYPERTENSION PROGRAM

     Background. Smooth muscle cells in the blood vessel are responsible
directly for mediating vessel diameter. The regulation of blood flow depends on
a delicate balance between physical and chemical stimuli that cause smooth
muscle cells to relax (vasodilatation) or contract (vasoconstriction). Chronic
periods of excessive vasoconstriction in the peripheral circulation can lead to
disturbances in blood pressure (hypertension) or heart function (congestive
heart failure), whereas acute episodes of intense vasoconstriction (vasospasm)
can restrict blood flow leading to severe tissue damage and organ failure
(myocardial infarction or kidney failure). It has been determined that the
vascular endothelium (innermost lining) plays a pivotal role in maintaining
normal blood vessel tone, including blood flow, by producing substances that
regulate the balance between vasodilatation and vasoconstriction.

     Endothelin is a peptide that is believed to play a critical role in the
control of blood flow. The action of endothelin can be explained by its
interactions on cell surfaces with two distinct receptors, endothelin-A (ET(A))
and endothelin-B (ET(B)). In general, ET(A) receptors are associated with
vasoconstriction, while ET(B) receptors are primarily associated with
vasodilatation. There is substantial evidence that endothelin is involved in a
variety of diseases where blood flow is important. These include vasospasm,
congestive heart failure and certain types of hypertension.

     Our research program in the vasospasm/hypertension area is aimed at
developing small molecules that inhibit the binding of endothelin to its cell
surface receptors. Our scientists believe that specific agents for each receptor
subtype may provide the best clinical utility and safety. Our initial focus has
been to develop a highly potent and selective small molecule based ET(A)
receptor antagonist. An antagonist, or inhibitor, blocks the effects of a ligand
at its receptor. A ligand is a chemical messenger, which binds to a specific
site on a target molecule or cell. Our scientists have discovered a novel class
of low molecular weight compounds that antagonize endothelin binding to the
ET(A) receptor with high potency. We identified lead compounds which mimicked
the ability of endothelin to bind to the ET(A) receptor. We then used further
optimization techniques to develop more potent compounds until the current
series of lead candidates were identified. In addition to their ability to block
endothelin, binding to its receptor, these compounds functionally inhibit
endothelin action on isolated blood vessels in vitro acting as full, competitive
antagonists. The lead compounds in this series have been shown to exhibit in
vivo efficacy using various animal models. In addition, sitaxsentan and bosentan
have demonstrated efficacy in human clinical trials, including patients with
pulmonary hypertension.

     Current Therapies. Current treatments for PAH remain unsatisfactory and new
treatments are needed. At present, epoprostenol (Flolan(R)-GSK), bosentan
(Tracleer(R)-Actelion), and treprostinil (Remodulin(R)-United Therapeutics) are
approved treatments for patients with PAH.

     Epoprostenol, a vasodilator requiring continuous infusion through a central
venous catheter and special infusion pump, is costly, is associated with
significant adverse events including those related to its delivery, and is
typically reserved by clinicians for patients with NYHA functional class IV
status. Bosentan, a nonselective ET-1 receptor antagonist, is the first oral
agent approved for the treatment of PAH, and is indicated in patients with World
Health Organization (WHO) functional class III and IV symptoms. Bosentan is also
associated with significant potential for hepatotoxicity, teratogenicity, and
reduction of male fertility. Treprostinil, a prostaglandin analog requiring
administration through a chronic subcutaneous pump, is associated with a high
incidence of local injection site reactions. A selective oral endothelin
antagonist, if successful, may provide a significant benefit to these patients.

     Partnership. During 2000, we formed ICOS-TBC, a partnership with ICOS, to
co-develop and commercialize endothelin antagonist compounds. As part of the
agreement, ICOS made an upfront payment and a milestone payment to ICOS-TBC,
which in turn distributed these payments to TBC. In January 2003, ICOS announced
that they had reached a conclusion that joint development of the endothelin
receptor antagonist program, through ICOS-TBC should not continue. ICOS and TBC
are currently negotiating the terms pursuant to which we could independently
continue the program. The financial terms of this transaction are subject to
ongoing negotiations between the two companies. This could allow us to increase
our ownership and the potential commercial benefit of the program from 50% to
100%. The partners equally funded the cost of research and development through
the end of 2002. After 2002, we are responsible for all costs of the program.

     Product Candidate -- TBC11251 - Sitaxsentan. The lead endothelin
antagonist, sitaxsentan, is being developed for the indication of PAH. PAH is a
disease with high mortality and an average survival time of approximately four

                                       9

years from the time of diagnosis. Sitaxsentan, a highly selective endothelin-A
receptor antagonist, may provide a distinct advantage over current therapies
including the non-specific endothelin receptor antagonist Tracleer(R).

     Clinical Trial Status. -- We filed an investigational new drug application,
also referred to as an IND, with the FDA for sitaxsentan in late 1996. To date,
three Phase IIa clinical trials have been completed, one in congestive heart
failure patients, one in essential hypertension patients and one in pulmonary
arterial hypertension patients. In a follow-on extension trial,
treatment-related hepatitis was observed in two patients and one of these
patients died. Following analysis of the open-label Phase IIa clinical trial and
extension studies and discussions with the FDA, ICOS-TBC initiated a Phase
IIb/III clinical trial (STRIDE) of sitaxsentan, at lower doses, for the
treatment of PAH in the second quarter of 2001. During 2002, ICOS-TBC completed
the STRIDE clinical trial to assess the safety and efficacy of sitaxsentan in
patients with NYHA class II, III and IV pulmonary arterial hypertension. The
trial enrolled 178 patients who were randomized to either sitaxsentan 100 mg,
sitaxsentan 300 mg, or placebo treatment once a day.

     The primary endpoint of the Phase IIb/III STRIDE trial was change in
percent of predicted maximum amount of oxygen the body can use during a
specified period of time (also called maximal oxygen consumption, max VO2 or
peak VO2 (PVO2)) from baseline to week 12. The results showed a statistically
significant improvement for the 300 mg dose group compared with placebo
treatment (7% relative improvement). The primary endpoint was not statistically
significant for the 100 mg dose group. A secondary endpoint was change in
6-minute walk distance from baseline to week 12. The results showed
statistically significant improvement for both the sitaxsentan 100 mg and 300 mg
groups, compared with placebo treatment. The 6-minute walk test is the most
widely used efficacy test for drugs treating PAH. The clinical effectiveness of
each of the two sitaxsentan dose groups was equivalent for 6- minute walk
distance (9% relative improvement). NYHA class improvement, another important
measure that reflects limitations in physical activity, was also statistically
significant for the sitaxsentan 100 mg and 300 mg dose groups compared with
placebo treatment.

     Based on the results of this clinical trial and meeting with the FDA, TBC
believes that development of sitaxsentan should be continued. Based on concerns
the FDA has raised regarding the class, such as hepatic toxicity and
reproductive abnormalities, which may or may not be associated with our
compounds, we are pursuing indications with unmet medical needs such as PAH.

     Product Candidate -- TBC3711. TBC3711 is our second endothelin antagonist
compound and has been selected as the next clinical candidate. We believe
TBC3711 is more selective and more potent than sitaxsentan and that a potential
market opportunity for TBC3711 exists for the treatment of PAH and other
diseases. ICOS-TBC has completed Phase I clinical studies with TBC3711 and is
evaluating the development plan for the compound.

     Other Indications. We believe endothelin antagonist compounds may provide
therapeutic value in several other indications.

     Competition. A number of companies including Abbott Laboratories, and
Myogen, Inc., have ET(A) receptor selective antagonist compounds in clinical
development. ET(A) receptor-selective compounds from Abbott are in early Phase
III development. They have reported mixed results from a Phase III trial in
severe hormone resistant prostate cancer patients. The compound reduced pain and
PSA levels, but failed to delay disease progression. They are conducting
additional studies in other cancer groups. Myogen has begun a Phase IIa trial
for their ET(A) compound in PAH. We believe our compounds are competitive with
those from the other companies in terms of bioavailability (how much reaches the
appropriate body system), half-life (how long the drugs last in the body) and
potency. Several companies have non-selective endothelin antagonists in
development. Actelion Ltd., a biotechnology company located in Switzerland, and
Genentech, Inc. received approval from the FDA to market Tracleer (R) (bosentan)
for the treatment of PAH during 2001. We believe that selective endothelin
blockers like sitaxsentan will be preferred by physicians since selective ET(A)
blockers block the negative effects of endothelin at the ET(A) receptor, and do
not block the beneficial effects of endothelin at the ET(B) receptor.
Non-selective antagonists block both the ET(A) and the ET(B) receptors.
Abbott/Knoll's development of darusentan and Actelion's development of Tracleer
for heart failure have generated negative data. It is not known if the negative
clinical data is due to a class effect, trial design or specific to the
compounds themselves.

     In addition to endothelin antagonists, Pfizer is conducting a Phase II
trial in the use of Viagra (R) in PAH. If phosphodiesterase 5 inhibitors ("PDE-5
inhibitor") demonstrate a benefit in PAH patients, we believe they will be used
as additive therapy with endothelin antagonists.

                                       10

                          VASCULAR INFLAMMATION PROGRAM

     Background. Inflammation is the body's natural defense mechanism that fends
off bacterial, viral and parasitic infections. The inflammatory response
involves a series of events by which the body attempts to limit or destroy a
foreign agent. These steps include the production of proteins that attract white
blood cells, or leukocytes, to the site of inflammation, the production of
chemicals to destroy the foreign agent and the removal of the resulting debris.
This process is normally self-limiting and not harmful to the individual.
However, in certain instances, the process may be overly active, such as during
an acute asthma attack where an immediate inflammatory reaction occurs. In
addition, in diseases such as atherosclerosis or rheumatoid arthritis, the
inflammatory reaction leads to a build up of white blood cells and debris at the
inflammation site that causes tissue damage over longer periods of time.

     The initial interaction between white blood cells and the endothelial cell
layer is mediated by a group of adhesion molecules known as selectins. The
selectins are a family of three proteins, two of which are found on inflamed
endothelium, which bind to the carbohydrate sialyl Lewis x, also referred to as
sLe(X), found on the surface of white blood cells. White blood cells are able to
migrate into inflamed areas because sLe(X) present on the surface of white blood
cells binds to selectin molecules present on activated endothelium. This binding
slows the flow of white blood cells or leukocytes through the bloodstream. This
is one of the first steps in the movement of white blood cells from the blood
into the tissue. The second step in this process is vascular cell adhesion
molecule, referred to as VCAM, mediated white blood cell attachment and
migration which helps to localize white blood cells in areas of injury or
infection. The presence of VCAM at sites of endothelial injury leads to an
accumulation at these sites of the integrin very late antigen-4, or VLA-4, which
are contained in white blood cells. Such accumulation can provoke an
inflammatory response.

     Current Therapies. The major anti-inflammatory compounds are
corticosteroids, leukotriene blockers and immunosuppressants such as
cyclosporin. While effective, the time to onset of action of these compounds may
be significant. Corticosteroids also have significant side effects including
growth suppression in children, cataract formation, and general intolerance. The
antagonist compounds we are developing may provide efficacy with fewer of these
side effects.

     Product Candidate -- Bimosiamose is being developed by Revotar, our
majority owned affiliate. Our scientists have developed a computer model of the
selectin/sLe(X) complex and used it to produce a novel class of synthetic, small
molecule compounds that inhibit the selectin-mediated cellular adhesion that
occurs during inflammation. The lead compound in the series, bimosiamose, has
shown efficacy both in cell-based and biochemical assays, and in animal models
of inflammation. A Phase IIa clinical trial for bimosiamose's intravenous use in
asthma was completed in 1998. Results of this trial, which involved 21 patients,
demonstrated significant reductions in cellular inflammation and allowed
improved breathing. The inhaled form of bimosiamose has been tested in Phase I
clinical trials completed during 2001 for the treatment of asthma and a Phase
IIa clinical trial was completed and showed signs of activity, utilizing an
injectable form of bimosiamose as a proof-of-concept for psoriasis. During 2002,
Revotar began a Phase II clinical trial in asthma, utilizing the inhaled form
and intends to commence a Phase IIa clinical trial in psoriasis utilizing the
topical form during 2003.

     German Affiliate -- Revotar Biopharmaceuticals, AG. During 2000, Revotar
Biopharmaceuticals, AG, a German affiliate, was formed and we retained a 55.2%
ownership percentage. With headquarters in Berlin, Germany, Revotar was formed
to perform research and development of novel small molecule compounds and to
develop and commercialize selectin antagonists that TBC licensed to Revotar.
Upon formation, Revotar received certain development and commercialization
rights to the Company's selectin antagonist compounds as well as rights to
certain other TBC research technology for use in certain territories. Revotar
also received approximately $5 million in funding from three German venture
capital funds and has access to certain German government scientific grants.
During 2001, Revotar entered into a research agreement regarding macrophage
migration inhibitory factor (MIF) with the Fraunhofer Institute in Stuttgart,
Germany. We amended our license and research agreement with Revotar during 2003
to better reflect the commercial priorities of each company. Under the amended
agreement, Revotar will have exclusive worldwide rights to bimosiamose for the
treatment of asthma and other inflammatory indications as well as rights outside
of North America for topical indications. Texas Biotechnology will have
exclusive worldwide rights for the use of bimosiamose in organ transplant as
well as exclusive North American rights to all topical indications. Under the
amended agreement, each party has certain revenue sharing and royalty
obligations. In 2002, the stockholders of Revotar executed an agreement to
provide approximately $4.5 million in unsecured loans, of which

                                       11

our commitment was approximately $3.4 million. Under the loan agreement, we have
advanced approximately $1.2 million to Revotar during 2002. We believe that
Revotar's existing funds, the remaining commitments under the loan agreement and
proceeds under German government scientific grants will be sufficient to fund
Revotar into the first quarter of 2004. In order to continue to operate beyond
that time, Revotar will need to seek additional funding through collaborative
arrangements and/or through public or private financings in the future.

     Clinical Trial Status. - The inhaled form of bimosiamose has been tested by
Revotar in Phase I clinical trials completed during 2001 for the treatment of
asthma and a Phase IIa clinical trial was completed in Germany utilizing an
injectable form of bimosiamose as a proof-of-concept for psoriasis. During 2002,
Revotar began a Phase IIa clinical trial in asthma, utilizing the inhaled form
and intends to initiate a Phase IIa clinical trial in psoriasis utilizing the
topical form during 2003.

     Product Candidate -- VCAM/VLA-4 Antagonists. We have also identified
antagonists for the VCAM-dependent intercellular adhesion observed in asthma,
which blocks the ability of white blood cells to interact through VCAM and
VLA-4. VLA-4 antagonists represent a new class of compounds that has shown
promise in multiple preclinical animal models of asthma. These lead compounds
are being modified in an attempt to develop an orally available clinical
candidate. In preclinical animal studies, our scientists have demonstrated that
a small molecule VLA-4 antagonist can be effective in blocking acute
inflammation, suggesting that VCAM/VLA-4 plays a role in this disease process.
During 2002, TBC4746 was nominated as a clinical candidate and pursuant to our
agreement with Schering-Plough, we received a milestone payment.

     Product Candidate -- (alpha)4(beta)7 Antagonists. The integrin
(alpha)4(beta)7, which is closely related to VLA-4, is present on leukocytes
which locate in the gastrointestinal system. Inhibitors of (alpha)4(beta)7 may
be useful in treating inflammatory conditions of the gut such as inflammatory
bowel disease (estimated 1,200,000 U.S. patients).

     Research Collaboration with Schering-Plough. -- On June 30, 2000, we
entered into a worldwide research collaboration and license agreement to
discover, develop and commercialize VLA-4 antagonists with Schering-Plough. The
primary focus of the collaboration will be to discover orally available VLA-4
antagonists as treatments for asthma. Under the terms of the agreement,
Schering-Plough obtains the exclusive worldwide rights to develop, manufacture
and market all compounds from TBC's library of VLA-4 antagonists, as well as the
rights to a second integrin antagonist. TBC is responsible for optimizing a lead
compound and additional follow-on compounds. Schering-Plough is supporting
research at TBC and will be responsible for all costs associated with the
worldwide product development program and commercialization of the compound. In
addition to reimbursing research costs, Schering-Plough paid an upfront license
fee and will pay development milestones and royalties on product sales resulting
from the agreement. Total payments to TBC for both the VLA-4 and an additional
program, excluding royalties, could reach $87.0 million. During 2002, TBC4746
was nominated as a clinical candidate and pursuant to our agreement with
Schering-Plough, we received a milestone payment.

     Competition. Several companies have programs aimed at inhibiting cell
adhesion molecules and integrins, like (alpha)4(beta)7 and VCAM/VLA-4. We are
not aware of any competing product antagonists of these classes, which are
currently in clinical development. While no oral VCAM/VLA-4 inhibitors are in
clinical development, Biogen, Inc. and Elan Corporation plc have obtained
positive Phase II data with Antegren(R), a monoclonal antibody against VLA-4, in
multiple sclerosis and inflammatory bowel disease. They are planning to conduct
Phase III studies with this product.


                                VASCULAR DISEASE

     Background and current status. Many disease processes involve changes in
blood vessels and heart tissue. There are numerous mediators, like endothelin,
which may contribute to the development of these diseases. Several of these act
though G-protein coupled receptors, GPCRs, to carry out their action. We are
conducting research on urotensin and other GPCRs to identify inhibitors which
could be useful in treating diseases including CHF, ischemic stroke and acute
myocardial infarction. There are numerous companies studying these and other
GPCRs. We believe our projects are competitive with these other programs.

                                       12

        RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS

     We have established, and intend to continue to establish, collaborations
with a number of corporations, research institutions and scientists to further
our research and development objectives and expedite the commercialization of
our products. Our major licensing and collaboration agreements are summarized
below:

     Mitsubishi Pharma Corporation ("Mitsubishi"). We entered into an agreement
with Mitsubishi to license Mitsubishi's rights and technology relating to
Argatroban and to license Mitsubishi's own proprietary technology developed with
respect to Argatroban. The agreement provides us an exclusive license to use and
sell Argatroban in the U.S. and Canada for all cardiovascular, renal,
neurological and immunological purposes other than use for the coating of
stents. We are required to pay Mitsubishi specified royalties on net sales of
Argatroban by us and our sublicensees after its commercial introduction in the
U.S. and Canada. GSK is also obligated to pay Mitsubishi royalties on sales of
Argatroban. As of December 31, 2002, we had paid Mitsubishi approximately
$237,000 in royalty payments under the agreement. We have also paid Mitsubishi a
$500,000 milestone payment under the agreement, and no additional milestone
payments are payable to Mitsubishi under the agreement. Either party may
terminate the agreement with Mitsubishi on 60 days notice if the other party
defaults in its material obligations under the agreement, declares bankruptcy or
becomes insolvent, or if a substantial portion of its property is subject to
levy. Unless terminated sooner, the agreement with Mitsubishi expires on the
later of termination of patent rights in a particular country or 20 years after
first commercial sale of products in a particular country. If our agreement with
Mitsubishi is terminated, we would lose all rights to Argatroban including our
right to receive revenues from the sale of Argatroban. Under the agreement, we
have access to an improved formulation patent granted in the U.S. in 1993, which
expires in 2012, and a use patent in the U.S., which expires in 2009. We have
agreed to pay a consultant involved in the negotiation of this agreement a
royalty based on net sales of Argatroban. During 2000, we signed an additional
agreement with Mitsubishi that provides us with royalties on sales of Argatroban
in certain European countries, up to a total of $5.0 million in milestones for
the development of ischemic stroke and certain other provisions. During 2001, we
received $2.0 million of these milestones less certain Japanese withholding
taxes. Additional milestones are dependent on further development of Argatroban
in the indication of ischemic stroke. During 2002, we completed a Phase II human
clinical trial for Argatroban as a monotherapy treatment for acute ischemic
stroke. The clinical trial met the primary safety endpoint and showed positive
results in the secondary safety endpoint. In light of a lack of an overall
efficacy trend and the high risk and high costs associated with stroke trials,
it is unlikely that we will proceed independently with a full Phase III program.

     GlaxoSmithKline. In connection with our development and commercialization
of Argatroban, on August 5, 1997, we entered into an agreement with GSK whereby
GSK was granted an exclusive sublicense in the U.S. and Canada for the
indications of Argatroban that we have licensed from Mitsubishi. GSK has paid
$8.5 million in upfront license fees and $12.5 million in milestone payments. No
additional license fees or milestone payments are payable to us by GSK under the
agreement. We are evaluating the feasibility of development of Argatroban for
other indications including use in hemodialysis and PCI.

     The agreement with GSK provides for the formation of a joint development
committee to analyze the development of additional Argatroban indications (such
as PCI) covered by our license from Mitsubishi. The joint development is to be
funded 60% by GSK, except Phase IV trials are paid 100% by GSK. Except as
discussed below, GSK has the exclusive right to commercialize all products
arising out of the collaboration, subject to the obligation to pay royalties on
net sales to us and our rights to co-promote these products through our own
sales force in certain circumstances. As of December 31, 2002, we had received
approximately $5.3 million in royalty payments from GSK under the agreement. We
will retain the rights to any indications that GSK determines it does not wish
to pursue (such as ischemic stroke), subject to the requirement that we may not
grant marketing rights to any third parties, and must use our own sales force to
commercialize any such indications. Any indications that GSK and TBC elect not
to develop will be returned to Mitsubishi, subject to the rights of GSK and TBC
to commercialize these indications at TBC's election, with GSK having the first
opportunity to commercialize. Mitsubishi may also request the joint development
committee to develop new indications inside or outside the licensed field of
use, and if the joint development committee determines that it does not want to
proceed with any such indication, all rights under the agreement with Mitsubishi
regarding such indication will revert to Mitsubishi subject to our and GSK's
right to commercialize the indication, with GSK having the first opportunity to
commercialize.

     The agreement with GSK generally terminates on a country-by-country basis
upon the earlier of the termination

                                       13

of our rights under the agreement with Mitsubishi, the expiration of applicable
patent rights, or in the case of certain royalty payments, the commencement of
substantial third-party competition. GSK also has the right to terminate the
agreement on a country by country basis by giving us at least three months
written notice that the commercial profile of the product in question would not
justify continued development or marketing in that country. In addition, either
party may terminate the agreement on 60 days notice if the other party defaults
in its obligations under the agreement, declares bankruptcy or becomes
insolvent. If our agreement with GSK is terminated, we would no longer receive
royalties from GSK's sales of Argatroban and we may experience delays and incur
expenses in attempting to commercialize Argatroban. We agreed to pay an agent
involved in the negotiation of this agreement a fee based on a percentage of all
consideration we receive, including royalties, from sales of Argatroban.

     At present, Mitsubishi is the only manufacturer of Argatroban, and has
entered into an agreement with GSK to supply Argatroban in bulk to meet GSK's
needs. Should Mitsubishi fail during any consecutive nine-month period to supply
GSK at least 80% of its requirements, and such requirements cannot be satisfied
by existing inventories, the agreement provides for the nonexclusive transfer of
the production technology to GSK. If GSK cannot commence manufacturing of
Argatroban in a timely manner or if alternate sources of supply are unavailable
or uneconomical, our results of operations would be harmed. GSK has informed us
that they will be finishing and packaging in a GSK facility in the future.

     In connection with the execution of our agreement with GSK, GSK purchased
176,922 shares of common stock for $1.0 million and an additional 400,000 shares
of common stock for $2.0 million in connection with the secondary public
offering, which closed on October 1, 1997.

     ICOS-TBC L.P. In June 2000, we entered into a limited partnership agreement
with ICOS to form ICOS-TBC. The partnership was formed to develop and globally
commercialize endothelin-A receptor antagonists from the TBC endothelin
antagonist program. ICOS-TBC has made an upfront license fee payment and
milestone payment for the development and commercialization of products
resulting from the collaboration and the partners equally funded the cost of
research and development through the end of 2002. In January 2003, ICOS
announced that they had reached a conclusion that joint development of the
endothelin receptor antagonist program, through ICOS-TBC should not continue.
ICOS and TBC are currently negotiating the terms pursuant to which TBC could
independently continue the program. The financial terms of this transaction are
subject to ongoing negotiations between the two companies. If TBC is successful
in obtaining 100% ownership of the program, TBC's share of the costs and
potential commercial benefit of the program will increase from 50% to 100%. See
Note 8 to the Consolidated Financial Statements for a discussion of this
transaction.

     Schering-Plough. In June 2000, TBC and Schering-Plough entered into a
worldwide research collaboration and license agreement to discover, develop and
commercialize VLA-4 antagonists, with Schering-Plough having rights to a second
integrin antagonist target. In addition to funding research costs,
Schering-Plough paid TBC an aggregate of $4 million in upfront license fees and
milestone payments, and will pay us additional development milestones of $39
million regarding the development of VLA-4 antagonists, and $38 million
regarding the development of a second integrin antagonist. We are not currently
developing the second integrin antagonist. Schering-Plough will also pay us
royalties on product sales resulting from the agreement. Total payments to us
for both programs, excluding royalties, could reach $87.0 million. As of
December 31, 2002, we had received approximately $8.8 million in research
payments from Schering-Plough under the agreement. See Note 8 to the
Consolidated Financial Statements for a discussion of this transaction. Although
we and Schering-Plough have recently agreed to extend the agreement for another
year, through June 2004, Schering-Plough can terminate the research program upon
180 days written notice to us. If this agreement is terminated, we will lose
Schering-Plough's funding for the research costs in addition to development
milestones and royalties on product sales resulting from the agreement.

     Revotar Biopharmaceuticals, AG. During September 2000, Revotar was formed
and we transferred to Revotar certain development and commercialization rights
to our selectin antagonist program as well as rights to other proprietary
technology. See Note 9 to the Consolidated Financial Statements for a discussion
of this transaction. Currently, Revotar has exclusive worldwide rights to
bimosiamose for the treatment of asthma and other inflammatory indications as
well as rights outside of North America for topical indications. We have
exclusive worldwide rights for the use of bimosiamose in organ transplant as
well as exclusive North American rights to all topical indications. The primary
focus of Revotar has been on the design and initiation of a Phase I trial for
bimosiamose using the inhaled formulation of the drug, which was completed
during 2001. During 2002, Revotar

                                       14

began a Phase IIa clinical trial in asthma, utilizing the inhaled form and
intends to commence a Phase IIa clinical trial in psoriasis utilizing the
topical form in 2003.

     In 2002, the stockholders of Revotar executed an agreement to provide
approximately $4.5 million in unsecured loans, of which our commitment was
approximately $3.4 million. Under the loan agreement, we have advanced
approximately $1.2 million to Revotar during 2002.

     Our license agreement with Revotar provides that we will receive royalties
from Revotar based on sales of products by Revotar or its licensees, and in
certain events, we will receive a portion of royalties, license fees and
milestones received by Revotar from its licensees, if any. Revotar will also
receive royalties on sales of products by us and our licensees.


                              LICENSES AND PATENTS

     Because of the substantial length of time and expense associated with
developing new pharmaceutical products, the biotechnology industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Our policy is to file patent applications
to protect technology, inventions and improvements that are important to the
development of our business. We have 18 pending U.S. patent applications and 34
issued U.S. patents covering compounds including selectin inhibitors, endothelin
antagonists and VCAM/VLA-4 antagonists. In addition, we have exclusive licenses
to three patents covering rational drug design technology. We have also filed
patent applications in certain foreign jurisdictions covering projects that are
the subject of U.S. applications and intend to file additional patent
applications as our research projects develop.

     We in-licensed the U.S. and Canadian rights to Argatroban in 1993, which
included access to an improved formulation patent granted in 1993, which expires
in 2012, and a use patent for the use of Argatroban as a fibrinolysis-enhancing
agent, which expires in 2009. The Mitsubishi composition of matter patent on
Argatroban has expired. We have access to other patents held by Mitsubishi,
however, these are not being utilized currently. Argatroban received FDA
approval on June 30, 2000. Under the agreement, Mitsubishi has the right to
bring any suit or action for infringement of the patent rights granted
thereunder; provided, however, if Mitsubishi fails to take action with respect
to any infringement, we have the right the bring any appropriate suit or action
against the infringer based upon any patent with the patent rights granted
thereunder that has a claim that specifically covers a licensed product. We
currently market Argatroban and enjoy market exclusivity pursuant to the
Waxman/Hatch Act that provides protection from competition until June 30, 2005.
We can obtain an extension under Waxman/Hatch until December 31, 2005 under
certain circumstances pertaining to submission of pediatric data. Argatroban is
currently marketed in a formulation that is covered under a formulation patent
that expires in 2010. We will also be submitting a process patent, that expires
in 2019, to the FDA for inclusion in the FDA Orange Book of Approved Drug
Products. Following expiration of Waxman/Hatch protection, it is possible that
generic manufacturers may be able to produce Argatroban without violating the
formulation or process patents.

     Other patents relevant to our key therapeutic programs are discussed in the
following table:



       Program            Product               US Patent No.         Expiration       Relevance
       -------            -------               -------------         ----------       ---------
                                                                           
       Inflammation       Bimosiamose           US 5,622,937        April 29, 2014     Composition of matter patent
                          (TBC1269)                                                    for TBC1269 (bimosiamose)
                          Bimosiamose           US 5,712,387         May 20, 2016      Process patent for
                          (TBC1269)                                                    bimosiamose synthesis
                          Integrin/VLA-4        US 6,262,084        April 15, 2019     Composition of matter patents
                                                                                       for integrin antagonists
                          Integrin/VLA-4        US 6,194,448        April 16, 2018     Composition of matter patents
                                                                                       for integrin antagonists
                          Integrin/VLA-4        US 6,096,773        April 15, 2019     Composition of matter patents
                                                                                       for integrin antagonists
       Pulmonary          Sitaxsentan           US 6,342,610       November 5, 2013    Composition of matter patent
       Hypertension                                                                    for endothelin antagonists
                          Sitaxsentan           US 6,432,994        April 28, 2017     Composition of matter patent
                                                                                       for endothelin antagonists


                                       15

     The patent positions of biopharmaceutical firms, including us, are
uncertain and involve complex legal and factual questions. Consequently, we do
not know whether any of our applications will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the U.S. are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, we cannot be certain that we were the first creator of inventions
covered by our pending patent applications or that we were the first to file
patent applications for such inventions. Moreover, we may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office,
commonly known as the PTO, to determine priority of invention, which could
result in substantial cost to us, even if the eventual outcome is favorable to
us. We have no interference proceedings pending which involve compounds
currently of commercial interest to us. We cannot assure you that our patents,
if issued, would be held valid by a court of competent jurisdiction. An adverse
outcome could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease using
such technology.

     The development of therapeutic products for cardiovascular applications is
intensely competitive. Many pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in this field. Some of these applications or patents may be
competitive with our applications or conflict in certain respects with claims
made under our applications. Such conflict could result in a significant
reduction of the coverage of our patents, if issued. In addition, if patents are
issued to other companies that contain competitive or conflicting claims and
such claims are ultimately determined to be valid, we cannot assure you that we
would be able to obtain licenses to these patents at a reasonable cost or
develop or obtain alternative technology.

     We also rely upon trade secret protection for our confidential and
proprietary information. We cannot assure you that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose such technology, or that
we can meaningfully protect our trade secrets.

     We require our employees, consultants, members of our scientific advisory
board, outside scientific collaborators and sponsored researchers and certain
other advisors to enter into confidentiality agreements with us that contain
assignment of invention clauses. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of our employees,
the agreements provide that all inventions conceived by the employee are our
exclusive property. We cannot assure you, however, that these agreements will
provide meaningful protection or adequate remedies for our trade secrets in the
event of unauthorized use or disclosure of such information.


                              GOVERNMENT REGULATION

     The research, testing, manufacture and marketing of drug products are
extensively regulated by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous
regulation by the FDA. The Federal Food, Drug and Cosmetic Act, and other
federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, record keeping, labeling,
promotion and marketing and distribution of pharmaceutical products. Failure to
comply with applicable regulatory requirements may subject a company to
administrative or judicially imposed sanctions such as:

     -    warning letters;

     -    civil penalties;

     -    criminal prosecution;

     -    injunctions;

     -    product seizure;

     -    product recalls;

                                       16

     -    total or partial suspension of production; and

     -    FDA refusal to approve pending New Drug Application ("NDA")
          applications or NDA supplements to approved applications.

     The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include:

     -    preclinical laboratory tests, animal tests and formulation studies;

     -    the submission to the FDA of an IND, which must become effective
          before clinical testing may commence;

     -    adequate and well-controlled clinical trials to establish the safety
          and effectiveness of the drug for each indication;

     -    the submission of an NDA to the FDA; and

     -    FDA review and approval of the NDA prior to any commercial sale or
          shipment of the drug.

     Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal trials to assess the potential safety and
efficacy of the product. Preclinical tests must be conducted in compliance with
Good Laboratory Practice guidelines and compounds for clinical use must be
formulated according to compliance with current Good Manufacturing Practice, or
cGMP, requirements. The results of preclinical testing are submitted to the FDA
as part of the IND and NDA.

     A 30-day waiting period after the filing of each IND is required prior to
the commencement of clinical testing in humans. If the FDA has not commented on
or questioned the IND within this 30-day period, clinical trials may begin. If
the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND application process can result in substantial delay and
expenses.

     Clinical trials involve the administration of the investigational new drug
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with Good Clinical
Practice guidelines, under protocols detailing the objectives of the trial, the
parameters to be used in monitoring safety and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND. The
study protocol and informed consent information for patients in clinical trials
must also be approved by the institutional review board at each institution
where the trials will be conducted.

     Clinical trials to support NDAs are typically conducted in three sequential
phases, which may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects or patients, the drug is tested to assess metabolism,
pharmacokinetics and pharmacological actions and safety, including side effects
associated with increasing doses. Phase II usually involves trials in a limited
patient population to:

     -    determine dosage tolerance and optimal dosage;

     -    identify possible adverse effects and safety risks; and

     -    preliminarily support the efficacy of the drug in specific, targeted
          indications.

     If a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluation, Phase III trials are undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical trial sites. There can
be no assurance that Phase I, Phase II or Phase III testing of our product
candidates will be completed successfully within any specified time period, if
at all.

     After completion of the required clinical testing, generally an NDA is
prepared and submitted to the FDA. FDA

                                       17

approval of the NDA is required before marketing may begin in the United States.
The NDA must include the results of extensive clinical and other testing and the
compilation of data relating to the product's chemistry, pharmacology and
manufacture. The cost of an NDA is substantial.

     The FDA has 60 days from its receipt of the NDA to determine whether the
application will be accepted for filing based on the threshold determination
that the NDA is sufficiently complete to permit substantive review. Once the
submission is accepted for filing, the FDA begins an in-depth review of the NDA.
Currently, for a standard review, the FDA takes approximately twelve months in
which to review the NDA and respond to the applicant. In 1997, Congress enacted
the Food and Drug Administration Modernization Act, in part, to ensure the
availability of safe and effective drugs by expediting the FDA review process
for certain new products. This act establishes a statutory program for the
approval of fast track products (those drugs which address unmet medical needs
for serious and life-threatening conditions). Under this act, the FDA has six
months in which to review the NDA and respond to the applicant. The review
process is often significantly extended by FDA requests for additional
information or clarification regarding information already provided in the
submission. The FDA may refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendation of an advisory committee.

     If FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue an approval letter, or, in some cases, an
approvable letter followed by an approval letter. The approvable letter may
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA's
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As a
condition of NDA approval, the FDA may require post-marketing testing and
surveillance to monitor the drug's safety or efficacy, or impose other
conditions, commonly referred to as Phase IV trials.

     If the FDA's evaluation of either the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue a
not approvable letter. The not approvable letter outlines the deficiencies in
the submission and often requires additional testing or information.
Notwithstanding the submission of any requested additional data or information
in response to an approvable or not approvable letter, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for
approval. Once granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems occur following initial
marketing.

     Manufacturing. Each domestic drug manufacturing facility must be registered
with FDA. Domestic drug manufacturing establishments are subject to periodic
inspection by the FDA and must comply with cGMP. Further, we or our third party
manufacturer must pass a preapproval inspection of its manufacturing facilities
by the FDA before obtaining marketing approval of any products. To supply
products for use in the United States, foreign manufacturing establishments must
comply with cGMP and are subject to periodic inspection by the FDA or
corresponding regulatory agencies in countries under reciprocal agreements with
the FDA. We use and will continue to use third party manufacturers to produce
our products in clinical and commercial quantities. There can be no guarantee
that future FDA inspections will proceed without any compliance issues requiring
the expenditure of money or other resources.

     Foreign Regulation of Drug Compounds. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities is
necessary in foreign countries prior to the commencement of marketing of the
product in those countries. The approval procedure varies among countries and
can involve additional testing. The time required may differ from that required
for FDA approval. Although there are some procedures for unified filings for
some European countries with the sponsorship of the country which first granted
marketing approval, in general each country has its own procedures and
requirements, many of which are time consuming and expensive. Thus, there can be
substantial delays in obtaining required approvals from foreign regulatory
authorities after the relevant applications are filed.

     In Europe, marketing authorizations may be submitted at a centralized, a
decentralized or a national level. The centralized procedure is mandatory for
the approval of biotechnology products and provides for the grant of a single
marketing authorization, which is valid in all European Union member states. As
of January 1995, a mutual recognition procedure is available at the request of
the applicant for all medicinal products, which are not subject to the
centralized procedure. We will choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory approvals. There can
be no assurance that the chosen regulatory strategy will secure regulatory

                                       18

approvals on a timely basis or at all.

     Hazardous Materials. Our research and development processes involve the
controlled use of hazardous materials, chemicals and radioactive materials and
produce waste products. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. Although we have not had any claims to
date on our general liability insurance relative to hazardous materials and
although we believe that our safety procedures for handling and disposing of
hazardous materials comply with the standards prescribed by laws and
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated completely. In the event of an accident, we could be held
liable for any damages that result. This liability could exceed our financial
resources or not be covered by our general liability insurance, which has a
policy limit of $7 million. Although we believe that we are in compliance in all
material respects with applicable environmental laws and regulations, there can
be no assurance that we will not be required to incur significant costs to
comply with environmental laws and regulations in the future. There can also be
no assurance that our operations, business or assets will not be materially
adversely affected by current or future environmental laws or regulations.


                                   COMPETITION

     The development and sale of new drugs for the treatment of vascular and
inflammatory diseases is highly competitive and we will face intense competition
from major pharmaceutical companies and biotechnology companies all over the
world. Competition is likely to increase as a result of advances made in the
commercial application of technologies and greater availability of funds for
investment in these fields. Companies that complete clinical trials, obtain
required regulatory approvals and initiate commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, significant research in biotechnology and vascular medicine may occur
in universities and other nonprofit research institutions. These entities have
become increasingly active in seeking patent protection and licensing revenues
for their research results. They also compete with us in recruiting talented
scientists and business professionals.

     We believe that our ability to compete successfully will depend on our
ability to create and maintain scientifically-advanced technology, develop
proprietary products, attract and retain scientific and other personnel, obtain
patent or other protection for our products, obtain required regulatory
approvals and manufacture and successfully market products through other
companies, through co-promotion agreements or alone. Many of our competitors
have substantially greater financial, marketing, and human resources than we do.
We expect to encounter significant competition.


                           MANUFACTURING AND MARKETING

     We rely on our internal resources and third-party manufacturers to produce
compounds for preclinical development. Currently, we have no manufacturing
facilities for either the production of biochemicals or the manufacture of final
dosage forms. We believe small molecule drugs are less expensive to manufacture
than protein-based therapeutics, and that all of our existing compounds can be
produced using established manufacturing methods, including traditional
pharmaceutical synthesis.

     We have established supply arrangements with third-party manufacturers for
certain clinical trials and have established and will establish supply
arrangements ultimately for commercial distribution, although there can be no
assurance that such arrangements will be established on reasonable terms. Our
long-range plan may involve establishing internal manufacturing of small
molecule therapeutics, including the ability to formulate, fill, label, package
and distribute our products. However, for the foreseeable future we plan to
outsource such manufacturing. We do not anticipate developing an internal
manufacturing capability for some time, nor are we able to determine which of
our potential products, if any, will be appropriate for internal manufacturing.
The primary factors we will consider in making this determination are the
availability and cost of third-party sources, the expertise required to
manufacture the product and the anticipated manufacturing volume. Pursuant to
our agreement with GSK, GSK entered into an agreement with Mitsubishi regarding
the manufacture and supply of Argatroban, and we will not, therefore, have any
direct responsibility regarding the manufacture and supply of Argatroban as it
relates to the agreement with GSK.


                                    EMPLOYEES

                                       19

     As of December 31, 2002, we employed 104 individuals. During January 2003,
we implemented a restructuring plan that reduced our work force to 82. Of our
restructured work force, 66 employees are engaged directly in research and
development activities and 16 in general and administrative positions. None of
our employees are represented by a labor union. We have experienced no work
stoppages and believe that relations with our employees are good. We also
maintain consulting agreements with a number of scientists at various
universities and other research institutions.


                       CONSULTANTS AND SCIENTIFIC ADVISORS

     We have assembled a scientific advisory board composed of distinguished
professors from some of the most prestigious medical schools. The scientific
advisory board assists us in identifying research and development opportunities,
in reviewing with management the progress of our projects and in recruiting and
evaluating scientific staff. Although we expect to receive guidance from the
members of our scientific advisory board, all of its members are employed on a
full-time basis by others and, accordingly, are able to devote only a small
portion of their time to us. Management expects to meet with its scientific
advisory board members as a group approximately once each year and individually
from time to time on an informal basis. We have entered into a consulting
agreement with each member of the scientific advisory board. The Scientific
Advisory Board includes James T. Willerson, M.D., as Chairman, and the following
scientists.

     Ferid Murad, M.D., Ph.D. is Professor and Chairman of the Department of
Integrative Biology and Pharmacology at the University of Texas-Houston Medical
School and the Director of the Institute of Molecular Medicine. Dr. Murad has
received many honors including the Nobel Prize in Medicine in 1998, the Ciba
Award in 1988 and the Albert and Mary Lasker Award in Basic Medical Research in
1996. He is also a member of many professional and honorary societies and is the
author or co-author of more than 300 scientific articles.

     Ajit Varki, M.D. has been a Professor of Medicine since 1991 and is
currently serving in that position as well as leader of the glycobiology program
at the University of California, San Diego. Dr. Varki served as Instructor in
Medicine at Washington University School of Medicine from 1980 to 1982. He also
served as Assistant Professor of Medicine from 1982 to 1987 and as Associate
Professor of Medicine from 1987 to 1991 at the University of California, San
Diego. In 1975, Dr. Varki received an M.D. from Christian Medical College and
his Post-Doctorate in Biochemistry from Washington University from 1979 to 1982.
He is a member of various professional societies and has won numerous awards
since 1969. He is currently president of the American Society for Clinical
Investigation. Dr. Varki is the author or co-author of 160 scientific
publications.

     Denton Cooley, M.D., Surgeon-in-Chief of the Texas Heart Institute, acts as
an advisory director to us.

     We also have agreements with various outside scientific consultants who
assist us in formulating our research and development strategy. All of our
consultants and advisors are employed by other employers and may have
commitments to or consulting or advisory contracts with other entities that may
affect their ability to work with us.


                                INTERNET WEBSITE

     Our Internet website can be found at www.tbc.com. We make available free of
charge, or through the "Investor Relations" section of our Internet website at
www.tbc.com, access to our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after such material is filed, or furnished to the Securities and
Exchange Commission.

                                       20

                             ADDITIONAL RISK FACTORS

     Stockholders and potential investors in shares of our stock should
carefully consider the following risk factors, in addition to other information
in this Form 10-K. We are identifying these risk factors as important factors
that could cause our actual results to differ materially from those contained in
any written or oral forward-looking statements made by or on behalf of us. We
are relying upon the safe-harbor for forward-looking statements and any such
statements made by or on behalf of us are qualified by reference to the
following cautionary statements, as well as to those set forth elsewhere in this
Form 10-K.


RISKS RELATED TO OUR BUSINESS, INDUSTRY AND STRATEGY

     THERE IS UNCERTAINTY IN THE DEVELOPMENT OF OUR PRODUCTS AND IF WE DO NOT
     SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS, WE WILL NOT BE PROFITABLE.

     In November 2000, we began to market our first product, Argatroban, through
our agreement with GSK. However, the royalties produced to date by Argatroban
have not made us profitable. To date, the majority of our resources have been
dedicated to the research and development of Argatroban and other small molecule
drugs for certain vascular and related inflammatory diseases. The commercial
applications of our product candidates will require further investment,
research, development, preclinical and clinical testing and regulatory
approvals, both foreign and domestic. We cannot assure you that we will be able
to develop, produce at reasonable cost, or market successfully, any of our
product candidates. Further, these product candidates may require complex
delivery systems that may prevent or limit their commercial use. All of our
products will require regulatory approval before they may be commercialized.
Products, if any, resulting from our research and development programs other
than Argatroban, are not expected to be commercially available for a number of
years, and we cannot assure you that any successfully developed products will
generate substantial revenues or that we will ever be profitable.


     WE HAVE A HISTORY OF OPERATING AND NET LOSSES AND WE MAY NEVER BECOME
     PROFITABLE.

     We have been unprofitable to date and expect to incur operating losses for
the next several years as we invest in product research and development,
preclinical and clinical testing, regulatory compliance and commercialization.
For the fiscal years ended December 31, 2002, 2001 and 2000 we have incurred net
losses of approximately $23.5 million, $19.1 million and $5.7 million,
respectively. We will require substantial additional funding to complete the
research and development of our product candidates, to establish commercial
scale manufacturing facilities, if necessary and to market our products. To
become profitable, we, either alone or with our collaborators, must successfully
develop, manufacture and market our product candidates, or continue to identify,
develop, acquire, manufacture and market other new product candidates. We may
never have any significant revenues or become profitable.


     IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL WHEN NEEDED, WE WILL BE UNABLE
     TO CONDUCT OUR OPERATIONS AND DEVELOP OUR POTENTIAL PRODUCTS.

     We have financed our research and development activities and other
operations primarily through public and private offerings of our common stock
and from funds received through our development and funding collaborations,
research agreements and partnerships. We also have received royalty revenue from
sales of Argatroban. We have not conducted any equity offerings since 2000, and
we have relied on our cash balances from prior offerings and our revenues to
fund our operations, with the result that our cash balance has decreased in
2002. As of December 31, 2002, we had cash, cash equivalents and investments in
marketable securities of approximately $60.0 million.

     We expect to continue to incur substantial research and development
expenditures as we design and develop biopharmaceutical products for the
prevention and treatment of cardiovascular and other diseases. We also
anticipate that our operating expenses will increase in subsequent years
because:

     -    we expect to incur significant expenses in conjunction with additional
          clinical trial costs for sitaxsentan and research and clinical trial
          costs for development of bimosiamose compounds and expect to begin to
          incur costs for clinical trials related to additional compounds; and

                                       21

     -    we expect to incur additional costs in future periods related to
          Argatroban in complying with ongoing FDA requirements and possible
          clinical trial expenditures for additional therapeutic indications.

     We anticipate that our existing capital resources and other revenue
sources, should be sufficient to fund our cash requirements through the end of
the third quarter of 2004. We also anticipate that we will need to secure
additional funds to continue the required levels of research and development to
complete the development and submit an NDA for sitaxsentan and to reach our
other current long-term goals. We anticipate that the NDA submission may occur
between the end of year 2004 and first quarter of 2005. We intend to seek such
additional funding through collaborative arrangements and/or through public or
private financings, if required. Our strategy for managing our capital
requirements includes seeking to license rights to sitaxsentan for select
markets, while preferably retaining North American rights. We cannot assure you
that such funding or licensing arrangements will be available on acceptable
terms. As we review our research and development programs, we may also consider
various measures to reduce our costs in order to effectively utilize our capital
resources. In early 2003, we implemented changes to reduce our operating costs,
including reducing our research and administration staff. If we are unable to
successfully access additional funding, we may be forced to take further cost
reduction measures. These adjustments may include scaling back, delaying or
terminating one or more research or development programs, curtailing capital
expenditures or reducing business development and other operating activities. We
may also consider seeking collaborators for our product candidates at an earlier
stage than otherwise would be desirable and on terms that are less favorable
than might otherwise be available or relinquishing, licensing or otherwise
disposing of rights to technologies, product candidates or products that we
would otherwise seek to develop or commercialize ourselves on terms that are
less favorable than might otherwise be available.


     WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS.

     We have historically experienced, and expect to continue to experience for
the foreseeable future, significant fluctuations in our operating results. These
fluctuations are due to a number of factors, many of which are outside of our
control, and may result in volatility of our stock price. Future operating
results will depend on many factors, including:

     -    demand for our products;

     -    regulatory approvals for our products;

     -    the timing of the introduction and market acceptance of new products
          by us or competing companies; and

     -    the timing and magnitude of certain research and development expenses.


     WE FACE SUBSTANTIAL COMPETITION THAT MAY RESULT IN OTHERS DEVELOPING AND
     COMMERCIALIZING PRODUCTS MORE SUCCESSFULLY THAN WE DO.

     The biopharmaceutical industry is highly competitive. Our success will
depend on our ability to develop products and apply technology and to establish
and maintain a market for our products. Potential competitors in the U.S. and
other countries include major pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions. Many of our
competitors have substantially greater research and development capabilities and
experience and greater manufacturing, marketing and financial resources than we
do. Accordingly, our competitors may develop products or other novel
technologies that are more effective, safer or less costly than any that have
been or are being developed by us or may obtain FDA approval for products more
rapidly than we are able.

     We have significant competition for Argatroban for the treatment of HIT.
The products that compete with Argatroban include:

     -    Refludan(R), which was approved by the FDA in 1997 for the treatment
          of HIT;

     -    Orgaran(R), which is a low molecular weight heparinoid that has been
          approved for the treatment of deep vein thrombosis, but is believed to
          be used without an approved indication ("off-label") for the treatment
          of HIT in the U.S.; and

                                       22

     -    Angiomax(R), which is approved for use in the U.S. as an anticoagulant
          in patients with unstable angina undergoing percutaneous transluminal
          coronary angioplasty.

     We may also face competition for Argatroban in indications other than HIT,
when and if such indications are approved by the FDA, including:

     -    Revasc(R), which is used in the treatment of deep vein thrombosis
          following hip surgery and has received regulatory approval in Europe;

     -    Angiomax(R), which is in Phase III clinical trials for acute coronary
          syndromes and conducting clinical trials in HIT patients;

     -    Arixtra(R), which is approved for the prevention of deep vein
          thrombosis and pulmonary embolism; and

     -    Melagatran, which is being developed as a treatment for deep vein
          thrombosis and is in Phase III trials.

     A number of companies, including Abbott Laboratories and Myogen, Inc., have
ET(A) receptor selective antagonist compounds in clinical development, which
will be in competition with sitaxsentan. Myogen has begun a Phase IIa trial for
its ET(A) compound in PAH. Several companies have non-selective endothelin
antagonists in development. Actelion Ltd., a biotechnology company located in
Switzerland, and Genentech, Inc. received approval from the FDA to market
Tracleer(R) (bosentan) for the treatment of PAH during 2001. In addition to
endothelin antagonists, Pfizer is conducting a Phase II trial in the use of
Viagra(R) in PAH. If phosphodiesterase 5 inhibitors demonstrate a benefit in PAH
patients, we believe they will be used as additive therapy with endothelin
antagonists.

     We cannot assure you that technological development by others will not
render our products or product candidates uncompetitive or that we will be
successful in establishing or maintaining technological competitiveness.

     WE ARE DEPENDENT ON THIRD PARTIES TO FUND, MARKET AND DEVELOP OUR PRODUCTS,
     INCLUDING ARGATROBAN.

     We rely on strategic relationships with our corporate partners to provide
the financing, marketing and technical support and, in certain cases, the
technology necessary to develop and commercialize certain of our product
candidates. We have entered into an agreement with Mitsubishi to license rights
and technology relating to Argatroban in the U.S. and Canada for specified
therapeutic indications. Either party may terminate the Mitsubishi agreement on
60 days notice if the other party defaults on its material obligations under the
agreement, declares bankruptcy or becomes insolvent, or if a substantial portion
of its property is subject to levy. Unless terminated sooner due to the
above-described termination provisions, the agreement with Mitsubishi expires on
the later of the termination of patent rights in a particular country or 20
years after the first commercial sale of products in a particular country. If
our agreement with Mitsubishi is terminated, we will lose all rights to
Argatroban including our right to receive revenues from the sale of Argatroban,
which would have a material adverse effect on our business and financial
condition.

     We also entered into an agreement with GSK in 1997 whereby we granted an
exclusive sublicense to GSK relating to the continued development and
commercialization of Argatroban. This agreement provides for the payment of
royalties and certain milestone payments upon the completion of various
regulatory filings and receipt of regulatory approvals. The agreement generally
terminates on a country-by-country basis upon the earlier of the termination of
our rights under the agreement with Mitsubishi, the expiration of applicable
patent rights, or in the case of certain royalty payments, the introduction of a
substantial competitor for Argatroban by another pharmaceutical company. GSK
also has the right to terminate the agreement on a country by country basis by
giving us at least three months written notice based on a reasonable
determination by GSK that the commercial profile of the therapeutic indication
in question would not justify continued development or marketing in that
country. In addition, either we or GSK may terminate our agreement on 60 days
notice if the other party defaults on its obligations under the agreement,
declares bankruptcy or becomes insolvent. If our agreement with GSK is
terminated, we will no longer receive royalties from GSK's sales of Argatroban
and we may experience delays and incur expenses in attempting to commercialize
Argatroban.

     As previously discussed, we entered into a worldwide research collaboration
and license agreement to discover,

                                       23

develop and commercialize VLA-4 antagonists with Schering-Plough. Under the
terms of the agreement, Schering-Plough obtained the exclusive worldwide rights
to develop, manufacture and market all compounds from our library of VLA-4
antagonists, as well as the rights to a second integrin antagonist. We are
responsible for optimizing a lead compound and additional follow-on compounds.
Schering-Plough is supporting our research and reimburses us for costs
associated with the worldwide product development program and commercialization
of the compound. In addition to reimbursing research costs, Schering-Plough paid
an upfront license fee and will pay development milestones and royalties on
product sales resulting from the agreement. Total payments to us for both the
VLA-4 and an additional program, excluding royalties, could reach $87.0 million.
Schering-Plough can terminate the research program upon 180 days written notice
to us. If this agreement is terminated, we will lose Schering-Plough's funding
for the research costs in addition to development milestones and royalties on
product sales resulting from the agreement.

     ICOS-TBC has the responsibility for developing endothelin antagonist
compounds from our research program. Should the partners not be able to
successfully conduct the research and clinical development of the compounds, we
could be adversely affected. There is no guarantee that the partnership will
have adequate funds to pursue its research and clinical goals or that the effort
will be successful. In January 2003, ICOS announced that they had reached a
conclusion that joint development of the endothelin receptor antagonist program,
through ICOS-TBC should not continue. ICOS and we are currently negotiating the
terms pursuant to which we could independently continue the program. We are
entirely responsible for independently funding future development activities of
ICOS-TBC subsequent to 2002 which we believe will be between $19 and $21 million
in 2003. A delay in reaching an agreement with ICOS could adversely affect or
delay the development of the endothelin receptor antagonist program.

     Our success will depend on these and any future strategic alliances. We
cannot assure you that we will satisfy the conditions required to obtain
additional research or milestone payments under the existing agreements or that
we can prevent the termination of these agreements. We also cannot assure you
that we will be able to enter into future strategic alliances on acceptable
terms. The termination of any existing strategic alliances or the inability to
establish additional collaborative arrangements may limit our ability to develop
our technology and may have a material adverse effect on our business and
financial condition.


     IF REVOTAR IS UNABLE TO OBTAIN ADDITIONAL FUNDING, INCLUDING THE ADDITIONAL
     FUNDING THAT WE ARE OBLIGATED TO PROVIDE, WE MAY LOSE OUR RIGHTS TO
     COMMERCIALIZE BIMOSIAMOSE.

     Revotar is developing a selectin antagonist, bimosiamose, for the treatment
of asthma and psoriasis. Currently, Revotar has exclusive worldwide rights to
bimosiamose for the treatment of asthma and other inflammatory indications as
well as rights outside of North America for topical indications. We have
exclusive worldwide rights for the use of bimosiamose in organ transplant as
well as exclusive North American rights to all topical indications. In 2002, we
and the other stockholders of Revotar executed an agreement to provide
approximately $4.5 million in unsecured loans, of which our commitment was
approximately $3.4 million. Under the loan agreement, we advanced approximately
$1.2 million to Revotar during 2002. We are not obligated to advance any funds
to Revotar in excess of our $3.4 million commitment, and we have no present
intention of advancing any other funds to Revotar in excess of such commitment.
We believe that Revotar's existing funds, the remaining commitments under the
loan agreement and proceeds under German government scientific grants will be
sufficient to fund Revotar into the first quarter of 2004. In order to continue
to operate beyond that time, Revotar will need to seek additional funding
through collaborative arrangements and/or through public or private financings
in the future. We cannot assure you that such funding will be available on
acceptable terms. If Revotar is unable to obtain additional funding, Revotar
will no longer be able to continue its operations, and may have to consider
various methods of maximizing shareholder value, including the sale or
liquidation of its assets to its stockholders or third parties.


RISKS RELATING TO CLINICAL AND REGULATORY MATTERS

     THE REGULATORY APPROVAL PROCESS IS COSTLY AND LENGTHY AND WE MAY NOT BE
     ABLE TO SUCCESSFULLY OBTAIN ALL REQUIRED REGULATORY APPROVALS.

     The preclinical development, clinical trials, manufacturing, marketing and
labeling of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the U.S. and other countries. We must
obtain regulatory approval for each of our product candidates before marketing
or selling any of them. It is not possible to predict how long the approval
processes of the FDA or any other applicable federal, state or foreign

                                       24

regulatory authority or agency for any of our products will take or whether any
such approvals ultimately will be granted. Positive results in preclinical
testing and/or early phases of clinical studies offer no assurance of success in
later phases of the approval process. Generally, preclinical and clinical
testing of products can take many years, and require the expenditure of
substantial resources, and the data obtained from these tests and trials can be
susceptible to varying interpretation that could delay, limit or prevent
regulatory approval. For example, we licensed rights to Argatroban in 1993, and
incurred costs, including preclinical research studies and clinical trials costs
of approximately $43 million prior to its approval by the FDA in June 2000. Any
delay in obtaining, or failure to obtain, approvals could adversely affect the
marketing of our products and our ability to generate product revenue.

     The risks associated with the approval process include:

     -    delays or rejections in the regulatory approval process based on the
          failure of clinical or other data to meet expectations, or the failure
          of the product to meet a regulatory agency's requirements for safety,
          efficacy and quality;

     -    regulatory approval, if obtained, may significantly limit the
          indicated uses for which a product may be marketed; and

     -    reliance on FDA guidance in our development plans.


     OUR CLINICAL TRIALS COULD TAKE LONGER TO COMPLETE AND COST MORE THAN WE
     EXPECT, WHICH MAY RESULT IN OUR DEVELOPMENT PLANS BEING SIGNIFICANTLY
     DELAYED.

     We will need to conduct clinical studies of all of our product candidates;
these studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could cause us to expend substantial
additional funds or to delay or modify our plans significantly, which would harm
our business, financial condition and results of operations. The factors that
could contribute to such cost, delays or modifications include:

     -    the cost of conducting human clinical trials for any potential
          product. These costs can vary dramatically based on a number of
          factors, including the order and timing of clinical indications
          pursued and the development and financial support from corporate
          partners; and

     -    intense competition in the pharmaceutical market, which may make it
          difficult for us to obtain sufficient patient populations or clinician
          support to conduct our clinical trials as planned. Many factors affect
          patient enrollment, including the size of the patient population, the
          proximity of patients to clinical sites, the eligibility criteria for
          the trial, competing clinical trials and new drugs approved for the
          conditions we are investigating. Other companies are conducting
          clinical trials and have announced plans for future trials that are
          seeking or likely to seek patients with the same diseases as those we
          are studying. Competition for patients in cardiovascular disease
          trials is particularly intense because of the limited number of
          leading cardiologists and the geographic concentration of major
          clinical centers. As a result of all of these factors, our trials may
          take longer to enroll patients than we anticipate.


     EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO
     ONGOING REGULATORY OVERSIGHT, WHICH MAY AFFECT THE SUCCESS OF OUR PRODUCTS.

     Any regulatory approvals that we receive for a product may be subject to
limitations on the indicated uses for which the product may be marketed or
contain requirements for potentially costly post-marketing follow-up Phase IV
studies. After we obtain marketing approval for any product, the manufacturer
and the manufacturing facilities for that product will be subject to continual
review and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product or with the
manufacturer or facility may result in restrictions on the product or
manufacturer, including withdrawal of the product from the market. We have not
incurred any material expenses related to the post-marketing review of
Argatroban; however, it is likely that post-marketing expenses for sitaxsentan
could be more significant than those incurred with Argatroban.

     If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.

                                       25

RISKS RELATED TO ONGOING OPERATIONS

     WE ARE DEPENDENT ON QUALIFIED PERSONNEL.

     Our success is highly dependent on our ability to attract and retain
qualified scientific and management personnel. The loss of the services of the
principal members of our management and scientific staff including Bruce D.
Given, M.D., our President and Chief Executive Officer, and Richard A. F. Dixon,
Ph.D., our Senior Vice President, Research and Chief Scientific Officer, may
impede our ability to bring products to market. Drs. Given and Dixon, as well as
other members of our management team and scientific staff, have employment
agreements with us, which provide for initial one-year terms that renew
automatically for successive additional one-year periods unless either party
provides notice at least sixty days before the scheduled expiration. We do not
maintain key person insurance on any members of our management team and
scientific staff. Our success is also dependent on our maintaining and expanding
our personnel as needs arise in the areas of research, clinical trial
management, manufacturing, and sales and marketing in order to commercialize
products. We face intense competition for such personnel from other companies,
academic institutions, government entities and other organizations. We cannot
assure you that we will be successful in hiring or retaining qualified
personnel. Managing the integration of new personnel and our growth in general
could pose significant risks to our development and progress.

     We also rely on consultants and advisors to assist us in formulating our
research and development strategy. All our consultants and advisors are either
self-employed or employed by other organizations, and they may have other
commitments such as consulting or advisory contracts with other organizations
that may affect their ability to contribute to us.


     THE HAZARDOUS MATERIAL WE USE IN OUR RESEARCH AND DEVELOPMENT COULD RESULT
     IN SIGNIFICANT LIABILITIES, WHICH MAY EXCEED OUR INSURANCE COVERAGE.

     Our research and development activities involve the use of hazardous
materials. While we believe that we are currently in substantial compliance with
federal, state and local laws and regulations governing the use of these
materials, accidental injury or contamination may occur. Any such accident or
contamination could result in substantial liabilities, which may exceed our
financial resources or not be covered by our general liability insurance, which
has a policy limit of $7 million. Additionally, the cost of compliance with
environmental and safety laws and regulations may increase in the future.


     WE MAY BE SUED FOR PRODUCT LIABILITY, WHICH MAY PREVENT OR INTERFERE WITH
     THE DEVELOPMENT OR COMMERCIALIZATION OF OUR PRODUCTS.

     Because our products and product candidates are new treatments, with
limited, if any, past use on humans, serious undesirable and unintended side
effects may arise. We may be subject to product liability claims that are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products. These claims could expose us to significant liabilities that could
prevent or interfere with the development or commercialization of our products
and seriously impair our financial position. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours. We maintain
product liability insurance in various countries with policy limits of up to $5
million for claims arising from the use of our products in clinical trials prior
to FDA approval. Under the agreements with Mitsubishi and GSK, we also maintain
product liability insurance with a policy limit of $10 million to cover claims
that may arise from the sale of Argatroban. Our existing coverage will not be
adequate as we further develop products and as sales of Argatroban continue. We
cannot assure you that we will be able to maintain our existing insurance
coverage or obtain additional coverage on commercially reasonable terms for
liability arising from the use or sale of our other products in the future.
Also, this insurance coverage and our resources may not be sufficient to satisfy
any liability resulting from product liability claims and a product liability
claim may have a material adverse effect on our business, financial condition or
results of operations.


RISKS RELATING TO PRODUCT MANUFACTURING AND SALES

     WE HAVE VERY LIMITED MANUFACTURING, MARKETING AND SALES EXPERIENCE.

     We have very limited manufacturing, marketing and product sales experience.
If we develop any additional

                                       26

commercially marketable products, we cannot assure you that contract
manufacturing services will be available in sufficient capacity to supply our
product needs on a timely basis. If we decide to build or acquire commercial
scale manufacturing capabilities, we will require additional management and
technical personnel and additional capital.

     If in the future, we decide to perform sales and marketing activities
ourselves, we would face a number of additional risks, including:

     -    we may not be able to attract and build a significant marketing or
          sales force;

     -    the cost of establishing a marketing or sales force may not be
          justifiable in light of product revenues; and

     -    our direct sales and marketing efforts may not be successful.


     WE CANNOT ASSURE YOU THAT THE RAW MATERIALS NECESSARY FOR THE MANUFACTURE
     OF OUR PRODUCTS WILL BE AVAILABLE IN SUFFICIENT QUANTITIES OR AT A
     REASONABLE COST.

     Complications or delays in obtaining raw materials or in product
manufacturing could delay the submission of products for regulatory approval and
the initiation of new development programs, each of which could materially
impair our competitive position and potential profitability. We cannot assure
you that we will be able to enter into any other supply arrangements on
acceptable terms, if at all.


     WE ARE DEPENDENT ON A SINGLE SUPPLIER OF ARGATROBAN.

     At the present time, Mitsubishi is the only supplier of Argatroban in bulk
form. Mitsubishi has entered into a supply agreement with GSK to supply
Argatroban in bulk to meet GSK's and our needs. Should Mitsubishi fail during
any consecutive nine-month period to supply GSK with at least 80 percent of its
requirements, and such requirements cannot be satisfied by existing inventories,
the supply agreement with Mitsubishi provides for the nonexclusive transfer of
the production technology to GSK. However, in the event Mitsubishi terminates
supplying Argatroban or defaults in its supply commitment, we cannot assure you
that GSK will be able to commence manufacturing of Argatroban in a timely manner
or that alternate sources of bulk Argatroban will be available at reasonable
cost, if at all. If GSK cannot commence the manufacturing of Argatroban or
alternate sources of supply are unavailable or are not available on commercially
reasonable terms, it could harm our profitability. In addition, finishing and
packaging has only been arranged with one manufacturing facility in the U.S. GSK
has informed us that they will be finishing and packaging in a GSK facility
sometime in the future.


     OUR PRODUCTS, EVEN IF APPROVED BY THE FDA OR FOREIGN REGULATORY AGENCIES,
     MAY NOT BE ACCEPTED BY HEALTH CARE PROVIDERS, INSURERS OR PATIENTS.

     If any of our products, including Argatroban, after receiving FDA or other
foreign regulatory approval, fail to achieve market acceptance, our ability to
become profitable in the future will be adversely affected. We believe that
market acceptance will depend on our ability to provide acceptable evidence of
safety, efficacy and cost effectiveness. In addition, market acceptance depends
on the effectiveness of our marketing strategy and the availability of
reimbursement for our products.


     THE SUCCESSFUL COMMERCIALIZATION OF OUR PRODUCTS IS DEPENDENT ON
     PHARMACEUTICAL PRICING AND THIRD-PARTY REIMBURSEMENT.

     In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. In addition,
government and private third-party payors are increasingly attempting to contain
health care costs by limiting both the coverage and the level of reimbursement
of drug products. Consequently, the reimbursement status of newly approved
health care products is highly uncertain, and we cannot assure you that
third-party coverage will be available or that available third-party coverage
will enable us to maintain price levels sufficient to realize an appropriate
return on our investment in product development. Our long-term ability to market
products successfully may depend in part on the extent to which reimbursement
for the cost of such products and related treatment will be available.
Third-party payors are increasingly challenging the prices of medical products
and services. Furthermore, inadequate third-party coverage

                                       27

may reduce market acceptance of our products. Significant changes in the health
care system in the United States or elsewhere could have a material adverse
effect on our business and financial performance.

     Sitaxsentan belongs to a class of drug called endothelin antagonists, which
may cause liver and fetal abnormalities. Tracleer(R) (bosentan), a product of
Actelion, Inc., also belongs to this class of drug, and the FDA, as a condition
for the approval of Tracleer(R), required that Actelion distribute Tracleer(R)
via a limited access program. A limited access program is a distribution system
which seeks to manage the post marketing risk of an approved medication through:
(i) limited distribution of the medication through a number of specialty
distributor pharmacies; (ii) registration of all practitioners prescribing the
medication; (iii) registration of all patients receiving the medication; (iv)
written certification by the practitioner that the medication is being
prescribed for a medically appropriate use; (v) review of safety warnings with
the patient by the practitioner; and (vi) an ongoing comprehensive program to
monitor, collect, track and report adverse event and other safety related
information from patients receiving the medication. We believe that since
sitaxsentan belongs to the same class of drug as Tracleer(R), the FDA will
require that sitaxsentan be distributed though a limited access program that may
make patient access and reimbursement more difficult.


RISKS RELATING TO INTELLECTUAL PROPERTY

     WE MAY NOT BE ABLE TO PROTECT PROPRIETARY INFORMATION AND OBTAIN PATENT
     PROTECTION.

     We actively seek patent protection for our proprietary technology, both in
the U.S. and in other areas of the world. However, the patent positions of
pharmaceutical and biotechnology companies, including us, are generally
uncertain and involve complex legal, scientific and factual issues. Intellectual
property is an uncertain and developing area of the law that is potentially
subject to significant change. Our success will depend significantly on our
ability to:

     -    obtain patents;

     -    protect trade secrets;

     -    operate without infringing upon the proprietary rights of others; and

     -    prevent others from infringing on our proprietary rights.

     We cannot assure you that patents issued to or licensed by us will not be
challenged, invalidated or circumvented, or that the rights granted will provide
competitive advantages to us. We cannot assure you that our patent applications
or pending patent applications, if and when issued, will be valid and
enforceable and withstand litigation. We cannot assure you that others will not
independently develop substantially equivalent, generic equivalent or
superseding proprietary technology or that an equivalent product will not be
marketed in competition with our products, thereby substantially reducing the
value of our proprietary rights. We may experience a significant delay in
obtaining patent protection for our products as a result of a substantial
backlog of pharmaceutical and biotechnology patent applications at the PTO.
Other competitors may have filed or maintained patent applications for
technology used by us or covered by pending applications. In addition, patent
protection, even if obtained, is affected by the limited period of time for
which a patent is effective.

     GSK currently markets Argatroban and enjoys market exclusivity pursuant to
the Waxman/Hatch Act that provides protection from competition until June 30,
2005. We have received a formal written request from the FDA to conduct a study
with Argatroban in pediatric patients. Upon completion of this study, we will be
eligible for an additional six months of market exclusivity. The composition of
matter patent on Argatroban has expired. Argatroban is currently marketed in a
formulation that is covered under a formulation patent that expires in 2010.
Following expiration of Waxman/Hatch protection, it is possible that generic
manufacturers may be able to produce Argatroban without violating the
formulation or process patents.

     We could also incur substantial costs in filing and prosecuting patent
claims, defending any patent infringement suits or in asserting any patent
rights, including those granted by third parties, in a suit with another party.
The PTO could institute interference proceedings involving us in connection with
one or more of our patents or patent applications, and such proceedings could
result in an adverse decision as to priority of invention. The PTO or a
comparable agency in a foreign jurisdiction could also institute re-examination
or opposition proceedings against us

                                       28

in connection with one or more of our patents or patent applications and such
proceedings could result in an adverse decision as to the validity or scope of
the patents. As of the date of this Form 10-K, there are no suits, interference
proceedings, re-examination proceedings or opposition proceedings, pending or,
to our knowledge, threatened against us, with respect to patents issued to or
licensed by us or with respect to any patent applications filed by us.

     We may be required to obtain licenses to patents or other proprietary
rights from third parties. We cannot assure you that any licenses required under
any patents or proprietary rights would be made available on acceptable terms,
if at all. If we are unable to obtain required licenses, we could encounter
delays in product introductions while we attempt to design around blocking
patents, or we could find that the development, manufacture or sale of products
requiring such licenses could be foreclosed.


     WE RELY ON COMPOUNDS AND TECHNOLOGY LICENSED FROM THIRD PARTIES AND
     TERMINATION OF ANY OF THOSE LICENSES WOULD RESULT IN THE LOSS OF
     SIGNIFICANT RIGHTS.

     We have entered into an agreement with Mitsubishi to license Mitsubishi's
rights and technology relating to Argatroban and to license Mitsubishi's own
proprietary technology developed with respect to Argatroban. Under the
agreement, Mitsubishi has the right to bring any suit or action for infringement
of the patent rights granted thereunder; provided, however, if Mitsubishi fails
to take action with respect to any infringement, we have the right the bring any
appropriate suit or action against the infringer based upon any patent with the
patent rights granted thereunder that has a claim that specifically covers a
licensed product. The agreement provides us an exclusive license to use and sell
Argatroban in the U.S. and Canada for all cardiovascular, renal, neurological
and immunological purposes other than use for the coating of stents. We are
required to pay Mitsubishi specified royalties on net sales of Argatroban by us
and our sublicensees after its commercial introduction in the U.S. and Canada.
During 2000, we signed an additional agreement with Mitsubishi that provides us
with royalties on sales of Argatroban in certain European countries, up to a
total of $5.0 million in milestones for the development of ischemic stroke and
certain other provisions. During 2001, we received $2.0 million of these
milestones less certain Japanese withholding taxes. Additional milestones are
dependent on further development of Argatroban in the indication of ischemic
stroke. During 2002, we completed a Phase II human clinical trial for Argatroban
as a monotherapy treatment for acute ischemic stroke. The clinical trial met the
primary safety endpoint and showed positive results in the secondary safety
endpoint. In light of a lack of an overall efficacy trend and the high risk and
high costs associated with stroke trials, it is unlikely that we will proceed
independently with a full Phase III program. Either party may terminate the
agreement with Mitsubishi on 60 days notice if the other party defaults in its
material obligations under the agreement, declares bankruptcy or becomes
insolvent, or if a substantial portion of its property is subject to levy. We
are currently in compliance with respect to the material obligations under the
agreement. Unless terminated sooner, the agreement with Mitsubishi expires on
the later of termination of patent rights in a particular country or 20 years
after first commercial sale of products in a particular country. If our
agreement with Mitsubishi is terminated, we will lose the rights to Argatroban
including our right to receive revenues from the sale of Argatroban, which would
have a material adverse effect on our business and financial condition.


     IF WE ARE UNABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
     INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US.

     We rely significantly on trade secrets, know-how and continuing
technological advancement to maintain our competitive position. We try to
protect this information by entering into confidentiality agreements with our
employees and consultants, which contain assignment of invention provisions.
Notwithstanding these agreements, others may gain access to these trade secrets,
such agreements may not be honored and we may not be able to protect effectively
our rights to our unpatented trade secrets. Moreover, our trade secrets may
otherwise become known or independently developed by our competitors.


RISKS RELATED TO OUR COMMON STOCK OUTSTANDING

     OUR STOCK PRICE IS VOLATILE.

     The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In particular, the market price of our common stock, like
that of the securities of other biopharmaceutical companies, has been and may be
highly volatile. During the period from December 31, 2000 to December 31, 2002,
our stock price has ranged from a low of $1.40 per share (on

                                       29

December 31, 2002) to a high of $10.75 per share (on January 17, 2001). Further
information regarding the trading price of our common stock is included in Item
5 of this Form 10-K. Factors such as announcements concerning technological
innovations, new commercial products or procedures by us or our competitors,
proposed governmental regulations and developments in both the U.S. and foreign
countries, disputes relating to patents or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by us or our competitors, public concern as to the safety of
biotechnology products, and economic and other external factors, as well as
period-to-period fluctuations of financial results, may have a significant
effect on the market price of our common stock.

     From time to time, there has been limited trading volume with respect to
our common stock. In addition, we cannot assure you that there will continue to
be a trading market or that any securities research analysts will continue to
provide research coverage with respect to our common stock. It is possible that
such factors will adversely affect the market for our common stock.

     On March 21, 2003, Nasdaq informed us that for the last 30 consecutive
trading days, the bid price of our common stock has closed below the minimum
$1.00 per share requirement for continued inclusion in The Nasdaq National
Market. Therefore, in accordance with Nasdaq Rules, we will be provided 180
calendar days, or until September 17, 2003, to regain compliance. If, at any
time before September 17, 2003, the bid price of our common stock closes at
$1.00 per share or more for a minimum of 10 consecutive trading days, The Nasdaq
will provide written notification that we have achieved compliance with this
rule. If compliance with this rule cannot be demonstrated by September 17, 2003,
the Nasdaq will provide written notification that our securities will be
delisted. At that time, we may appeal this determination to a Listing
Qualifications Panel or may apply to transfer our securities to The Nasdaq Small
Cap Market.


     ISSUANCE OF SHARES IN CONNECTION WITH FINANCING TRANSACTIONS OR UNDER STOCK
     PLANS AND OUTSTANDING WARRANTS WILL DILUTE CURRENT STOCKHOLDERS.

     Pursuant to our stock plans, our management is authorized to grant stock
awards to our employees, directors and consultants. In addition, we also have
warrants outstanding to purchase shares of our common stock. You will incur
dilution upon exercise of any outstanding stock awards or warrants. In addition,
if we raise additional funds by issuing additional common stock, or securities
convertible into or exchangeable or exercisable for common stock, further
dilution to our existing stockholders will result, and new investors could have
rights superior to existing stockholders.


     THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE,
     INCLUDING WARRANTS, WHICH ARE CURRENTLY EXERCISABLE, COULD ADVERSELY AFFECT
     THE MARKET PRICE OF OUR STOCK.

     As of December 31, 2002, we have reserved approximately 6.0 million shares
of common stock for issuance under outstanding options and warrants.
Approximately 5.8 million of these shares of common stock are registered for
sale or resale on currently effective registration statements, and the holders
of substantially all of the remaining shares of common stock are entitled to
registration rights. The issuance of a significant number of shares of common
stock upon the exercise of stock options and warrants, or the sale of a
substantial number of shares of common stock under Rule 144 or otherwise, could
adversely affect the market price of the common stock.


     CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND
     DELAWARE LAW AND OUR RIGHTS PLAN, AND SEVERANCE PROVISIONS OF OUR
     EMPLOYMENT AGREEMENTS MAY DETER OR PREVENT A CHANGE IN CONTROL OF OUR
     COMPANY AND RESULT IN THE ENTRENCHMENT OF MANAGEMENT, EVEN IF THAT CHANGE
     WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Our Certificate of Incorporation and Section 203 of the Delaware General
Corporation Law contain certain provisions that may delay or prevent an attempt
by a third party to acquire control of us. These provisions in our Certificate
of Incorporation include:

     -    authorizing the issuance of "blank check" preferred stock;

     -    limiting the ability of stockholders to call a special meeting of
          stockholders by requiring the written request of the holders of at
          least 51% of our outstanding common stock; and

                                       30

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

     We are subject to Section 203 of the Delaware General Corporation Law,
which generally prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with an interested stockholder for a period of
three years following the date on which the stockholder became an interested
stockholder.

     In January 2002, we adopted a Rights Plan that may delay or prevent such
attempt by a third party to acquire control of us without obtaining our
agreement to redeem the rights; if our agreement to redeem the rights is not
obtained, the third party would suffer substantial dilution. In addition, the
severance provisions of employment agreements with certain members of management
could impede an attempted change of control by a third party and result in the
entrenchment of management. These provisions include:

     -    the lump-sum payment to certain members of our management team of up
          to one year's annual base salary and a prorata bonus in the event of a
          termination by us without "cause" or by the management team member for
          "good reason;"

     -    the continued vesting and exercisability of all stock options and
          restricted stock during specified periods after the termination by us
          without "cause" or by the management team member for "good reason;"

     -    the lump-sum payment to certain members of our management team of up
          to three year's annual base salary and bonus in the event of a
          termination within two years of a "change in control" of us;

     -    gross-up payments for certain income taxes on lump-sum payments; and

     -    the continuation of certain other benefits for periods of up to three
          years.

In the event of the termination of all of these members of management within two
years of a "change in control" of us, the base salary and annual bonus portions
of these employment agreements would aggregate approximately $4.9 million at the
current rate of compensation.


ITEM 2 -- PROPERTIES

     We lease 15,490 square feet of office space in Bellaire, Texas for our
administrative, marketing, clinical development and regulatory departments. The
lease expires July 31, 2005 with an option to extend the lease to December 31,
2005, provided we give ninety (90) days prior written notice.
     We also lease 31,359 square feet of office and laboratory space in another
building in Houston, Texas for our research department, including a 21,621
square foot laboratory facility and a 3,909 square foot animal facility. The
remaining area is being used for clinical development, computer modeling,
storage space and additional offices for scientists. Our lease expires in
December 2005. Additionally, we lease 658 square feet in the building for use as
storage space on a monthly basis.

     Revotar leases 8,800 square feet of office and laboratory space in Berlin,
Germany. Their lease expires in September 2006.

     We may require additional space to accommodate future research and
laboratory needs as necessary to bring products into development and clinical
trials.


ITEM 3 -- LEGAL PROCEEDINGS

     None


ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our shareholders during the fourth
quarter of our fiscal year ended December 31, 2002.

                                       31

                                     PART II

ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

     Our common stock began trading on The Nasdaq National Market on June 19,
2001 under the symbol "TXBI" before which our common stock was traded on the
American Stock Exchange under the symbol "TXB".

     On March 21, 2003, Nasdaq informed us that for the last 30 consecutive
trading days, the bid price of our common stock has closed below the minimum
$1.00 per share requirement for continued inclusion in The Nasdaq National
Market. Therefore, in accordance with Nasdaq Rules, we will be provided 180
calendar days, or until September 17, 2003, to regain compliance. If, at any
time before September 17, 2003, the bid price of our common stock closes at
$1.00 per share or more for a minimum of 10 consecutive trading days, Nasdaq
will provide written notification that we have achieved compliance with this
rule. If compliance with this rule cannot be demonstrated by September 17, 2003,
the Nasdaq will provide written notification that our securities will be
delisted. At that time, we may appeal this determination to a Listing
Qualifications Panel or may apply to transfer our securities to The Nasdaq Small
Cap Market.

     The following table sets forth, for the periods indicated, the high and low
sale prices for the common stock as reported by the consolidated transaction
reporting system.



                                                                       COMMON STOCK
                                                                  ----------------------
                                                                  HIGH              LOW
                                                                  -----             ----
                                                                              
  YEAR ENDED DECEMBER 31, 2001
    First Quarter......................................           10.90             4.62
    Second Quarter.....................................            9.00             4.51
    Third Quarter......................................            8.60             4.90
    Fourth Quarter.....................................            7.47             5.02
  YEAR ENDED DECEMBER 31, 2002
    First Quarter......................................            7.10             5.03
    Second Quarter.....................................            6.10             2.94
    Third Quarter......................................            3.71             1.80
    Fourth Quarter.....................................            3.08             1.30


     As of March 15, 2003 there were approximately 476 holders of record of our
common stock and approximately 16,000 beneficial owners.


                      EQUITY COMPENSATION PLAN INFORMATION



                                                                                               NUMBER OF SECURITIES
                                             (a)                                              REMAINING AVAILABLE FOR
                                   NUMBER OF SECURITIES TO        WEIGHTED-AVERAGE         FUTURE ISSUANCE UNDER EQUITY
                                   BE ISSUED UPON EXERCISE        EXERCISE PRICE OF             COMPENSATION PLANS
                                   OF OUTSTANDING OPTIONS,      OUTSTANDING OPTIONS,           (EXCLUDING SECURITIES
PLAN CATEGORY                        WARRANTS AND RIGHTS         WARRANTS AND RIGHTS         REFLECTED IN COLUMN (a))
- -------------                      -----------------------      --------------------       ----------------------------
                                                                                  
Equity compensation plans
 approved by security holders              5,012,500                     $6.72                        745,913
Equity compensation plans not
   approved by security holders                  ---                       ---                            ---
                                           ---------                     -----                        -------
Total                                      5,012,500                     $6.72                        745,913
                                           =========                     =====                        =======


See Note 3 to the Consolidated Financial Statements, included herein.

                                       32

                                 DIVIDEND POLICY

     We have never declared or paid dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain any future earnings to finance our growth strategy and ongoing business.
Payment of future dividends, if any, will be at the discretion of the board of
directors after reviewing various factors, including our financial condition and
operating results, current and anticipated cash needs and restrictions which may
be in effect in any future financing agreement.


                     RECENT SALES OF UNREGISTERED SECURITIES

None.

                                       33

ITEM 6 -- SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     The selected financial data set forth below for each of the years in the
five-year period ended December 31, 2002 are derived from our audited
consolidated financial statements. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our 2002, 2001 and 2000
financial statements and notes thereto included elsewhere in this Form 10-K.



                                                                                YEAR ENDED DECEMBER 31,
                                                              -------------------------------------------------------
                                                                2002        2001        2000        1999       1998
                                                              --------    --------     -------    --------   --------
                                                                                              
     CONSOLIDATED STATEMENT OF OPERATIONS DATA:
     Revenues...........................................      $ 10,433    $  8,917     $15,692    $  2,083   $  2,252
     Expenses:
       Research and development.........................        20,066      17,861      13,513      13,080     14,399
       Equity in loss of affiliate......................         8,557       9,450       3,487         ---        ---
       Charge for purchase of in-process research
        and development.................................           ---         ---         ---         ---        134
       General and administrative.......................         8,976       6,733       6,552       5,512      4,321
                                                              --------    --------     -------    --------   --------
          Total expenses................................        37,599      34,044      23,552      18,592     18,854
                                                              --------    --------     -------    --------   --------
     Operating loss.....................................       (27,166)    (25,127)     (7,860)    (16,509)   (16,602)
                                                                                                  -
       Investment income, net...........................         2,472       5,236       4,362       1,212      2,088
                                                              --------    --------     -------    --------   --------
     Loss before minority interest and cumulative
      effect of change in accounting principle..........       (24,694)    (19,891)     (3,498)    (15,297)   (14,514)
     Minority interest in loss of Revotar...............         1,225         749         209         ---        ---
                                                              --------    --------     -------    --------   --------
     Loss before cumulative effect of
      change in accounting principle....................       (23,469)    (19,142)     (3,289)    (15,297)   (14,514)
     Cumulative effect of change in accounting principle           ---         ---      (2,366)        ---        ---
                                                              --------    --------     -------    --------   --------
     Net loss...........................................       (23,469)    (19,142)     (5,655)    (15,297)   (14,514)
       Preferred dividend requirement...................           ---         ---         ---         ---         (2)
                                                              --------    --------     -------    --------   --------
       Net loss applicable to common shares.............      $(23,469)   $(19,142)    $(5,655)   $(15,297)  $(14,516)
                                                              ========    ========     =======    ========   ========
     Net loss per share basic and diluted...............      $  (0.54)   $  (0.44)    $ (0.14)   $  (0.45)  $  (0.43)
                                                              ========    ========     =======    ========   ========
     Weighted average common shares used to
      compute basic and diluted net loss per share......        43,741      43,637      39,150      34,226     33,930
                                                              ========    ========     =======    ========   ========





                                                                                    DECEMBER 31,
                                                               -------------------------------------------------------
                                                                 2002       2001         2000        1999        1998
                                                               -------    --------     -------     -------     -------
                                                                                                
     CONSOLIDATED BALANCE SHEET DATA:
     Cash, cash equivalents and short and
      long-term investments............................        $68,005    $ 95,427     $92,533     $15,170     $30,376
     Working capital...................................         44,965      52,322      85,041      14,477      27,907
     Total assets......................................         77,792     104,362      98,969      20,805      36,106
     Shareholders' equity..............................         62,078      84,237      84,027      18,590      33,236


                                       34

ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

     The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes to the financial statements included elsewhere
in this Form 10-K. This discussion contains forward-looking statements based on
current expectations that are subject to risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. When used in
this discussion, the words "expect", "anticipate", "intend", "plan", "believe",
"seek", "estimate" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. Our actual results and the timing of events could
differ materially from those anticipated or implied by the forward-looking
statements discussed here as a result of various factors, including, among
others, those set forth under the "Cautionary Note Regarding Forward-Looking
Statements", herein. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Except as required by law, we undertake no obligation to update any of the
forward-looking statements in this discussion after the date of this report.


                                    OVERVIEW

     Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery, research and development. We are a biopharmaceutical
company focused on the discovery, development and commercialization of novel,
synthetic, small molecule compounds for the treatment of a variety of
cardiovascular, vascular and related inflammatory diseases. Our research and
development programs are focused on inhibitors (also referred to as antagonists
or blockers) that can interrupt certain disease processes. Our programs seek to
address unmet medical needs in areas where our compounds will have the greatest
likelihood of improving the lives of patients suffering from cardiovascular
diseases, thrombocytopenia, pulmonary arterial hypertension, heart failure and
inflammatory diseases such as asthma.

     Our strategy is to identify and develop novel product candidates for
underserved indications, and to commercialize those candidates through
collaborations with other pharmaceutical and biotechnology companies. An
important part of our strategy is the selection of corporate partners to enhance
our drug discovery and development efforts. We and our partners currently have
three products in clinical development.

     For additional information about our programs and business strategy, see
"Overview" and "Business Strategy" in Item 1, "Business" included herein.


              MAJOR COMPOUNDS IN RESEARCH AND DEVELOPMENT PROGRAMS

ARGATROBAN

     Argatroban is our first marketed product. Argatroban was approved by the
U.S. FDA in 2000, is indicated for prophylaxis or treatment of thrombosis in
patients with HIT for patients with or at risk of HIT undergoing PCI. Argatroban
was approved in Canada in 2002 for use as anticoagulant therapy in patients with
heparin-induced thrombocytopenia syndrome. The drug is being marketed in the
U.S. and Canada by GSK and has been on the market in the U.S. and Canada since
November 2000 and June 2002, respectively. GSK is our development, manufacturing
and marketing partner for Argatroban.

     During 2002, we completed a Phase II human clinical trial for Argatroban as
a mono-therapy treatment for acute ischemic stroke. The clinical trial met the
primary endpoint and showed positive results in the secondary safety endpoint.
In light of a lack of an overall efficacy trend and the high risk and high cost
associated with stroke trials, it is unlikely that we will proceed independently
with a full Phase II program. Currently, Argatroban is being evaluated by an
investigator at the University of Texas Medical School at Houston in a clinical
trial, in combination with recombinant tissue Plasminogen Activator (rt-PA) as a
new approach to the treatment of acute ischemic stroke. Argatroban is approved
and sold in Japan by Mitsubishi, the licensor of Argatroban and by their
licensee as mono-therapy for an indication of acute ischemic stroke.

                                       35

     We, along with GSK, are continuing to evaluate the use of Argatroban for
use in hemodialysis patients and for use in PCI.

     Presently, we have four major product development programs.

- -    Endothelin Antagonist Program. We are developing sitaxsentan, an
     endothelin(A) receptor antagonist, or ET(A), for the treatment of pulmonary
     arterial hypertension. During June 2000, we formed a partnership, ICOS-TBC,
     with ICOS Corporation to develop and commercialize ET(A) receptor
     antagonists. During 2002, ICOS-TBC successfully completed a Phase IIb/III
     clinical trial in pulmonary arterial hypertension with sitaxsentan.
     TBC3711, a second generation ET(A), has previously completed Phase I
     clinical trials and may be developed for cardiovascular or other diseases.
     In January 2003, ICOS announced that they had reached a conclusion that
     joint development of the endothelin receptor antagonist program by ICOS-TBC
     should not continue. ICOS and TBC are currently negotiating the terms
     pursuant to which TBC could independently continue the program. The
     financial terms of this transaction are subject to ongoing negotiations
     between the two companies. After 2002, we are responsible for all costs of
     the program.

- -    Thrombosis. During 2002, we completed a Phase II human clinical trial for
     Argatroban as a mono-therapy treatment for acute ischemic stroke. The
     clinical trial met the primary endpoint based on safety and showed positive
     results in the secondary safety endpoint. In light of a lack of a positive
     overall efficacy trend and the high risk and high costs associated with
     stroke trials, it is unlikely that we will proceed independently with a
     full Phase II program. Currently, Argatroban is being evaluated, in a
     clinical trial, in combination with recombinant tissue Plasminogen
     Activator (rt-PA) as a new approach to the treatment of acute ischemic
     stroke by an investigator at the University of Texas Medical School at
     Houston.

- -    Vascular Inflammation Program. Revotar, our majority owned German affiliate
     located in Berlin is developing a selectin antagonist, bimosiamose, for the
     treatment of asthma and psoriasis. The intravenous form of the drug
     demonstrated positive anti-inflammatory effects in Phase II clinical
     trials. Revotar was formed during 2000, to further the development of this
     program. Revotar completed Phase I clinical trials for asthma utilizing an
     inhaled form of bimosiamose. A Phase IIa clinical trial is currently being
     conducted with an inhaled form of bimosiamose and a Phase IIa clinical
     trial in psoriasis is planned to commence during the first half of 2003,
     using a topical formulation. A Phase IIa proof-of-concept clinical trial in
     psoriasis, completed during 2002 with an injectable form of bimosiamose,
     demonstrated efficacy. We are also conducting research with respect to
     other cell adhesion molecules including vascular cell adhesion molecule, or
     VCAM, junctional adhesion molecules, or JAM 2/3 and several integrins
     including very late antigen 4, or VLA-4, (alpha)4(beta)7 and others to
     develop antagonists for the treatment of asthma, rheumatoid arthritis,
     multiple sclerosis, restenosis and inflammatory bowel disease. We have
     signed a collaboration and license agreement for the VLA-4 program with
     Schering-Plough and have received a milestone payment from Schering-Plough
     for nominating a compound as a clinical candidate. Additionally, we are
     conducting research on backup VLA-4 antagonists for Schering-Plough under
     this agreement.

- -    Vascular Disease. Many disease processes involve changes in blood vessels
     and heart tissue. There are numerous mediators, like endothelin, which may
     contribute to the development of these diseases. Several of these act
     though G-protein coupled receptors, GPCRs, to carry out their action. We
     are conducting research on urotensin and other GPCRs to identify inhibitors
     which could be useful in treating diseases including congestive heart
     failure, CHF, ischemic stroke and acute myocardial infarction.


                              RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

     -    We recognize revenue from service contracts as services are performed.

     -    Royalty revenue is recognized as products are sold by a licensee and
          we have received sufficient information to record a receivable. Our
          royalty revenue is based on net sales of product, that is, sales net
          of discounts, returns and allowances. We have estimated a percentage
          of gross sales, based on recent experience, as an allowance for future
          returns, however there can be no assurance that our estimate will be
          accurate.

                                       36

     -    Revenue from collaborative research and development activities is
          recognized as services are performed.
     -    We defer the recognition of milestone payments related to contractual
          agreements which are still in the development stage. Such deferred
          revenues are amortized into income over the estimated remaining
          development period. Milestone payments received under contractual
          agreements which have completed the development stage are evaluated,
          and either recognized into income when earned, or amortized over a
          future period, depending upon whether the Company continues to have
          obligations under the terms of the arrangement.
     -    License fees received under the terms of licensing agreements for our
          intellectual property are deferred, and amortized into income over the
          estimated development period of the licensed item or items.
     -    Revenue from grants is recognized as earned under the terms of the
          related grant agreements, typically as expenses are incurred.

     Amounts received in advance of services being performed under contracts are
recorded as deferred revenue, and recognized as services are performed. We
periodically evaluate our estimates of remaining development periods, and adjust
the recognition of remaining deferred revenues over the adjusted development
period remaining.


Partnership Accounting

     We recognize our share of the operating results of ICOS-TBC in proportion
to our ownership interest and record it as equity in loss of ICOS-TBC. Operating
results of ICOS-TBC include reimbursed expenses related to our internal research
staff that we recognize as revenue and record as collaborative research and
development revenue from ICOS-TBC. Due to the nature of the ICOS-TBC
collaborative agreement, our collaborative research and development revenue from
ICOS-TBC largely depends on the continued progression of clinical trial and
development activities, and can be expected to vary from quarter to quarter and
year to year.

     In January 2003, ICOS informed us that they had reached the conclusion that
joint development of the endothelin receptor antagonist program through ICOS-TBC
should not continue. ICOS and TBC are currently negotiating the terms pursuant
to which we could independently continue the program. The financial terms of
this transaction are subject to ongoing negotiations between the two companies.
This could allow us to increase our ownership and the potential commercial
benefit of the program from 50% to 100%. The partners were responsible for the
equal funding of the costs of research and development incurred through the end
of 2002. After 2002, we are responsible for all costs of the program.


Stock Options

     We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations ("APB 25") in accounting for
our stock option plans and apply Financial Accounting Standards Board ("FASB")
Statement No. 123, "Accounting for Stock-Based Compensation", and related
interpretations ("SFAS 123") in reporting for our stock option plans. APB 25
utilizes the "intrinsic value" of stock options, defined as the difference
between the exercise price of an option and the market price of the underlying
share of common stock, on the "measurement date" which is generally the date of
grant. Since the exercise price of employee stock options issued under our plans
is set to match the market price of our common stock, there is generally no
compensation expense recognized upon grant of employee stock options. Options
granted to non-employees, if any, are valued at the "fair value" of the option
as defined by SFAS 123, utilizing the Black-Scholes option pricing model. We
record compensation expense for the "fair value" of options granted to
non-employees.


USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.

                                       37

GENERAL

     Our operating results have fluctuated significantly during each quarter and
year, and we anticipate that such fluctuations, which are largely attributable
to varying research and development commitments and expenditures, will continue
for the next several years.

     We have been unprofitable to date and expect to incur substantial operating
losses for the next several years as we invest in product research and
development, preclinical and clinical testing and regulatory compliance. We have
sustained net losses of approximately $148.2 million from the date of our
inception to December 31, 2002. We have primarily financed our operations to
date through a series of private placements and public offerings of our common
stock and several collaborative agreements with third parties to jointly pursue
product research and development. See discussion of "Liquidity and Capital
Resources" below. See also "Additional Risk Factors" in Item 1 "Business"
herein.


Year ended December 31, 2002 Compared with Year ended December 31, 2001

     Revenues in the year ended December 31, 2002 increased $1,516,000, compared
with the year ended December 31, 2001. The increase is primarily attributable to
increased royalty income earned on sales of Argatroban by GSK and increased
license fees, milestones and grants, partially offset by reduced research and
development revenues, discussed below.

     Royalties earned on sales of Argatroban in 2002 were $3,514,000, an
increase of $1,928,000 over year 2001. We earn royalties based upon sales by GSK
to drug wholesalers. In October 2002, GSK initiated a broad-based HIT disease
education media campaign designed to increase awareness of HIT, the
life-threatening reaction to heparin for which Argatroban is approved. As
medical education is key to growing Argatroban sales, we believe this
initiative, along with increased selling efforts, are likely to have a positive
impact on Argatroban sales.

     License fees, milestones and grants increased $712,000 in 2002, compared
with 2001. Revotar has been awarded research grants from the German government
and earned approximately $303,000 in year 2002. In addition to the grants
received by Revotar, the increase in license fees, milestones and grants in 2002
was primarily comprised of revenues related to the milestone payment received
from Mitsubishi in May 2001, the milestone payment received from ICOS in July
2001, and the milestone payment received from Schering-Plough in June 2002. See
Note 8 to the Consolidated Financial Statements.

     Research agreement revenues, resulting from the Company's collaborative
efforts with unrelated parties, declined $772,000 in 2002, compared with 2001,
primarily resulting from reduced research and development effort under the
Schering-Plough agreement during 2002. Most of our efforts toward development of
an initial candidate for clinical development had been completed late in 2001.
As discussed above, we received a milestone payment under the Schering-Plough
agreement as a result of the nomination of an initial candidate for
Schering-Plough's further development in the second quarter of 2002.

     Collaborative research and development revenues received from the ICOS-TBC
partnership declined $352,000 in 2002, compared with 2001. The involvement of
our research and development staff in the endothelin receptor antagonist program
has been dependent upon the activities being performed by the partnership in any
particular period, and was expected to fluctuate from quarter to quarter and
year to year. In January 2003, ICOS announced that it had reached a conclusion
that joint development of the endothelin receptor antagonist program by ICOS-TBC
should not continue. ICOS and TBC are currently negotiating the terms pursuant
to which TBC could independently continue the program. The financial terms of
this transaction are subject to ongoing negotiations between the two companies.

     Research and development expenses increased $2,205,000 in 2002, compared
with 2001. The increase is primarily due to costs of clinical trials which began
to incur significant expenses early in year 2002 and were ongoing during year
2002. Trials ongoing during year 2002 included a Phase II study of Argatroban in
ischemic stroke and a Phase II study of Argatroban in patients undergoing PCI.
During 2002, Revotar completed a Phase IIa proof-of-concept clinical trial of
bimosiamose in psoriasis, and completed a Phase I clinical trial for asthma
utilizing an inhaled form of bimosiamose. See also the discussion of our ongoing
research and development programs, above.

                                       38

     Our equity in the loss of the ICOS-TBC partnership, primarily consisting of
research and development expenses, declined $893,000 in 2002, compared with
2001. The principle activity of the partnership, a Phase IIb/III trial of
sitaxsentan for PAH, completed enrollment in July 2002.

     General and administrative expenses increased $2,243,000 in 2002, compared
with 2001. Insurance costs, particularly product liability and general liability
policies, increased both due to insurance market conditions, and as a result of
increased sales of Argatroban. General and administrative expenses in 2002
included costs associated with the retirement, recruiting and hiring of key
personnel, including a non-cash charge in the first quarter of 2002 of
approximately $182,000 in compensation expense arising from modifications made
to stock options previously issued to our retiring CEO.

     Investment income declined $2,764,000 in 2002, compared with 2001. The
decline is due to a combination of lower prevailing interest rates during 2002,
compared with 2001, and to reduced funds available for investment during year
2002.

     The interest of Revotar's minority shareholders in its losses increased
approximately $476,000 in 2002, compared with 2001. Revotar's expenses increased
in 2002, primarily due to the costs of clinical trials conducted in 2002. Under
accounting principles generally accepted in the U.S., it is likely that the
cumulative losses of Revotar will exceed the equity interest of its minority
shareholders during 2004, and we will reflect 100% of its losses in our
consolidated net income or loss thereafter.

     Our net loss in 2002 increased $4,327,000 in 2002, compared with 2001. The
increase is due primarily to higher operating expenses and lower investment
income during 2002, as discussed above.


Year ended December 31, 2001 Compared with Year ended December 31, 2000

     Revenues in the year ended December 31, 2001 decreased $6,775,000, compared
with the year ended December 31, 2000. License fee and milestone income in year
2000 included a milestone payment of $7,500,000 from GSK which was earned upon
the approval of Argatroban by the FDA in June 2000, and the recognition of
$2,366,000 in remaining unrecognized license fees and milestones related to
Argatroban. After taking the $9,866,000 in revenues related to Argatroban into
consideration, revenues from other license fees and milestones increased
$967,000, as a result of the recognition of a portion of the license fees and
milestones received from Schering-Plough, Mitsubishi and ICOS-TBC in 2000 and
2001. See Notes 7 and 8 to the Consolidated Financial Statements, included
herein.

     Revenues from sources other than license fees and milestones increased
$2,124,000 in 2001, compared with 2000. Royalties earned on the sale of
Argatroban, which was first shipped in the fourth quarter of 2000, increased
$1,352,000 in year 2001 compared with year 2000. Research agreement revenues in
year 2001 increased $453,000, which is comprised of payments received from
Schering-Plough, partially offset by the loss of revenues received from LG
Chemical in 2000, but not in 2001. Research payments from ICOS-TBC increased
$319,000 in year 2001. The partnership was formed in June 2000, however, and as
such, the year 2000 only included six months of operations.

     Research and development expenses increased $4,348,000 in year 2001,
compared with year 2000. The increase is primarily due to costs associated with
ongoing clinical trials. During year 2001, the Company and its research partners
initiated two Phase II trials for Argatroban, for ischemic stroke and PCI, and a
Phase I study of TBC1269 for asthma.

     Our equity in the losses of ICOS-TBC increased $5,963,000 in year 2001
compared with year 2000. Since the partnership was formed in June 2000, year
2000 results only included six months of operations. The increase, however, is
primarily due to clinical trials conducted in year 2001. In 2001, ICOS-TBC
initiated a Phase IIb/III clinical trial for sitaxsentan as a treatment of PAH,
and two Phase I clinical studies of TBC3711.

     General and administrative expense increased $181,000 in year 2001,
compared to year 2000. The increase is primarily due to the expenses of Revotar,
which was formed in June of year 2000.

     Investment income increased $874,000 in year 2001, due to higher levels of
invested funds in the current year. We received approximately $20.1 million in
proceeds from the exercise of publicly traded warrants in January 2001.

                                       39

The effect on investment income of higher availability of funds was partially
offset, however, by the lower interest rates which have prevailed during year
2001.

     The interest of the minority shareholders of Revotar, who collectively hold
approximately 45% of the Revotar common stock, increased $540,000 in year 2001,
compared with 2000, due to higher operating expenses of Revotar in 2001. As
discussed above, Revotar was formed in June of year 2000.

     Loss before cumulative effect of change in accounting principle increased
$15,853,000 in year 2001, compared with year 2000. The increased loss in year
2001 is primarily due to (i) the $9,866,000 in license fee and milestone
revenues related to Argatroban included in year 2000, discussed above, (ii)
increased research and development costs of $4,348,000, discussed above, (iii)
increased equity in loss of ICOS-TBC, primarily due to increased development
costs, discussed above, and (iv) increased general and administrative costs of
$181,000, primarily due to the expenses of Revotar, as discussed above.
Partially offsetting the effect of reduced revenues and increased costs,
investment income increased $874,000 in year 2001, due to higher levels of
available funds, as discussed above.

     Net loss in year 2000 included a charge of $2,366,000 for the cumulative
effect, on January 1, 2000, of the change in accounting principle resulting from
our adoption of Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB101"). Such
revenue is being recognized into income over future development periods.


                         LIQUIDITY AND CAPITAL RESOURCES

Year 2002 and 2001

     At December 31, 2002, we had cash, cash equivalents, investment securities
and accrued interest of $68,005,000, compared with $95,427,000 at December 31,
2001. We used $25,791,000 in cash on operating activities in year 2002, compared
to cash used by operating activities of $12,980,000 in 2001. The primary
operating uses of cash in 2002 and 2001 were to fund our general operating
expenses and the ongoing research and development programs conducted by TBC,
Revotar and ICOS-TBC, reduced by cash received from investment income,
milestones, and research payments from our collaborative partners.

     Investing activities generated $36,351,000 in year 2002, compared with cash
used of $44,269,000 in year 2001. Our capital expenditures declined $731,000 in
2002, compared with 2001. The cash generated by investing activities during 2002
reflects the use of invested funds to finance ongoing operations.

     Cash generated by financing activities in year 2002 was $486,000, compared
with cash generated in year 2001 of $19,043,000. Year 2001 included proceeds
from the exercise of publicly traded warrants in January 2001, for net proceeds
of $20,143,000 and proceeds from the exercise of employee stock options and
other warrants for proceeds of $502,000, partially reduced by the acquisition of
213,000 shares of treasury stock for total proceeds of $1,602,000. During 2002,
we generated $486,000 in cash from the proceeds of stock option exercises, and
the sale of common stock at market price to our new CEO.


Material Commitments

     Our only material contractual commitments are comprised of a loan
commitment to Revotar and office and laboratory facility leases. We and the
minority shareholders of Revotar have committed to lend Revotar approximately
$4.5 million of which our commitment will be approximately $3.4 million. The
terms of the loans require quarterly interest payments and repayment of all
principal on or before April 1, 2007, subject to certain loan provisions
regarding profitability or liquidity. Our portion of the loan is denominated in
U.S. dollars at an interest rate of seven percent fixed for the first two years
and resets to the greater of seven percent or U.S. prime plus two and one-half
percent on April 1, 2004. It is likely that Revotar may need to seek additional
funding through collaborative arrangements and/or through public or private
financings.

                                       40

     The Company had long-term obligations under our office and laboratory
leases as follows (in thousands):



                                      Less than       1-3        4-5     After 5
Contractual Obligations      Total      1 year       years      years     years
- -----------------------     ------    ---------      ------     -----    -------
                                                          
Operating Leases            $4,873      $1,616       $3,126      $131      ---



Outlook for 2003

     In 2003, we expect to have the following results:


                                                       
        Net Sales of Argatroban by GSK .................  $30.0 to $35.0 million
        Revenues .......................................  $10.5 to $12.0 million
        Expenses (net of Revotar minority interest) ....  $42.0 to $45.0 million
        Investment Income ..............................  $0.9 to $1.1 million
        Estimated Net Loss .............................  $30.0 to $33.0 million
        Cash and Investments at Year End ...............  $32.0 to $35.0 million


     These expectations are based upon various assumptions, which are subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from those projected. Among these risks, trends and
uncertainties are timing and cost of our clinical trials, attainment of research
and clinical goals and milestones of product candidates, and sales levels of
Argatroban. We have assumed that sales trends of Argatroban over the previous
year will continue. While we do not sell Argatroban, our revenues include a
royalty from GSK, which is based on sales and will, accordingly, vary with
sales. Our actual royalty revenues could vary from our assumptions to the extent
that GSK's actual sales of Argatroban differ from assumed levels.

     In addition to royalties, our projected revenues assume that we continue to
utilize research and development personnel in development of sitaxsentan through
ICOS-TBC. Our projected revenue from the partnership is based upon staff
utilization levels contemplated within the proposed partnership budget for 2003,
and could vary significantly or be eliminated entirely if the partnership
development efforts differ from those contained within the proposed partnership
operating budget. Projected revenues also contain continued amortization of
deferred license fees and milestones previously received from Schering-Plough,
Mitsubishi and ICOS-TBC, which are being deferred over the estimated development
period of the respective compound or program. We periodically review our
estimates of development periods, and actual recognized revenues could increase
or decrease to the extent that we decrease or increase our estimated development
periods. We have assumed that research agreement revenues from Schering-Plough
will end upon the expiration of the agreement, at June 30, 2003.

     Projected operating expenses are based upon our approved operating budget
for the year. In the budgeting process, we have not assumed significant changes
in numbers of employees during year 2003, and have assumed continued development
of sitaxsentan through ICOS-TBC under the partnership's proposed operating
budget. Our budgeted expenses also include basic research efforts on our other
programs, and levels of administrative support we believe to be necessary.

     Projected investment income assumes that the rate of return on invested
funds of approximately 2% on an average of approximately $50 million in funds
available for investment throughout the year.

     Cash and investments at year-end is projected based upon our projected
sources and uses of cash during the year. In projecting our end of year cash and
investment balances, we have not assumed additional financing, or collaborative
arrangements other than those in place at this time.

     The range of estimated net loss is based upon our projected revenues and
expenses, as discussed above.

     In January 2003, ICOS announced that it had reached a conclusion that joint
development of the endothelin receptor antagonist program by ICOS-TBC should not
continue. ICOS and TBC are currently negotiating the terms pursuant to which TBC
could independently continue the program. The financial terms of this
transaction are subject to ongoing negotiations between the two companies. If we
are successful in reaching an agreement, it is likely that we will be
responsible for 100% of development expenses incurred after January 1, 2003
related to the endothelin

                                       41


receptor antagonist program, which we believe will be between $19 million and
$21 million in 2003. A delay in reaching an agreement with ICOS could adversely
affect or delay the development of the endothelin receptor antagonist program.

     Our estimates of results for 2003 will be impacted by the financial terms
of the ongoing negotiations between ICOS and us.


Longer-Term Outlook

     We expect to incur substantial research and development expenditures as we
design and develop biopharmaceutical products for the prevention and treatment
of cardiovascular and other diseases. We anticipate that our operating expenses
will increase in subsequent years because:

o    We expect to incur significant expenses in conjunction with additional
     clinical trial costs for sitaxsentan and research and clinical trial costs
     for development of bimosiamose compounds and expect to begin to incur costs
     for clinical trials related to additional compounds. These costs include:

     -    hiring personnel to direct and carry out all operations related to
          clinical trials;

     -    hospital and procedural costs;

     -    services of a contract research organization; and

     -    purchasing and formulating large quantities of the compound to be used
          in such trials.

o    There may be additional costs in future periods related to Argatroban in
     complying with ongoing FDA requirements and possible clinical trial
     expenditures for additional therapeutic indications.

o    Our administrative costs and costs to commercialize our products will
     increase as our products are further developed and marketed.

     We have been unprofitable to date and expect to incur operating losses for
the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products. Estimates of our future capital
requirements will depend on many factors, including:

     o    market acceptance and commercial success of Argatroban;

     o    expenses and risks associated with clinical trials to expand the
          indications for Argatroban;

     o    continued scientific progress in our drug discovery programs;

     o    the magnitude of these programs;

     o    progress with preclinical testing and clinical trials;

     o    the time and costs involved in obtaining regulatory approvals;

     o    the costs involved in filing, prosecuting and enforcing patent claims;

     o    competing technological and market developments and changes in our
          existing research relationships;

     o    our ability to maintain and establish additional collaborative
          arrangements; and

     o    effective commercialization activities and arrangements.

                                       42




     Subject to these factors, we anticipate that our existing capital resources
and other revenue sources, should be sufficient to fund our cash requirements
through year 2004. Notwithstanding revenues, which may be produced through sales
of potential future products, if approved, we anticipate that we will need to
secure additional funds to continue the required levels of research and
development to reach our long-term goals. We intend to seek such additional
funding through collaborative arrangements and/or through public or private
financings.

     In 2002, the stockholders of Revotar executed an agreement to provide
approximately $4.5 million in unsecured loans, of which our commitment was
approximately $3.4 million. Under the loan agreement, we have advanced
approximately $1.2 million to Revotar during 2002. We believe that Revotar's
existing funds, the remaining commitments under the loan agreement and proceeds
under German government scientific grants will be sufficient to fund Revotar
into the first quarter of 2004. In order to continue to operate beyond that
time, Revotar will need to seek additional funding through collaborative
arrangements and/or through public or private financings in the future.


Off-Balance Sheet Arrangements

     We do not engage in off-balance sheet financing arrangements; however we
have been obligated to fund our proportionate share (50%) of any contractual
obligations of ICOS-TBC. After December 31, 2002, we are responsible for funding
100% of the expenses of ICOS-TBC. After December 31, 2002, ICOS-TBC is not
obligated for any leases, long-term debt, or other fixed obligations.


                     IMPACT OF INFLATION AND CHANGING PRICES

     The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on our
operations.


ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                         FOREIGN CURRENCY EXCHANGE RISK

     We are exposed to market risk primarily from changes in foreign currency
exchange rates. The following describes the nature of this risk that is not
believed to be material to us.

     We have a majority-owned affiliate in Berlin, Germany and consolidate the
results of operations into our consolidated financial results. Although not
material to date, our reported expenses and cash flows from this affiliate are
exposed to changing exchange rates. We also have contracts with entities in
other areas outside the U.S. that are denominated in a foreign currency. To
date, these currencies have not fluctuated materially. During 2003, Revotar
engaged in a program of hedging the effect of foreign currency fluctuations on
approximately $1.6 million in future loan payments from us.


ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

     The financial statements we are required to include in this Item 8 are set
forth in Item 15 of this Form 10-K.

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

     Not applicable.

                                       43



                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS

     Incorporated herein by reference to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 16, 2003.


ITEM 11 -- EXECUTIVE COMPENSATION

     Incorporated herein by reference to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 16, 2003.


ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated herein by reference to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 16, 2003.


ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated herein by reference to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 16, 2003.


ITEM 14 -- CONTROLS AND PROCEDURES

     (A)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

               Our chief executive officer and our vice president, finance and
     administration, after evaluating the effectiveness of our "disclosure
     controls and procedures" (as defined in Exchange Act Rules 13a-14(c) and
     15d-14(c)) as of a date (the "Evaluation Date") within 90 days prior to the
     filing date of this annual report on Form 10-K, have concluded that, as of
     the Evaluation Date, our disclosure controls and procedures were adequate
     to ensure that material information relating to the registrant and its
     consolidated subsidiaries would be made known to them by others within
     those entities.

     (B)  CHANGES IN INTERNAL CONTROLS

               To our knowledge, there were no significant changes in our
     internal controls or in other factors that could significantly affect
     internal controls subsequent to the Evaluation Date.

                                       44



                                     PART IV

ITEM 15 -- EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

     (A)  1.   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

               Reference is made to the Consolidated Financial Statements, the
          reports thereon, and the notes thereto commencing at Page F-1 of this
          Annual Report on Form 10-K. Set forth below is an index to such
          Financial Statements.



                                                                             PAGE
                                                                             ----
                                                                          
               Independent Auditors' Report ................................  F-1

               Consolidated Balance Sheets .................................  F-2

               Consolidated Statements of Operations and Comprehensive Loss   F-3

               Consolidated Statements of Stockholders' Equity .............  F-4

               Consolidated Statements of Cash Flows .......................  F-6

               Notes to Consolidated Financial Statements ..................  F-7



          2.   FINANCIAL STATEMENT SCHEDULES

               Independent Auditors' Report

                    Balance Sheets of ICOS-Texas Biotechnology L.P. (A
               Development Stage Limited partnership) as of December 31, 2002
               and 2001, and the related statements of operations, statements of
               partners' deficit and cash flows for each of the years in the
               two-year period ended December 31, 2002, the period from June 6,
               2000 (inception) through December 31, 2000 and the period from
               June 6, 2000 (inception) through December 31, 2002, and notes
               thereto.

                    All other schedules have been omitted since the information
               is not required or is not material to require submission of the
               schedule, or because the information is included in the financial
               statements or the notes thereto.


          3.   INDEX TO EXHIBITS

               Information with respect to this Item is contained in the
               attached Index to Exhibits.

               The Company will furnish a copy of any one or more of these
          exhibits to a shareholder who so requests upon receipt of payment for
          the costs of duplication and mailing the requested item.


     (B)  REPORTS ON FORM 8-K

               Four reports on Form 8-K were filed during the quarter ended
          December 31, 2002. A report on Form 8-K dated October 2, 2002 was
          filed regarding the preliminary results for the use of Argatroban as a
          treatment for acute ischemic stroke. A report on Form 8-K dated
          October 21, 2002 was filed regarding the phase 2b/3 trial results for
          Sitaxsentan. A report on Form 8-K dated November 7, 2002 was filed
          regarding the Company's third quarter 2002 financial results, market
          growth for Argatroban and clinical trial status. A report on Form 8-K
          dated December 19, 2002 was filed regarding an update to shareholders
          on Sitaxsentan trials and sales of Argatroban.

               All schedules have been omitted since the information is not
          required or is not material to require submission of the schedule, or
          because the information is included in the financial statements or the
          notes thereto.

                                       45



     (D)  FINANCIAL STATEMENTS OF 50-PERCENT-OR-LESS OWNED PERSONS


                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)



                                TABLE OF CONTENTS






                                                                                                    PAGE
                                                                                                 
Independent Auditors' Report                                                                          2

Balance Sheets as of December 31, 2002 and 2001                                                       3

Statements of Operations for each of the years in the two-year period ended December 31, 2002,
 the period from June 6, 2000 (inception) through December 31, 2000, and the period from
 June 6, 2000 (inception) through December 31, 2002                                                   4

Statements of Partners' Deficit for each of the years in the two-year period ended December 31,
 2002, and the period from June 6, 2000 (inception) through December 31, 2000                         5

Statements of Cash Flows for each of the years in the two-year period ended December 31, 2002,
 the period from June 6, 2000 (inception) through December 31, 2000, and the period from
 June 6, 2000 (inception) through December 31, 2002                                                   6

Notes to Financial Statements                                                                       7-9





                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
ICOS - Texas Biotechnology L.P.:


We have audited the accompanying balance sheets of ICOS - Texas Biotechnology
L.P. (a development stage limited partnership) as of December 31, 2002 and 2001,
and the related statements of operations, partners' deficit and cash flows for
each of the years in the two-year period ended December 31, 2002, the period
from June 6, 2000 (inception) to December 31, 2000, and the period from June 6,
2000 (inception) to December 31, 2002. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICOS - Texas Biotechnology L.P.
as of December 31, 2002 and 2001, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2002, the
period from June 6, 2000 (inception) to December 31, 2000, and the period from
June 6, 2000 (inception) to December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that ICOS -
Texas Biotechnology L.P. will continue as a going concern. As discussed in note
6 to the financial statements, ICOS - Texas Biotechnology L.P. has experienced
recurring losses from operations and has a partners' deficit which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 6. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

/s/ KPMG LLP


Seattle, Washington
January 30, 2003

                                       2



                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)

                                 BALANCE SHEETS






                                                                          (in thousands)
                                                                           December 31,
                                                                      2002              2001
                                                                     -------          -------
                                                                                
                                                ASSETS

Current assets - cash .......................................        $     1          $     1
                                                                     =======          =======


                                   LIABILITIES AND PARTNERS' DEFICIT

Current liabilities - accrued expenses payable to partners           $ 5,235          $ 7,059

Partners' deficit:
  General partner interests:
    ICOS-ET-GP LLC ..........................................            (47)             (30)
    TBC-ET, Inc .............................................            (47)             (30)
  Limited partner interests:
    ICOS-ET-LP LLC ..........................................         (2,570)          (3,499)
    Texas Biotechnology Corporation .........................         (2,570)          (3,499)
                                                                     -------          -------
      Total partners' deficit ...............................         (5,234)          (7,058)
                                                                     -------          -------
                                                                     $     1          $     1
                                                                     =======          =======


                                       3




                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
                            STATEMENTS OF OPERATIONS



                                                                               (in thousands)
                                             ------------------------------------------------------------------------------------
                                                                                     Period from                Period from
                                              Year ended       Year ended     June 6, 2000 (inception)   June 6, 2000 (inception)
                                             December 31,     December 31,       through December 31,      through December 31,
                                                 2002             2001                   2000                      2002
                                             ------------     ------------    ------------------------   ------------------------
                                                                                             
Revenue                                        $      -         $      -               $    547                  $    547

Operating expenses:
  Research and development:
    Contributed technology license from
     Texas Biotechnology Corporation                  -            4,000                  4,000                     8,000
    Texas Biotechnology Corporation               2,312            6,190                  4,706                    13,208
    ICOS Corporation                             14,321           12,682                  2,809                    29,812
  General and administrative:
    Texas Biotechnology Corporation                 153                -                      -                       153
    ICOS Corporation                                330               26                      8                       364
                                               --------         --------               --------                  --------
      Total operating expenses                   17,116           22,898                 11,523                    51,537
                                               --------         --------               --------                  --------
Net loss                                       $(17,116)        $(22,898)              $(10,976)                 $(50,990)
                                               ========         ========               ========                  ========


                                       4




                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
                         STATEMENTS OF PARTNERS' DEFICIT



                                                                         (in thousands)
                                       -------------------------------------------------------------------------------
                                                                                       Texas Biotechnology   Partners'
                                       ICOS-ET-GP LLC   TBC-ET, Inc.  ICOS-ET-LP LLC       Corporation        Deficit
                                       --------------   ------------  --------------   -------------------   ---------
                                                                                              
BALANCES AT JUNE 6, 2000 (INCEPTION)        $  -           $  -         $      -            $      -         $      -
Partner contributions:
  Cash                                         4              4            4,031               2,031            6,070
  Technology license                           -              -                -               4,000            4,000
Capital distribution                           -              -                -              (2,000)          (2,000)
Net loss                                     (11)           (11)          (5,477)             (5,477)         (10,976)
                                            ----           ----         --------            --------         --------
BALANCES AT DECEMBER 31, 2000                 (7)            (7)          (1,446)             (1,446)          (2,906)
Partner contributions:
  Cash                                         -              -            9,373               7,373           16,746
  Technology license                           -              -                -               4,000            4,000
Capital distribution                           -              -                -              (2,000)          (2,000)
Net loss                                     (23)           (23)         (11,426)            (11,426)         (22,898)
                                            ----           ----         --------            --------         --------
BALANCES AT DECEMBER 31, 2001                (30)           (30)          (3,499)             (3,499)          (7,058)
Partner contributions:
  Cash                                         -              -            9,470               9,470           18,940
Net loss                                     (17)           (17)          (8,541)             (8,541)         (17,116)
                                            ----           ----         --------            --------         --------
BALANCES AT DECEMBER 31, 2002               $(47)          $(47)        $ (2,570)           $ (2,570)        $ (5,234)
                                            ====           ====         ========            ========         ========


                                       5



                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
                            STATEMENTS OF CASH FLOWS



                                                                                      (in thousands)
                                                         --------------------------------------------------------------------------
                                                                                              Period from           Period from
                                                                                             June 6, 2000          June 6, 2000
                                                           Year ended     Year ended          (inception)           (inception)
                                                           December 31,   December 31,   through December 31,  through December 31,
                                                               2002           2001               2000                 2002
                                                           ------------   ------------   --------------------  --------------------
                                                                                                   
Cash flows from operating activities:
  Net loss                                                   $(17,116)      $(22,898)          $(10,976)           $(50,990)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
    Contributed technology license                                  -          4,000              4,000               8,000
    Change in operating assets and liabilities:
      Receivable from Texas Biotechnology Corporation               -            470               (470)                  -
      Accrued expenses payable to partners                     (1,824)         3,662              3,397               5,235
                                                             --------       --------           --------            --------
        Net cash used in operating activities                 (18,940)       (14,766)            (4,049)            (37,755)
                                                             --------       --------           --------            --------

Cash flows from financing activities:
  Partner contributions                                        18,940         16,746              6,070              41,756
  Capital distributions                                             -         (2,000)            (2,000)             (4,000)
                                                             --------       --------           --------            --------
      Net cash provided by financing activities                18,940         14,746              4,070              37,756
                                                             --------       --------           --------            --------

Net increase (decrease) in cash                                     -            (20)                21                   1
  Cash at beginning of period                                       1             21                  -                   -
                                                             --------       --------           --------            --------
Cash at end of period                                        $      1       $      1           $     21            $      1
                                                             ========       ========           ========            ========


                                       6



                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
                          Notes to Financial Statements

                           December 31, 2002 and 2001
                 (Dollars in thousands, unless otherwise noted)

(1)  ORGANIZATION AND BUSINESS OPERATIONS

     ICOS-Texas Biotechnology L.P. (the "Partnership"), is a development stage
     limited partnership that was formed on June 6, 2000 by Texas Biotechnology
     Corporation, a Delaware corporation ("TBC"), and ICOS-ET-LP LLC, a
     Washington limited liability company ("ICOS-LP"), as limited partners, and
     TBC-ET, Inc., a Delaware corporation ("TBC-GP"), and ICOS-ET-GP LLC, a
     Washington limited liability company ("ICOS-GP"), as general partners. The
     Partnership was organized to develop and globally commercialize endothelin
     receptor antagonists. The Partnership is managed jointly by TBC-GP and
     ICOS-GP. Profits, losses and distributions, except for distributions for
     payment of TBC's exclusive license (see Note 3), are allocated based on
     respective ownership interests. ICOS Corporation ("ICOS") is the sole
     member of both ICOS-LP and ICOS-GP. TBC is the sole member of TBC-GP. Both
     TBC and ICOS provide the Partnership with research and development
     services.


(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A)  USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

     (B)  REVENUE RECOGNITION

          Revenue represents research payments received by TBC, which were
          assigned to the Partnership and recognized as the related services
          were performed.

     (C)  RESEARCH AND DEVELOPMENT COSTS

          Research and development costs are expensed as incurred.

     (D)  INCOME TAXES

          No Federal income tax expense or benefit is included in the financial
          statements since such taxes, if any, are payable or recoverable by
          each partner.

     (E)  OPERATING SEGMENTS

          The Partnership has one operating segment, the development and
          commercialization of endothelin receptor antagonist products for human
          therapeutic use.

                                       7



                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
                          Notes to Financial Statements

                           December 31, 2002 and 2001
                 (Dollars in thousands, unless otherwise noted)

(3)  EQUITY TRANSACTIONS

     TBC made an initial capital contribution to the Partnership of an exclusive
     worldwide license of intellectual property associated with endothelin
     receptor antagonists, including patent rights and technical information,
     and ICOS-LP made an initial capital contribution to the Partnership of $2
     million in cash. In exchange for their contributions, each party received a
     49.9% limited partnership interest in the Partnership. ICOS-GP and TBC-GP
     each contributed $4 in exchange for a .1% general partnership interest in
     the Partnership.

     The technology license contributed to the Partnership by TBC was initially
     valued at $4 million, based on the cash contribution from ICOS-LP and the
     concurrent capital distribution to TBC discussed below. This contribution
     was expensed as research and development at the time the partnership
     agreement was entered into. An additional $4 million was recorded as
     research and development expense in 2001 as ICOS made additional payments
     pursuant to the partnership agreement.

     Under the terms of the Agreement, TBC received a capital distribution of $2
     million in conjunction with formation of the Partnership and received an
     additional $2 million capital distribution in October 2001 upon the
     achievement of certain development objectives.


(4)  LICENSE AGREEMENTS

     In connection with TBC's initial capital contribution, the Partnership
     entered into an Endothelin License Agreement with TBC, subject to the
     rights of an agreement with LG Chemical, Ltd. discussed below. Under the
     Endothelin License Agreement, the Partnership received an exclusive right
     and license to certain proprietary patent rights, technical information,
     technology and know-how relating to, and useful in, the manufacture,
     production and worldwide commercial sale of endothelin products for human
     therapeutic use. The value of the license was charged to development
     expense as the underlying technology represented incomplete product
     research and development.

     In October 1996, TBC entered into a Strategic Alliance Agreement with LG
     Chemical, Ltd. ("LG Chem"), a Korean corporation, (the "LG Chem
     Agreement"), pursuant to which TBC granted LG Chem certain technology
     rights and agreed to perform certain research and development activities on
     behalf of LG Chem in exchange for the right to receive research and royalty
     payments in the future.

     In conjunction with its formation, the Partnership was assigned and assumed
     certain of TBC's rights and obligations under the LG Chem Agreement. During
     2000, the Partnership recognized $547 in revenue associated with services
     performed under the LG Chem Agreement. The LG Chem Agreement was terminated
     during 2001. The Partnership will not recognize any further revenue or
     receive any additional payments, and has no further obligations, under the
     LG Chem Agreement.


(5)  RESEARCH AND DEVELOPMENT SERVICE AGREEMENT

     In June 2000, the Partnership entered into a Research and Development
     Service Agreement (the "R&D Agreement") with TBC and ICOS, pursuant to
     which TBC and ICOS agreed to provide research and development services for,
     and on behalf of, the Partnership. The Partnership reimburses TBC and ICOS,
     at a per-hour amount, calculated on the basis of actual hours incurred by
     TBC and ICOS, plus certain development and administrative expenses. There
     is no minimum commitment for research and development, and the Partnership
     can contract with other parties to provide research and development
     services.


(6)  FINANCING

     ICOS-TBC has experienced recurring losses from operations and has a
     partners' deficit of $5.2 million at December 31, 2002, which raise
     substantial doubt about its ability to continue as a going concern.

     Pursuant to the Agreement, except as modified by a subsequent Letter
     Agreement between ICOS and TBC dated February 14, 2003 (the "Letter
     Agreement"), ongoing activities of the Partnership are to be funded by the
     limited partners in relation to their limited partnership interests.
     Substantially all of the partners' deficit at December 31, 2002, was funded
     by capital contributions from the limited partners during the first quarter
     of 2003.

                                       8



                         ICOS - TEXAS BIOTECHNOLOGY L.P.
                    (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
                          Notes to Financial Statements

                           December 31, 2002 and 2001
                 (Dollars in thousands, unless otherwise noted)

     Pursuant to the Letter Agreement, TBC has agreed to be responsible for 100%
     of all costs and expenses of the Partnership incurred after December 31,
     2002, through June 30, 2003, or earlier termination of the Letter Agreement
     upon mutual consent of both parties.

     In January 2003, ICOS announced its conclusion that joint development of
     the endothelin receptor antagonist program, through the Partnership, should
     not continue. ICOS and TBC continue to negotiate the terms pursuant to
     which TBC might independently continue the endothelin receptor antagonist
     program.

                                       9



                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Houston
and State of Texas on the 14th day of November, 2003.

                                     ENCYSIVE PHARMACEUTICALS INC.

                                     By:        /s/ STEPHEN L. MUELLER
                                     -------------------------------------------
                                                 Stephen L. Mueller
                                     Vice President, Finance and Administration,
                                               Secretary and Treasurer

                                       45


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Texas Biotechnology Corporation:

     We have audited the accompanying consolidated balance sheets of Texas
Biotechnology Corporation and subsidiaries (the "Company") as of December 31,
2002 and 2001, and the related consolidated statements of operations and
comprehensive loss, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Biotechnology Corporation and subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG LLP

Houston, Texas
March 5, 2003

                                      F-1



                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       ($ IN THOUSANDS, EXCEPT SHARE DATA)



                                                                                DECEMBER 31,
                                                                           ------------------------
                                                                              2002          2001
                                                                           ---------      ---------
                                                                                    
ASSETS

Current assets:
  Cash and cash equivalents ..........................................     $  21,228      $  10,086
  Short-term investments .............................................        26,533         46,465
  Accounts receivable ................................................         1,098            655
  Other current receivables ..........................................           473            618
  Receivable from related party under collaborative arrangement ......           393          1,144
  Prepaids ...........................................................         1,482          1,350
                                                                           ---------      ---------
      Total current assets ...........................................        51,207         60,318
Long-term investments ................................................        20,244         38,876
Equipment and leasehold improvements, net ............................         5,579          4,300
Other assets .........................................................           762            868
                                                                           ---------      ---------
      Total assets ...................................................     $  77,792      $ 104,362
                                                                           =========      =========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ...................................................     $     950      $   2,187
  Accrued expenses ...................................................         3,774          3,902
  Deferred revenue from related party ................................           591          1,159
  Deferred revenue from unrelated parties ............................           927            748
                                                                           ---------      ---------
      Total current liabilities ......................................         6,242          7,996
Liability to related party ...........................................         2,664          3,533
Deferred revenue from related party ..................................         1,181          1,722
Deferred revenue from unrelated parties ..............................         3,019          3,041
Minority interest in Revotar .........................................         2,608          3,833
Commitments and contingencies
Stockholders' equity:
  Preferred stock, par value $.005 per share. At December 31, 2002 and
   December 31, 2001, 5,000,000 shares authorized; none outstanding ..           ---            ---
  Common stock, par value $.005 per share. At December 31, 2002,
   75,000,000 shares authorized; 44,015,364 shares issued
   At December 31, 2001, 75,000,000 shares authorized,
   43,783,638 shares issued ..........................................           220            218
  Additional paid-in capital .........................................       211,847        210,616
  Deferred compensation expense ......................................          (223)           ---
  Treasury stock, 213,000 shares at December 31, 2002 and 2001 .......        (1,602)        (1,602)
  Accumulated other comprehensive income (loss) ......................             1           (299)
  Accumulated deficit ................................................      (148,165)      (124,696)
                                                                           ---------      ---------
      Total stockholders' equity .....................................        62,078         84,237
                                                                           ---------      ---------
      Total liabilities and stockholders' equity .....................     $  77,792      $ 104,362
                                                                           =========      =========


          See accompanying notes to consolidated financial statements.

                                      F-2



                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                                       YEAR ENDED DECEMBER 31,
                                                                ----------------------------------
                                                                  2002         2001         2000
                                                                --------     --------     --------
                                                                                 
Revenues:
  Research agreements ......................................    $  3,570     $  4,342     $  3,889
  Collaborative research and development from ICOS-TBC, L.P.       1,090        1,442        1,123
  Royalty income ...........................................       3,514        1,586          234
  License fees, milestones and grants ......................       2,259        1,547       10,446
                                                                --------     --------     --------
    Total revenues .........................................      10,433        8,917       15,692
                                                                --------     --------     --------
Expenses:
  Research and development .................................      20,066       17,861       13,513
  Equity in loss of ICOS-TBC, L.P. .........................       8,557        9,450        3,487
  General and administrative ...............................       8,976        6,733        6,552
                                                                --------     --------     --------
    Total expenses .........................................      37,599       34,044       23,552
                                                                --------     --------     --------
    Operating loss .........................................     (27,166)     (25,127)      (7,860)
Investment income, net .....................................       2,472        5,236        4,362
                                                                --------     --------     --------
    Loss before minority interest and cumulative effect
     of change in accounting principle .....................     (24,694)     (19,891)      (3,498)
Minority interest in loss of Revotar .......................       1,225          749          209
                                                                --------     --------     --------
  Loss before cumulative effect of change in accounting
   principle ...............................................     (23,469)     (19,142)      (3,289)
  Cumulative effect of change in accounting principle ......         ---          ---       (2,366)
                                                                --------     --------     --------
    Net loss applicable to common shares ...................    $(23,469)    $(19,142)    $ (5,655)
                                                                ========     ========     ========

Other comprehensive income:
  Unrealized income (loss) on foreign currency translation .         300         (284)         (15)
                                                                --------     --------     --------
    Comprehensive loss .....................................    $(23,169)    $(19,426)    $ (5,670)
                                                                ========     ========     ========

Net loss per share basic and diluted .......................    $  (0.54)    $  (0.44)    $  (0.14)
                                                                ========     ========     ========

  Weighted average common shares used to compute
   net loss per share basic and diluted ....................      43,741       43,637       39,150
                                                                ========     ========     ========



          See accompanying notes to consolidated financial statements.

                                      F-3



                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                ($ IN THOUSANDS)



                                                                                        ACCUMULATED
                                                COMMON STOCK     ADDITIONAL                OTHER                       TOTAL
                                            -------------------    PAID-IN   TREASURY  COMPREHENSIVE  ACCUMULATED   STOCKHOLDERS'
                                              SHARES     AMOUNT    CAPITAL    STOCK    INCOME (LOSS)    DEFICIT        EQUITY
                                            ----------   ------  ----------  --------  -------------  -----------   -------------
                                                                                               
Balance at January 1, 2000 ............     34,392,909    $172    $118,317   $   ---      $ ---       $ (99,899)      $ 18,590
Issuance of common stock in
 public offering ......................      5,584,591      28      65,206       ---        ---             ---         65,234
Issuance of common stock for
 stock option exercises ...............        618,904       3       2,319       ---        ---             ---          2,322
Issuance of common stock for
 warrant exercises ....................        531,128       3       2,537       ---        ---             ---          2,540
Issuance of common stock in
 payment of expenses ..................          2,236     ---          30       ---        ---             ---             30
Issuance of common stock in payment
 for consulting services ..............          2,000     ---          16       ---        ---             ---             16
Issuance of common stock in payment for
 research and development .............         71,429     ---         965       ---        ---             ---            965
Net loss ..............................            ---     ---         ---       ---        ---          (5,655)        (5,655)
Other comprehensive loss ..............            ---     ---         ---       ---        (15)            ---            (15)
                                            ----------    ----    --------   -------      -----       ---------       --------
Balance at December 31, 2000 ..........     41,203,197    $206    $189,390   $   ---      $ (15)      $(105,554)      $ 84,027
                                            ----------    ----    --------   -------      -----       ---------       --------
Issuance of common stock for
 stock option exercises ...............         12,268     ---          52       ---        ---             ---             52
Issuance of common stock for
 warrant exercises ....................      2,511,558      12      20,581       ---        ---             ---         20,593
Issuance of common stock in
 payment of expenses ..................         56,615     ---         530       ---        ---             ---            530
Compensation expense related to
 stock options ........................            ---     ---          63       ---        ---             ---             63
Purchase of treasury shares
 (213,000 shares)  ....................            ---     ---         ---    (1,602)       ---             ---         (1,602)
Net loss ..............................            ---     ---         ---       ---        ---         (19,142)       (19,142)
Other comprehensive loss ..............            ---     ---         ---       ---       (284)            ---           (284)
                                            ----------    ----    --------   -------      -----       ---------       --------
Balance at December 31, 2001 ..........     43,783,638    $218    $210,616   $(1,602)     $(299)      $(124,696)      $ 84,237
                                            ----------    ----    --------   -------      -----       ---------       --------


                                   (Continued)

                                       F-4



                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                ($ IN THOUSANDS)



                                                                                            ACCUMULATED
                                      COMMON STOCK     ADDITIONAL    DEFERRED                 OTHER                       TOTAL
                                  -------------------   PAID-IN    COMPENSATION  TREASURY  COMPREHENSIVE  ACCUMULATED  STOCKHOLDERS'
                                    SHARES     AMOUNT   CAPITAL      EXPENSE      STOCK    INCOME (LOSS)    DEFICIT       EQUITY
                                  ----------   ------  ----------  ------------  --------  -------------  -----------  -------------
                                                                                               
Balance at December 31, 2001 ...  43,783,638    $218   $ 210,616      $ ---      $(1,602)     $(299)       $(124,696)     $ 84,237
Issuance of common stock for
 stock option exercises .........    129,860       1         454                     ---        ---              ---           455
Issuance of common stock for
 warrant exercises ..............        500     ---         ---                     ---        ---              ---           ---
Sale of unregistered
 common stock ...................      5,000     ---          31                     ---        ---              ---            31
Issuance of common stock in
 payment of expenses ............     51,429       1         271                     ---        ---              ---           272
Compensation expense related to
 stock options ..................        ---     ---         202        ---          ---        ---              ---           202
Amortization of deferred
 compensation expense ...........        ---     ---         ---         85          ---        ---              ---            85
Deferred compensation expense
 related to issuance of stock ...     50,000     ---         308       (308)         ---        ---              ---           ---
Cancellation of restricted shares     (5,063)    ---         (35)       ---          ---        ---              ---           (35)
Net loss ........................        ---     ---         ---        ---          ---        ---          (23,469)      (23,469)
Other comprehensive income ......        ---     ---         ---        ---          ---        300              ---           300
                                  ----------    ----   ---------      -----      -------      -----        ---------      --------
Balance at December 31, 2002 .... 44,015,364    $220   $ 211,847      $(223)     $(1,602)     $   1        $(148,165)     $ 62,078
                                  ==========    ====   =========      =====      =======      =====        =========      ========


          See accompanying notes to consolidated financial statements.

                                      F-5

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                ($ IN THOUSANDS)



                                                                                               YEAR ENDED DECEMBER 31,
                                                                                    -----------------------------------------------
                                                                                      2002               2001               2000
                                                                                    --------          ---------           ---------
                                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ................................................................         $(23,469)         $ (19,142)          $  (5,655)
  Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
    Depreciation and amortization .........................................            1,071                913                 998
    Equity in loss of ICOS-TBC, L.P. ......................................            8,557              9,450               3,487
    Minority interest in loss of Revotar ..................................           (1,225)              (749)               (209)
    Expenses paid with stock ..............................................              272                530                  46
    Compensation expense related to stock options .........................              252                 63                 ---
    Loss on disposition of fixed assets ...................................              ---                 12                   9
    Decrease (increase) in interest receivable included in short-term
     and long-term investments.............................................              265                131                (558)
  Changes in operating assets and liabilities:
    Increase in accounts receivable .......................................             (443)              (417)               (237)
    (Increase) decrease in prepaids .......................................             (128)                (4)                104
    Decrease in other current receivables .................................              144                  6                 443
    Decrease (increase) in receivable from related
     party under collaborative arrangement.................................              751               (262)               (882)
    (Decrease) increase in accounts payable and accrued expenses...........           (1,460)             1,533               2,342
    Decrease in liability to related party ................................           (9,426)            (7,293)             (2,110)
    Increase in deferred revenue from unrelated parties ...................              157              1,062               2,727
    (Decrease) increase in deferred revenue from related party.............           (1,109)             1,187               1,693
                                                                                    --------          ---------           ---------
       Net cash (used in) provided by operating activities ................          (25,791)           (12,980)              2,198
                                                                                    --------          ---------           ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of equipment and leasehold improvements .......................           (2,026)            (2,757)               (324)
  Purchase of investments .................................................          (85,608)          (154,272)           (104,002)
  Maturity of investments .................................................          123,985            112,760              72,996
                                                                                    --------          ---------           ---------
       Net cash provided by (used in) investing activities ................           36,351            (44,269)            (31,330)
                                                                                    --------          ---------           ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Acquisition of treasury stock ...........................................              ---             (1,602)                ---
  Contribution from minority interest in consolidated subsidiary...........              ---                ---               4,502
  Proceeds from issuance of common stock and option
   and warrant exercises, net..............................................              486             20,645              70,096
                                                                                    --------          ---------           ---------
       Net cash provided by financing activities ..........................              486             19,043              74,598
                                                                                    --------          ---------           ---------
Effect of exchange rate changes on cash ...................................               96               (178)                200
                                                                                    --------          ---------           ---------
  Net increase (decrease) in cash and cash equivalents ....................           11,142            (38,384)             45,666
Cash and cash equivalents at beginning of year ............................           10,086             48,470               2,804
                                                                                    --------          ---------           ---------
Cash and cash equivalents at end of year ..................................         $ 21,228          $  10,086           $  48,470
                                                                                    ========          =========           =========
Supplemental schedule of noncash financing activities:
  Issuance of common stock for research and development,
   license fee and services ...............................................         $    272          $     530           $   1,011
                                                                                    ========          =========           =========


          See accompanying notes to consolidated financial statements.

                                      F-6

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     (a)  Organization

          Texas Biotechnology Corporation (the "Company" or "TBC"), a Delaware
     Corporation, is a biopharmaceutical company focused on the discovery,
     development and commercialization of novel synthetic small molecule
     compounds for the treatment of a variety of cardiovascular, vascular and
     related inflammatory diseases. Since its formation in 1989, the Company has
     been engaged principally in research and drug discovery programs and
     clinical development of certain drug compounds. On July 25, 1994, the
     Company acquired all of the outstanding common stock of
     ImmunoPharmaceutics, Inc. ("IPI") in exchange for common stock, par value
     $.005 per share (the "Common Stock"), of the Company. On June 6, 2000, TBC,
     through its wholly owned subsidiary, TBC-ET, Inc., a Delaware Corporation,
     and ICOS Corporation, a Delaware Corporation, ("ICOS") entered into an
     agreement and formed ICOS-Texas Biotechnology L.P., a Delaware limited
     partnership ("ICOS-TBC"), to develop and globally commercialize
     endothelin-A receptor antagonists. TBC and ICOS are both 50% owners in
     ICOS-TBC. For further discussion of the ICOS-TBC partnership, see Note 8.
     During the third quarter of 2000, TBC formed Revotar Biopharmaceuticals AG
     ("Revotar"), a German corporation, to conduct research and development for
     novel small molecule compounds and to develop and commercialize TBC's
     selectin antagonists. The Company retained a majority interest in Revotar.

          The Company is presently working on a number of long-term development
     projects that involve experimental and unproven technology, which may
     require many years and substantial expenditures to complete, and which may
     or may not be successful. Sales of the Company's first product, for which
     it receives royalty income, Argatroban, began during November 2000.

     (b)  Basis of Consolidation

          The Company's consolidated financial statements include the accounts
     of the Company, its wholly owned subsidiaries, IPI and TBC-ET, Inc., and
     its majority controlled subsidiary, Revotar. All material intercompany
     balances and transactions have been eliminated.

                                      F-7

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     (c)  Cash, Cash Equivalents, Short-Term Investments and Long-Term
          Investments

          Cash equivalents are considered to be those securities or instruments
     with original maturities, when purchased, of three months or less and are
     recorded at cost. Short-term investments consist of debt securities with
     original maturities of less than one year and greater than three months at
     the purchase date. Long-term investments consist of debt securities with a
     remaining maturity of one to four years. The Company classifies all
     short-term and long-term investments as held-to-maturity. Held-to-maturity
     securities are those securities in which the Company has the ability and
     intent to hold the security until maturity. Short-term and long-term
     investments are stated at amortized cost plus accrued interest. Interest
     income is accrued as earned. The Company evaluates the carrying value of
     its securities by comparing the carrying values of the securities to their
     market values. In the event that the fair value of a security were to
     decline below its carrying cost, and in the opinion of management such
     decline were other than temporary, the Company would record a loss and
     reduce the carrying value of such instrument to its fair value. Composition
     of cash and investments was as follows (in thousands):



                                      December 31, 2002      December 31, 2001
                                      -----------------      -----------------
                                                       
Cash and cash equivalents:
  Demand and money market accounts         $   609                $   690
  Corporate commercial paper                20,619                  9,396
                                           -------                -------
Total cash and cash equivalents            $21,228                $10,086
                                           =======                =======


          Investments at December 31, 2002 and 2001 were as follows:



                                                                       As of December 31, 2002
                                                       ----------------------------------------------------
                                                                        Gross        Gross
                                                       Amortized     Unrealized    Unrealized    Estimated
                                                         Cost           Gains        Losses      Fair Value
                                                       ---------     ----------    ----------    ----------
                                                                                     
Short-term investments, held-to-maturity:
  U.S. Government agency securities                      $ 4,017         $63          $  -        $ 4,080
Corporate commercial paper                                20,231           -           (70)        20,161
Corporate debt securities                                  2,285           -           (13)         2,272
                                                         -------         ---          ----        -------
     Total short-term investments, held-to-maturity      $26,533         $63          $(83)       $26,513
                                                         =======         ===          ====        =======





                                                                        Gross        Gross
                                                       Amortized     Unrealized    Unrealized    Estimated
                                                         Cost           Gains        Losses      Fair Value
                                                       ---------     ----------    ----------    ----------
                                                                                     
Long-term investments, held-to-maturity:
  U.S. Government agency securities                      $12,102        $ 62           $ -         $12,164
Corporate commercial paper                                 5,052         126             -           5,178
Corporate debt securities                                  3,090          65            (8)          3,147
                                                         -------        ----           ---         -------
     Total long-term investments,held-to-maturity        $20,244        $253           $(8)        $20,489
                                                         =======        ====           ===         =======


                                      F-8

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                       As of December 31, 2001
                                                       ----------------------------------------------------
                                                                        Gross        Gross
                                                       Amortized     Unrealized    Unrealized    Estimated
                                                         Cost           Gains        Losses      Fair Value
                                                       ---------     ----------    ----------    ----------
                                                                                     
Short-term investments, held-to-maturity:
  U.S. Government agency securities                      $   815         $4          $ -           $   819
  Time deposits                                            1,255          -            -             1,255
Corporate commercial paper                                43,388          -            -            43,388
Corporate debt securities                                  1,007          -           (3)            1,004
                                                         -------         --          ---           -------
     Total short-term investments, held-to-maturity      $46,465         $4          $(3)          $46,466
                                                         =======         ==          ===           =======





                                                                        Gross        Gross
                                                       Amortized     Unrealized    Unrealized    Estimated
                                                         Cost           Gains        Losses      Fair Value
                                                       ---------     ----------    ----------    ----------
                                                                                     
Long-term investments, held-to-maturity:
  U.S. Government agency securities                      $31,371           $190          $(21)      $31,540
Corporate debt securities                                  7,505            186             -         7,691
                                                         -------           ----          ----       -------
     Total long-term investments, held-to-maturity       $38,876           $376          $(21)      $39,231
                                                         =======           ====          ====       =======


     (d)  Equipment and Leasehold Improvements

          Equipment and leasehold improvements are stated at cost less
     accumulated depreciation and amortization. Depreciation of furniture and
     equipment is provided on the straight-line method over the estimated useful
     lives of the respective assets (3 to 10 years). Amortization of leasehold
     improvements is provided on the straight-line method over the remaining
     minimum lease term.

     (e)  Investment in ICOS - TBC

          The Company accounts for the investment in ICOS-TBC using the equity
     method. Because the Company had no basis in the technology transferred to
     ICOS-TBC as the Company's original investment, the Company did not record
     an amount for its original investment. The Company records its share of the
     ICOS-TBC loss as a liability to related party until the Company funds its
     portion of the loss.

          ICOS-TBC paid a license fee and a milestone payment to the Company in
     2000 and 2001, respectively. Because the Company has continuing obligations
     to ICOS-TBC, the Company deferred these amounts and is amortizing them into
     revenue over the estimated developmental period of the underlying
     technology.

     (f)  Research and Development Costs

          All research and development costs are expensed as incurred and
     include salaries of research and development employees, certain rent and
     related building services, research supplies and services, clinical trial
     expenses and other associated costs. With respect to research and
     development, salaries and benefits for the years ended December 31, 2002,
     2001 and 2000, of approximately $9,283,000, $7,296,000 and $5,902,000,
     respectively, were charged to research and development. Payments related to
     the acquisition of in-process research and development, if any, are
     expensed as incurred.

     (g)  Net Loss Per Common Share

          Basic net loss per common share is calculated by dividing the net loss
     applicable to common shares by the weighted average number of common and
     common equivalent shares outstanding during the period. For the years 2002,
     2001 and 2000, there were no potential common equivalent shares used in the
     calculation of weighted average common shares

                                      F-9

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     outstanding.



                                               Year Ended December 31,
                                       --------------------------------------
                                          2002          2001          2000
                                       ----------    ----------    ----------
                                                          
Weighted average shares used
 to compute basic and diluted
 net loss per common share             43,741,258    43,636,548    39,149,882
                                       ==========    ==========    ==========
Securities convertible into common
 stock, not used because the effect
 would be antidilutive:
  Stock options                         5,012,500     4,131,252     3,152,316
  Warrants                                246,586       247,858     2,772,371
                                       ----------    ----------    ----------
     Total                              5,259,086     4,379,110     5,924,687
                                       ==========    ==========    ==========


     (h)  Revenue Recognition

          Revenue from service contracts is recognized as services are
     performed. Royalty revenue is recognized as products are sold by a licensee
     and we have received sufficient information to record a receivable. The
     Company defers the recognition of milestone payments related to contractual
     agreements which are still in the development stage. Such deferred revenues
     are amortized into income over the estimated remaining development period.
     Milestone payments received under contractual agreements which have
     completed the development stage are evaluated, and either recognized into
     income when earned, or amortized over a future period, depending upon
     whether the Company continues to have obligations under the terms of the
     arrangement. License fees received under the terms of licensing agreements
     for the Company's intellectual property are similarly deferred, and
     amortized into income over the estimated development period of the licensed
     item or items. The Company periodically evaluates its estimates of
     remaining development periods, and adjusts the recognition of remaining
     deferred revenues over the adjusted development period remaining. Revenue
     from grants is recognized as earned under the terms of the related grant
     agreements, typically as expenses are incurred. Amounts received in advance
     of services being performed under contracts are recorded as deferred
     revenue, and recognized as services are performed.

     (i)  Patent Application Costs

          Costs incurred in filing for, defending and maintaining patents are
     expensed as incurred.

     (j)  Use of Estimates

          Management of the Company has made a number of estimates and
     assumptions relating to the reporting of assets and liabilities, revenues
     and expenses and the disclosure of contingent assets and liabilities to
     prepare these consolidated financial statements in conformity with
     accounting principles generally accepted in the United States of America.
     Actual results could differ from these estimates.

     (k)  Intangible Assets

          Intangible assets, consisting of amounts paid for products approved by
     the United States Food and Drug Administration ("FDA"), are amortized on a
     straight-line basis over their estimated useful lives. The Company
     periodically reviews the useful lives of its intangible and long-lived
     assets, which may result in future adjustments to the amortization periods.
     Related amortization expense for the years ended December 31, 2002, 2001
     and 2000 was $106,000, $106,000 and $53,000, respectively. Amortization of
     intangible assets is included in general and administrative expense in the
     consolidated statements of operations and comprehensive loss.

     (l)  Treasury Stock

          Treasury stock is recorded at cost. On May 3, 2001, the Company
     announced that its Board of Directors had authorized a stock repurchase
     program to buy up to 3 million shares, or approximately 7 percent of the
     Company's outstanding

                                      F-10

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Common Stock over an 18 month period. Pursuant to the stock repurchase
     program, the Company repurchased 213,000 shares for net proceeds of
     approximately $1,602,000 during the year ended December 31, 2001. No shares
     were repurchased during the year ended December 31, 2002.

     (m)  Stock Based Compensation

          At December 31, 2002, the Company has six stock-based compensation
     plans for employees and non-employee directors, which are described more
     fully in Note 3. The Company accounts for those plans under the recognition
     and measurement principles of APB Opinion No. 25, Accounting for Stock
     Issued to Employees, and related interpretations. Net loss in the years
     ended December 31, 2002 and 2001 included stock-based compensation expense
     as a result of modifications made to certain options previously issued to
     retiring employees. Net loss in the year ended December 31, 2002 also
     includes stock-based compensation expense related to the grant of shares of
     restricted stock to the Company's CEO. No other stock-based employee
     compensation expense is reflected in net loss, however, as all options
     granted under those plans had an exercise price equal to the market price
     of the underlying common stock on the date of grant. The following table
     illustrates the effect on net loss and loss per share if the Company had
     applied the fair value recognition provisions of FASB Statement of
     Financial Accounting Standards No. 123, "Accounting for Stock-Based
     Compensation," (SFAS123) to stock-based employee compensation ($ in
     thousands, except for per share data).



                                                 Year Ended December 31,
                                            ---------------------------------
                                              2002         2001         2000
                                            --------     --------     -------
                                                             
Net loss, as reported                       $(23,469)    $(19,142)    $(5,655)
Add: Stock-based employee
      compensation expense included
      in reported net income                     252           63         ---
Deduct: Total stock-based employee
         compensation expense determined
         under fair value method for all
         awards                               (4,238)      (4,118)     (2,950)
                                            --------     --------     -------
Pro forma net loss                          $(27,455)    $(23,197)    $(8,605)
                                            ========     ========     =======

Loss per share:
  As reported, basic and diluted            $  (0.54)    $  (0.44)    $ (0.14)
                                            ========     ========     =======
  Pro forma, basic and diluted              $  (0.63)    $  (0.53)    $ (0.22)
                                            ========     ========     =======


                                      F-11

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          The per-share weighted average fair value of stock options granted
     during 2002, 2001 and 2000 was $3.45, $3.62 and $12.26, respectively, on
     the grant date using the Black-Scholes option pricing model with the
     following assumptions:



                               YEAR ENDED DECEMBER 31,
                              -------------------------
                              2002      2001      2000
                              -----     -----     -----
                                         
Expected dividend yield        0.0%      0.0%      0.0%
Rick-free interest rate        2.8%      4.2%      5.0%
Expected volatility           74.3%     78.0%     77.0%
Expected life in years         4.54      4.83      4.61


     (n)  Income Taxes

          The Company uses the asset and liability method of accounting for
     income taxes. Under the asset and liability method, deferred tax assets and
     liabilities are recognized for the future tax consequences attributable to
     differences between the financial statement carrying amounts of existing
     assets and liabilities and their respective tax bases and operating loss
     and tax credit carryforwards.

          Deferred tax assets and liabilities are measured using enacted tax
     rates expected to apply to taxable income in the years in which those
     temporary differences are expected to be recovered or settled. The effect
     on deferred tax assets and liabilities of a change in tax rates is
     recognized in income in the period that includes the enactment date.

     (o)  Impairment of Long-lived Assets

          As circumstances dictate, the Company evaluates the recoverability of
     its long-lived tangible and intangible assets by comparing the projected
     undiscounted net cash flows associated with such assets against their
     respective carrying values. Impairment, if any, is based on the excess of
     the carrying value over the fair value.

     (p)  New Accounting Pronouncements

          In August 2001, the FASB issued Statement of Financial Accounting
     Standards No. 143, "Accounting for Asset Retirement Obligations," (SFAS143)
     which addresses financial accounting and reporting for obligations
     associated with the retirement of tangible long-lived assets and the
     associated asset retirement costs. This statement applies to all entities
     that have legal obligations associated with the retirement of long-lived
     assets that result from the acquisition, construction, development or
     normal use of the assets. SFAS143 is effective for all fiscal years
     beginning after June 15, 2002. The Company does not expect the adoption of
     SFAS143 to have a significant impact on its financial condition or results
     of operations.

          In April 2002, the FASB issued Statement of Financial Accounting
     Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
     Amendment of FASB Statements No. 13 and Technical Corrections," (SFAS145).
     SFAS145 provides guidance for income statement classification of gains and
     losses on extinguishments of debt and accounting for certain lease
     modifications that have economic effects that are similar to sale-leaseback
     transactions. SFAS145 is effective for the Company in January 2003. The
     Company does not expect the adoption of SFAS145 to have a significant
     impact on its financial condition or results of operations.

          In July 2002, the FASB issued Statement of Financial Accounting
     Standards No. 146, "Accounting for Costs Associated With Exit or Disposal
     Activities," (SFAS146) which addresses significant issues regarding the
     recognition, measurement and reporting of costs that are associated with
     exit and disposal activities, including restructuring activities that are
     currently accounted for pursuant to the guidance set forth in EITF Issue
     No. 94-3, "Liability Recognition of Certain Employee Termination Benefits
     and Other Costs to Exit an Activity." SFAS146 is effective for the Company
     in January 2003. The Company does not expect the adoption of SFAS146 to
     have a significant impact on its financial condition or results of
     operations.

          In December 2002, the FASB issued Statement of Financial Accounting
     Standards No. 148, "Accounting for Stock-Based Compensation -- Transition
     and Disclosure," (SFAS148). SFAS148 amends SFAS123 to provide alternative
     methods

                                      F-12

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     of transition for a voluntary change to the fair value based method of
     accounting for stock-based employee compensation. In addition, SFAS148
     amends the disclosure requirements of SFAS123 to require prominent
     disclosure in both annual and interim financial statements about the method
     of accounting for stock-based employee compensation and the effect of the
     method used on reported results. The provisions of SFAS148 are effective
     for fiscal years ending after December 15, 2002. The adoption of SFAS148
     did not have a material impact on the consolidated financial statements.

     (q)  Reclassifications

          Certain reclassifications have been made to prior period financial
     statements to conform with the December 31, 2002 presentation with no
     effect on net loss previously reported.

(2)  CAPITAL STOCK

          In December 1993, the Company completed an initial public offering
     comprised of 4,082,500 units, each unit consisting of one share of Common
     Stock (par value $.005 per share) and one warrant to purchase one share of
     Common Stock. Proceeds to the Company were approximately $24.2 million, net
     of selling expenses of approximately $3.3 million. The securities included
     in the unit subsequently separated into its Common Stock and warrant
     components. The warrants were exercisable at $8.44 per share. On December
     13, 1998, the expiration date of the warrants was extended from December
     14, 1998 to September 30, 1999 for those warrant holders electing such
     extension. On September 13, 1999, the expiration date of the warrants was
     further extended to December 31, 2000. There were 2,386,645 warrants
     outstanding as of December 31, 2000 which were exercised on January 3, 2001
     for proceeds of approximately $20.1 million.

          In April 2000, the Company sold 5,584,591 shares of Common Stock for
     $12.50 per share in an underwritten public offering. The net proceeds to
     the Company from this offering were approximately $65.2 million after
     deducting selling commissions and expenses of approximately $4.6 million
     related to the offering.

          The Company has reserved Common Stock for issuance as of December 31,
     2002 as follows:


                                                         
Stock option plans...................................       5,758,413
Warrants outstanding.................................         246,586
                                                            ---------
     Total shares reserved...........................       6,004,999
                                                            =========



     Shareholders' Rights Plan

          In January 2002, the Company adopted a shareholder rights plan under
     which the Board of Directors declared a dividend of one preferred stock
     purchase right ("Right") for each outstanding share of the Company's common
     stock held of record as of the close of business on January 22, 2002. Each
     Right initially entitles a shareholder to purchase a one one-thousandth
     fraction of a share of Preferred Stock - Junior Participating Series A (the
     "Preferred Stock") for $55.00. Each such fraction of a share of Preferred
     Stock has terms designed to make it essentially equivalent to one share of
     Common Stock. The Rights will become exercisable only in the event a person
     or group acquires 15% or more of the Company's Common Stock or commences a
     tender or exchange offer which, if consummated, would result in that person
     or group owning 15% of the Common Stock. Prior to such an event, the Rights
     will be evidenced by and traded in tandem with the Common Stock.

          If a person or group acquires a 15% or larger position in the Company,
     each Right (except those held by the acquiring party) will then entitle its
     holder to purchase, fractional shares of Preferred Stock having twice the
     value of the $55 exercise price, with each fractional Preferred Share
     valued at the market price of the Common Stock. Also, if following an
     acquisition of 15% or more of the Company's Common Stock, the Company is
     acquired by that person or group in a merger or other business combination
     transaction, each Right would then entitle its holder to purchase Common
     Stock of the acquiring company having a value of twice the $55.00 exercise
     price. The effect will be to entitle the Company's shareholders to buy
     stock in the acquiring company at 50% of its market price.

          The Company may redeem the Rights at $.001 per Right at any time on or
     prior to the tenth business day following the acquisition of 15% or more of
     its Common Stock by a person or group or commencement of a tender offer for
     such 15% ownership. The Rights expire on January 2, 2012.

                                      F-13

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(3)  STOCK OPTIONS AND WARRANTS

          The Company has in effect the following stock option plans:

          The Amended and Restated 1990 Incentive Stock Option Plan ("1990
     Plan") allows for the issuance of incentive and non-qualified options to
     employees, directors, officers, non-employee independent contractors and
     non-employee directors, pursuant to which 102,635 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company.

          The Amended and Restated 1992 Incentive Stock Option Plan ("1992
     Plan") allows for the issuance of incentive and non-qualified options to
     employees, directors, officers, non-employee independent contractors and
     non-employee directors, pursuant to which 712,641 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company.

          The Amended and Restated Stock Option Plan for Non-Employee Directors
     ("Director Plan") allows for the issuance of non-qualified options to
     non-employee directors, pursuant to which 28,527 shares of Common Stock are
     reserved for issuance out of authorized but unissued shares of the Company
     to be issued to non-employee members of the Board of Directors of the
     Company based on a formula. No new issuances are being made under the
     Director Plan.

          The Amended and Restated 1995 Stock Option Plan ("1995 Plan") allows
     for the issuance of incentive and non-qualified options, shares of
     restricted stock and stock bonuses to employees, officers, and non-employee
     independent contractors, pursuant to which 1,604,867 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company.

          The Amended and Restated 1995 Non-Employee Director Stock Option Plan
     ("1995 Director Plan") allows for the issuance of non-qualified options to
     non-employee directors, pursuant to which 444,368 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company to be issued to non-employee members of the Board of Directors of
     the Company based on a formula. During 2003, the Board of Directors amended
     the 1995 Director Plan to allow a total of 800,000 shares of Common Stock
     to be reserved for issuance. The amendment is subject to approval of the
     stockholders at the Company's annual meeting in 2003.

          The Amended and Restated 1999 Stock Incentive Plan ("1999 Plan")
     allows for the issuance of incentive and non-qualified options, shares of
     restricted stock and stock bonuses to directors, employees, officers and
     non-employee independent contractors, pursuant to which 2,865,375 shares of
     Common Stock are reserved for issuance out of authorized but unissued
     shares of the Company. During 2003, the Board of Directors amended the 1999
     Plan to allow a total of 4,750,000 shares of Common Stock to be reserved
     for issuance. The amendment is subject to approval of the stockholders at
     the Company's annual meeting in 2003.

                                      F-14

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          A summary of stock options as of December 31, 2002, follows:



                      EXERCISE PRICE                               EXERCISED/                 AVAILABLE
STOCK OPTION PLANS      PER SHARE      AUTHORIZED    OUTSTANDING     OTHER      EXERCISABLE   FOR GRANT
- ------------------    --------------   ----------    -----------   ----------   -----------   ---------
                                                                            
1990 Plan ........      $1.38-$21.59      285,715        102,635      183,080        86,805         ---
1992 Plan ........      $1.41-$21.59    1,700,000        712,641      987,359       688,566         ---
Director Plan ....      $3.50-$ 4.54       71,429         28,527       42,902        28,527         ---
1995 Plan ........      $1.31-$21.59    2,000,000      1,574,841      395,133     1,496,272      30,026
1995 Director Plan      $1.38-$11.31      500,000        386,596       55,632       324,096      57,772
1999 Plan ........      $2.29-$20.13    3,000,000      2,207,260      134,625       504,085     658,115
                                        ---------      ---------    ---------     ---------     -------
       TOTALS ....                      7,557,144      5,012,500    1,798,731     3,128,351     745,913
                                        =========      =========    =========     =========     =======


          A summary of the status of the Company's stock option plans as of
     December 31, 2002, 2001 and 2000 and the changes during the years then
     ended is presented below:



                                                 WEIGHTED-AVERAGE
                                      OPTIONS     EXERCISE PRICE
                                     ---------   ----------------
                                           
Outstanding at January 1, 2000..     3,224,219             $ 4.53
  Granted ......................       624,160              18.66
  Canceled .....................       (77,159)              9.13
  Exercised ....................      (618,904)              3.75
                                     ---------
Outstanding at December 31, 2000     3,152,316               7.36
  Granted ......................     1,042,700               5.69
  Canceled .....................       (51,496)             13.77
  Exercised ....................       (12,268)              4.15
                                     ---------
Outstanding at December 31, 2001     4,131,252               6.87
  Granted ......................     1,272,225               5.74
  Canceled .....................      (261,117)              5.97
  Exercised ....................      (129,860)              3.50
                                     ---------
Outstanding at December 31, 2002     5,012,500             $ 6.72
                                     =========


          In 2002 and 2001, the Company issued 99,734 shares at a weighted
     average market price of $5.61 per share, and 51,051 shares at a weighted
     average market price of $9.69 per share, of restricted Common Stock,
     respectively, as compensation to certain of its employees, which will vest
     over the three year period subsequent to its issuance. In 2002, 5,063
     shares of previously issued restricted Common Stock were cancelled, as a
     result of the termination of employment of the grantees before such shares
     had vested.

                                      F-15

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          The following tables summarize information about the Company's stock
     options outstanding as of December 31, 2002, 2001 and 2000, respectively:



                                                     WEIGHTED                                                 WEIGHTED
                                  OPTIONS             AVERAGE           WEIGHTED           OPTIONS             AVERAGE
              OPTION            OUTSTANDING          REMAINING          AVERAGE          EXERCISABLE       EXERCISE PRICE
          EXERCISE PRICE      AS OF 12/31/2002   CONTRACTUAL LIFE    EXERCISE PRICE    AS OF 12/31/2002    OF EXERCISABLE
          --------------      ----------------   ----------------    --------------    ----------------    --------------
                                                                                            
           $1.31-$ 4.53          1,261,140             3.74              $ 3.53           1,195,140             $ 3.53
           $4.54-$ 5.63          1,749,644             6.24              $ 5.49             647,472             $ 5.37
           $5.64-$ 7.19          1,400,222             5.93              $ 6.41             845,222             $ 6.56
           $7.20-$21.59            601,494             6.69              $17.68             440,517             $17.45
                                 ---------                                                ---------
           $1.31-$21.59          5,012,500             5.58              $ 6.72           3,128,351             $ 6.69
                                 =========                                                =========





                                                     WEIGHTED                                                 WEIGHTED
                                  OPTIONS             AVERAGE           WEIGHTED           OPTIONS             AVERAGE
              OPTION            OUTSTANDING          REMAINING          AVERAGE          EXERCISABLE       EXERCISE PRICE
          EXERCISE PRICE      AS OF 12/31/2001   CONTRACTUAL LIFE    EXERCISE PRICE    AS OF 12/31/2001    OF EXERCISABLE
          --------------      ----------------   ----------------    --------------    ----------------    --------------
                                                                                            
           $ 1.31-$ 4.19          1,050,454            3.68              $ 3.21             951,041            $ 3.11
           $ 4.20-$ 5.51          1,526,834            6.44              $ 5.17             734,486            $ 4.80
           $ 5.52-$11.31          1,035,970            6.07              $ 6.85             909,478            $ 6.79
           $11.32-$21.59            517,994            8.02              $19.36             194,418            $19.37
                                  ---------                                               ---------
           $ 1.31-$21.59          4,131,252            5.84              $ 6.87           2,789,423            $ 5.89
                                  =========                                               =========





                                                     WEIGHTED                                                 WEIGHTED
                                  OPTIONS             AVERAGE           WEIGHTED           OPTIONS             AVERAGE
              OPTION            OUTSTANDING          REMAINING          AVERAGE          EXERCISABLE       EXERCISE PRICE
          EXERCISE PRICE      AS OF 12/31/2000   CONTRACTUAL LIFE    EXERCISE PRICE    AS OF 12/31/2000    OF EXERCISABLE
          --------------      ----------------   ----------------    --------------    ----------------    --------------
                                                                                            
           $1.31-$ 3.50             638,719             2.86             $ 2.64             637,886            $ 2.64
           $3.51-$ 5.88           1,459,624             6.09             $ 4.83           1,208,453            $ 4.98
           $5.89-$ 8.13             451,146             7.17             $ 7.19             297,282            $ 7.19
           $8.14-$21.59             602,827             9.36             $18.63              23,752            $13.86
                                  ---------                                               ---------
           $1.31-$21.59           3,152,316             5.84             $ 7.36           2,167,373            $ 4.69
                                  =========                                               =========


                                      F-16

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Warrants

          A summary of the status of the Company's warrants as of December 31,
     2002, 2001 and 2000, and changes during the years then ended is presented
     below:




                                                        WEIGHTED-AVERAGE
                                            WARRANTS     EXERCISE PRICE
                                           ----------   ----------------
                                                  
       Outstanding at January 1, 2000..     4,760,972        $8.01
         Canceled .....................    (1,457,473)        8.37
         Exercised ....................      (531,128)        4.76
                                           ----------
       Outstanding at December 31, 2000     2,772,371         8.33
         Forfeited ....................       (12,955)        4.40
         Exercised ....................    (2,511,558)        8.20
                                           ----------
       Outstanding at December 31, 2001       247,858         9.87
         Exercised ....................        (1,272)        4.25
                                           ----------
       Outstanding at December 31, 2002       246,586        $9.90
                                           ==========


          On November 12, 1998, the Company announced an extension of the
     exercise period of the Company's publicly traded redeemable common stock
     purchase warrants from December 14, 1998 to September 30, 1999 for those
     warrant holders electing such extension. On September 13, 1999, the
     expiration date of the warrants was further extended to December 31, 2000.
     These publicly traded warrants comprised 2,386,645 of the 2,772,371
     warrants outstanding at December 31, 2000. The exercise price of $8.44
     remained unchanged. On January 3, 2001, publicly traded warrants to
     purchase 2,386,645 shares were exercised and the Company received cash
     proceeds of $20,143,000. In February 2001, warrants to purchase 124,913
     shares at a weighted-average exercise price of $3.60, originally issued in
     1996, were exercised for total cash proceeds of $450,000.


(4)  INCOME TAXES

          The Company did not incur any tax expense in any year due to operating
     losses and the related increase in the valuation allowance.

          The reconciliation of income taxes at the statutory rate of 35%
     applied to income before taxes is as follows ($ in thousands):



                                                DECEMBER 31,
                                         2002        2001        2000
                                        -------     -------     -------
                                                       
Computed "expected" tax expense         $(8,214)    $(6,700)    $(1,979)
Effect of:
  Permanent differences                     893         525      (2,020)
  Increase in valuation allowance         7,321       6,175       3,999
                                        -------     -------     -------
Tax expense                             $   ---     $   ---     $   ---
                                        =======     =======     =======


                                      F-17

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          The tax effects of the temporary differences that give rise to
     significant portions of the deferred tax assets as of December 31, 2002 and
     2001 are as follows ($ in thousands):



                                                          DECEMBER 31,
                                                       2002         2001
                                                     --------     --------
                                                            
                    Loss carryforwards               $ 41,946     $ 30,726
                    Start-up costs                      8,001       10,748
                    Property, plant and equipment         (71)         814
                    Deferred revenue                    2,053        2,393
                    Other                               1,047          974
                                                     --------     --------
                      Gross deferred tax assets        52,976       45,655
                      Valuation allowance             (52,976)     (45,655)
                                                     --------     --------
                      Net deferred tax assets        $    ---     $    ---
                                                     ========     ========


          The Company has established a valuation allowance for the full amount
     of these deferred tax assets, as management does not believe that it is
     more likely than not that the Company will recover these assets.
     Utilization of the Company's net operating loss carryforwards is subject to
     certain limitations due to specific stock ownership changes which have
     occurred or may occur. To the extent not utilized, the carryforwards will
     expire during the years beginning 2005 through 2022.


(5)  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

          Equipment and leasehold improvements consist of the following ($ in
     thousands):



                                                       DECEMBER 31,    DECEMBER 31,
                                                           2002            2001
                                                       ------------    ------------
                                                                 
       Laboratory and office equipment ..............    $10,667         $ 8,407
       Leasehold improvements .......................      4,311           4,302
                                                         -------         -------
                                                          14,978          12,709
       Less accumulated depreciation and amortization      9,399           8,409
                                                         -------         -------
                                                         $ 5,579         $ 4,300
                                                         =======         =======



(6)  ENTITY-WIDE GEOGRAPHIC DATA

          The Company operates in a single business segment that includes
     research and development of pharmaceutical products. The following table
     summarizes the Company's long-lived assets in different geographic
     locations ($ in thousands):



                                                  DECEMBER 31,
                                                 2002      2001
                                                ------    ------
                                                    
                          Long-lived assets:
                            United States       $4,884    $4,446
                            Germany              1,457       722
                                                ------    ------
                          Total                 $6,341    $5,168
                                                ======    ======



(7)  RESEARCH AGREEMENTS

          On October 10, 1996, the Company signed a strategic alliance agreement
     with LG Chemical, a Korean corporation, to develop and market compounds
     derived from the Company's endothelin receptor antagonist and selectin
     antagonist programs for certain disease indications. Upon consummation of
     the transaction, LG Chemical purchased 1,250,000 shares of Common Stock for
     $4.00 per share for a total of $5 million. In addition, LG Chemical had
     committed to pay $10.7 million in research payments. Of this amount, $8.1
     million had been paid as of December 31, 2000. Effective June 6, 2000, the
     Company assigned one-half of the research payment to ICOS-TBC which
     amounted to $577,000, before commissions, during the year 2000. In August
     2001, the Company and LG Chemical mutually agreed to terminate the
     strategic alliance

                                      F-18

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     agreement. No research payments were received in 2002 or 2001 from LG
     Chemical and LG Chemical's rights under the agreement have ended.

          Under the terms of the Company's agreement with ICOS-TBC, the Company
     will provide, and be reimbursed for, research and development activities
     conducted on behalf of ICOS-TBC. In January 2003, ICOS announced that it
     had reached a conclusion that joint development of the endothelin
     antagonist program by ICOS-TBC should not continue. ICOS and TBC are
     currently negotiating the terms pursuant to which TBC could independently
     continue the program. The financial terms of the transaction are subject to
     ongoing negotiations between the two companies. See Note 8, below.

          The Company also receives reimbursement for certain research costs
     pursuant to its agreements with GlaxoSmithKline, plc ("GSK") (Note 10),
     Schering-Plough LTD. and Schering-Plough Corporation (collectively
     "Schering-Plough") (Note 8) and Revotar (Note 9).


(8)  LICENSE AGREEMENTS

     Mitsubishi-Pharma Agreement

          TBC has entered into an agreement with Mitsubishi Pharma Corporation,
     formerly Mitsubishi-Tokyo Pharmaceuticals, Inc. ("Mitsubishi") to license
     Mitsubishi's rights and technology relating to Argatroban and to license
     Mitsubishi's own proprietary technology developed with respect to
     Argatroban (the "Mitsubishi Agreement"). Under the Mitsubishi Agreement,
     the Company has an exclusive license to use and sell Argatroban in the U.S.
     and Canada for all specified indications. The Company is required to pay
     Mitsubishi specified royalties on net sales of Argatroban by the Company
     and its sublicensees after its commercial introduction in the U.S. and
     Canada. GSK is also obligated to pay Mitsubishi royalties on sales of
     Argatroban. As of December 31, 2002, the Company had paid Mitsubishi
     approximately $237,000 in royalty payments under the Mitsubishi Agreement.
     The Company has also paid Mitsubishi a $500,000 milestone payment under the
     Mitsubishi Agreement, and no additional milestone payments are payable to
     Mitsubishi under the Mitsubishi Agreement. Either party may terminate the
     Mitsubishi Agreement on 60 days notice if the other party defaults in its
     material obligations under the agreement, declares bankruptcy or is
     insolvent, or if a substantial portion of its property is subject to levy.
     Unless terminated sooner pursuant to the above-described termination
     provisions, the Mitsubishi Agreement expires on the later of termination of
     patent rights in a particular country or 20 years after first commercial
     sale of products. If the Mitsubishi Agreement is terminated, the Company
     would lose all rights to Argatroban including its right to receive revenues
     from the sale of Argatroban. Under the Mitsubishi Agreement, TBC has access
     to an improved formulation patent granted in 1993, which expires in 2012,
     and a use patent which expires in 2009. The Mitsubishi composition of
     matter patent on Argatroban has expired. During 2000, TBC signed an
     additional agreement with Mitsubishi that provides TBC with royalties on
     sales of Argatroban in certain European countries, up to a total of $5.0
     million in milestones for the development of ischemic stroke and certain
     other provisions. The Company began enrolling patients in a clinical trial
     for ischemic stroke in April 2001, and received a $2.0 million milestone
     payment in May 2001, which is being recognized as revenues over the
     expected development period, and accordingly, revenues in years 2002 and
     2001 include approximately $382,000 and $274,000, respectively, related to
     such milestone payment. In light of a lack of a positive overall efficacy
     trend and the high risk and high costs associated with stroke trials, it is
     unlikely that we will proceed independently with a full Phase III program.
     In conjunction with the Mitsubishi Agreement, a consulting firm involved in
     negotiations related to the agreement will receive a percentage of net
     sales received as a result of the agreement.

          Mitsubishi further agreed to supply the Company with its requirements
     of bulk Argatroban throughout the term of the Mitsubishi Agreement for
     TBC's clinical testing and commercial sales of Argatroban in the U.S. and
     Canada. In the event Mitsubishi should discontinue the manufacture of
     Argatroban, Mitsubishi and TBC have agreed to discuss in good faith the
     means by which, and the party to whom, Argatroban production technology
     will be transferred. The transferee may be a person or entity other than
     TBC. At present, Mitsubishi is the only manufacturer of Argatroban. See
     Note 10.

          In exchange for the license to the Genentech, Inc, (the "Former
     Licensor") Argatroban technology, TBC issued the Former Licensor 285,714
     shares of Common Stock during 1993 and issued an additional 214,286 shares
     of Common Stock on October 9, 1997, after acceptance of the filing of the
     first New Drug Application ("NDA") with the United States Food and Drug
     Administration (the "FDA") for Argatroban. On June 30, 2000, the Company
     issued an additional 71,429 shares of Common Stock to Genentech in
     conjunction with the approval of the NDA for Argatroban in patients with
     HIT. The value of $965,000 has been recorded as an intangible asset and is
     being amortized over the estimated useful life of the asset. Amortization
     expense recorded in 2002, 2001 and 2000 was $105,000, $105,000 and $53,000,
     respectively and will be approximately $105,000 annually in future periods.
     Additionally, on October 9, 1997, upon acceptance of the filing of the

                                      F-19

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     first NDA for Argatroban with the FDA, the Company granted the Former
     Licensor a warrant to purchase an additional 142,858 shares of Common Stock
     at an exercise price of $14.00 per share, subject to adjustment, which
     expires on October 9, 2004. TBC has also granted the Former Licensor demand
     and piggyback registration rights with regard to shares of Common Stock
     issued to the Former Licensor.

          During the third quarter of 1997, the Company sublicensed certain
     rights to Argatroban to GSK. In conjunction with this agreement, the
     Company agreed to make certain payments to Mitsubishi, which are included
     in research and development expense, to pay an additional royalty to
     Mitsubishi, beginning January 1, 2002 and to provide access to certain
     Argatroban clinical data to Mitsubishi in certain circumstances. In certain
     circumstances, Mitsubishi and TBC will share equally in all upfront
     payments and royalties should Mitsubishi use TBC's regulatory documents and
     data for registration in certain territories. See Note 10.


     ICOS Corporation Partnership

          On June 6, 2000, the Company and ICOS entered into the ICOS-TBC
     limited partnership agreement. The partnership was established to develop
     and globally commercialize ET(A) receptor antagonists. As a result of its
     contribution of technology, ICOS-TBC paid a license fee to TBC in June
     2000. In July 2001, the Company earned a milestone, as a result of the
     achievement of an objective defined in the partnership agreement. The
     license fee is being amortized over the estimated development period of the
     licensed technology and the Company recognized approximately $464,000,
     $484,000 and $307,000 of it as revenue during 2002, 2001 and 2000,
     respectively. The milestone payment received in July 2001 is also being
     amortized over the estimated development period, and the Company recognized
     approximately $640,000 and $333,000 of it as revenue during 2002 and 2001,
     respectively. For further discussion of the Company's revenue recognition
     policies, see Note 1 (h), Revenue Recognition, above. In January 2003, ICOS
     announced that it had reached a conclusion that joint development of the
     endothelin antagonist program by ICOS-TBC should not continue. ICOS and TBC
     are currently negotiating the terms pursuant to which TBC could
     independently continue the program. The financial terms of the transaction
     are subject to ongoing negotiations between the two companies. After
     December 31, 2002, TBC has agreed to be responsible for 100% of the
     expenses of ICOS-TBC.

          During the years ended December 31, 2002, 2001 and 2000, the Company
     recognized losses of $8,557,000, $9,450,000 and $3,487,000, respectively,
     representing the Company's proportionate share of the losses of ICOS-TBC.
     The losses of ICOS-TBC includes amounts billed to the partnership by the
     Company, all of which were included in the loss of the partnership, as
     follows ($ in thousands):



                                             Year Ended December 31,
                                           --------------------------
                                            2002      2001      2000
                                           ------    ------    ------
                                                      
Charges for TBC labor costs                $1,090    $1,442    $1,123
Direct research and development costs       1,375     4,748     3,583
                                           ------    ------    ------
Total billed to ICOS-TBC by the Company    $2,465    $6,190    $4,706
                                           ======    ======    ======


          Summarized unaudited financial information for ICOS-TBC is as follows
     ($ in thousands):



FINANCIAL POSITION - DECEMBER 31:                        2002        2001
- ---------------------------------                       -------     -------
                                                              
Total assets - all current .........................    $     1     $     1
                                                        =======     =======
Total liabilities - all current, payable to partners    $ 5,235     $ 7,059
Partners' deficit ..................................     (5,234)     (7,058)
                                                        -------     -------
                                                        $     1     $     1
                                                        =======     =======



                                      F-20

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                                           PERIOD FROM
                                                                                          JUNE 6, 2000
                                                                                           (INCEPTION)
                                                            YEAR ENDED     YEAR ENDED        THROUGH
                                                           DECEMBER 31,    DECEMBER 31,   DECEMBER 31,
                OPERATING RESULTS:                             2002            2001           2000
                ------------------                         ------------    ------------   ------------
                                                                                 
     Revenue ..........................................      $    ---        $    ---       $    547
     Research and development expenses, related parties       (16,633)        (18,872)        (7,515)
     Contribution of technology, related party ........           ---          (4,000)        (4,000)
     Administrative expenses ..........................          (483)            (26)            (8)
                                                             --------        --------       --------
     Net loss .........................................      $(17,116)       $(22,898)      $(10,976)
                                                             ========        ========       ========



     Schering-Plough Research Collaboration and License Agreement

          On June 30, 2000, TBC and Schering-Plough entered into a worldwide
     research collaboration and license agreement to discover, develop and
     commercialize VLA-4 antagonists. VLA-4 antagonists represent a new class of
     compounds that has shown promise in multiple preclinical animal models of
     asthma. The primary focus of the collaboration will be to discover orally
     available VLA-4 antagonists as treatments for asthma.

          Under the terms of the agreement, Schering-Plough obtains the
     exclusive worldwide rights to develop, manufacture and market all compounds
     from TBC's library of VLA-4 antagonists, as well as the rights to a second
     integrin antagonist. TBC will be responsible for optimizing a lead compound
     and additional follow-on compounds. Schering-Plough is supporting research
     at TBC and will be responsible for all costs associated with the worldwide
     product development program and commercialization of the compound. In
     addition to funding research costs, Schering-Plough paid TBC an aggregate
     of $4 million in upfront license fees and milestone payments, and will pay
     the Company additional development milestones of $39 million regarding the
     development of VLA-4 antagonists, and $38 million regarding the development
     of a second integrin antagonist. The Company is not currently developing
     the second integrin antagonist. Schering-Plough will also pay the Company
     royalties on product sales resulting from the agreement. The upfront
     license fee is being amortized into revenue over the expected development
     period, and the Company recognized $366,000, $456,000 and $273,000 of the
     license fee as revenues in years 2002, 2001 and 2000, respectively. Total
     payments to TBC for both programs, excluding royalties, could reach $87.0
     million. As of December 31, 2002, the Company had received approximately
     $8.8 million in research payments from Schering-Plough under the agreement.
     Schering-Plough can terminate the research program upon 180 days written
     notice to the Company. If the agreement is terminated, TBC will lose
     Schering-Plough's funding for the research costs in addition to development
     milestones and royalties on product sales resulting from the agreement.

          In June 2002, the Company achieved a milestone under the
     Schering-Plough agreement as a result of the nomination of an initial
     candidate for Schering-Plough's further development. This milestone payment
     will be recognized into revenue over the expected development period, and
     approximately $104,000 was recognized as revenue during 2002.


(9)  FOREIGN SUBSIDIARY

          During the third quarter 2000, TBC formed Revotar to conduct research
     and development of novel small molecule compounds and to develop and
     commercialize selectin antagonists. Upon formation, Revotar received
     certain development and commercialization rights to the Company's selectin
     antagonist compounds as well as rights to certain other TBC research
     technology. Currently, Revotar has exclusive worldwide rights to
     bimosiamose for the treatment of asthma and other inflammatory indications
     as well as rights outside of North America for topical indications. The
     Company has exclusive worldwide rights for the use of bimosiamose in organ
     transplant as well as exclusive North American rights to all topical
     indications. The Company's license agreement with Revotar provides that the
     Company will receive royalties from Revotar based on sales of products by
     Revotar or its licensees, and in certain events, the Company will receive a
     portion of royalties, license fees and milestones received by Revotar from
     its licensees, if any. Revotar will also receive royalties on sales of
     products by the Company and its licensees. Revotar also received
     approximately $5 million in funding from three German venture capital
     funds. The Company retained ownership of approximately 55% of the
     outstanding common stock of Revotar and has consolidated the financial
     results of Revotar into TBC's consolidated financial statements. Since the
     development and commercialization rights contributed by the Company to
     Revotar had no basis for financial reporting purposes, the Company assigned
     no value to its contribution of intellectual property rights. The Company's
     equity in the originally contributed assets by the minority shareholders is
     included with the minority interest in Revotar on the consolidated balance
     sheets at December 31, 2002 and 2001. The minority interest in Revotar at
     December 31, 2002 and December 31, 2001, was $2,608,000 and $3,833,000,
     respectively. The Company's consolidated net loss for the years ended
     December 31, 2002, 2001 and 2000 was reduced $1,225,000, $749,000 and
     $209,000, respectively, by the Revotar minority shareholders' approximately
     45% interest in Revotar's losses.

                                      F-21

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(10) COMMERCIALIZATION AGREEMENT

          In connection with TBC's development and commercialization of
     Argatroban, in August 1997, TBC entered into a Product Development, License
     and CoPromotion Agreement with GSK (the "GSK Agreement") whereby GSK was
     granted exclusive rights to work with TBC in the development and
     commercialization of Argatroban in the U.S. and Canada for specified
     indications. GSK paid $8.5 million in upfront license fees during August
     1997, a $5 million milestone payment in October 1997, and a $7.5 million
     milestone payment in June 2000. Additional milestone payments may be earned
     upon the clinical development and FDA approval for the acute myocardial
     infarction indication. Future milestone payments for the acute myocardial
     infarction indication are subject to GSK's agreement to market Argatroban
     for such indication. The parties have also formed a joint development
     committee to analyze the development of additional Argatroban indications
     to be funded 60% by GSK except for certain Phase IV trials which shall be
     funded entirely by GSK. At this time, GSK has no plans to conduct
     development work for the acute myocardial infarction and stroke
     indications. GSK has the exclusive right to commercialize all products
     arising out of the collaboration, subject to the obligation to pay
     royalties on net sales to TBC and to the rights of TBC to co-promote these
     products through its own sales force in certain circumstances. As of
     December 31, 2002, the Company had received approximately $5.3 million in
     royalty payments from GSK under the GSK Agreement. TBC will retain the
     rights to any indications which GSK determines it does not wish to pursue
     (such as ischemic stroke), subject to the requirement that TBC must use its
     own sales force to commercialize any such indications. Any indications
     which TBC elects not to pursue will be returned to Mitsubishi. In
     conjunction with the GSK Agreement, a consulting firm involved in
     negotiations related to the agreement will receive a percentage of all
     consideration received by TBC as a result of the agreement.

          At present, Mitsubishi is the only manufacturer of Argatroban, and has
     entered into the Mitsubishi Supply Agreement with GSK to supply Argatroban
     in bulk in order to meet GSK and TBC's needs under the GSK Agreement.
     Should Mitsubishi fail during any consecutive nine-month period to supply
     GSK at least 80% of its requirements, and such requirements cannot be
     satisfied by existing inventories, the Mitsubishi Supply Agreement provides
     for the nonexclusive transfer of the production technology to GSK. If GSK
     cannot commence manufacturing of Argatroban or alternate sources of supply
     are unavailable or uneconomic, the Company's results of operations would be
     materially and adversely affected.

          The GSK Agreement generally terminates on a country by country basis
     upon the earlier of the termination of TBC's rights under the Mitsubishi
     Agreement, the expiration of applicable patent rights or, in the case of
     royalty payments, the commencement of substantial third-party competition.
     GSK also has the right to terminate the agreement on a country by country
     basis by giving TBC at least three months written notice at any time before
     GSK first markets products in that country based on a reasonable
     determination by GSK that the commercial profile of the product in question
     would not justify continued development in that country. GSK has similar
     rights to terminate the GSK Agreement on a country by country basis after
     marketing has commenced. In addition, either party may terminate the GSK
     Agreement on 60 days notice if the other party defaults in its obligations
     under the agreement, declares bankruptcy or is insolvent. If the GSK
     Agreement is terminated, the Company would no longer receive royalties from
     GSK's sales of Argatroban.

          In connection with the execution of the GSK Agreement, GSK purchased
     176,992 shares of TBC's Common Stock for $1.0 million and additional
     400,000 shares of Common Stock for $2.0 million in connection with the
     secondary public offering, which closed on October 1, 1997.


(11) 401(k) PLAN

          The Company adopted a 401(k) plan which became effective on September
     1, 1993. Under the plan, all employees with three months of service are
     eligible to participate in the plan and may contribute up to 15 percent of
     their compensation, with a maximum of $11,000 per employee in 2002. The
     Compensation Committee of the Board of Directors approved an employer
     matching contribution of $0.50 on the dollar of employee contributions up
     to 6% of salaries and the 401(k) plan was amended effective January 1,
     2001. The Compensation Committee approved matching contributions on the
     catch-up contribution made by employees 50 years of age or older by the end
     of the plan year and the 401(k) plan was amended effective January 1, 2002.
     Total cost of the employer match was $197,000 and $158,000 in 2002 and
     2001, respectively.


(12) COMMITMENTS AND CONTINGENCIES

     (a)  Employment agreements

          The Company has entered into employment agreements with certain
     officers and key employees. Additionally, the

                                      F-22

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Company has signed agreements with nine of its officers to provide certain
     benefits in the event of a "change of control" as defined in these
     agreements and the occurrence of certain other events. The agreements
     provide for a lump-sum payment in cash equal to eighteen months to three
     years of annual base salary and annual bonus, if any. The base salary and
     annual bonus portion of the agreements would aggregate approximately $4.9
     million at the current rate of compensation. In addition, the agreements
     provide for gross-up for certain taxes on the lump-sum payment,
     continuation of certain insurance and other benefits for periods of
     eighteen months to three years and reimbursement of certain legal expenses
     in conjunction with the agreements.

     (b)  Lease Agreements

          In April 2002, the Company leased a facility in Bellaire, Texas, that
     houses the Company's administrative, marketing, clinical development and
     regulatory staff. Under the terms of the lease, which expires on July 31,
     2005, the Company is obligated to pay approximately $281,000 annually for
     base rent, related building services and parking. The Company has the right
     to extend the term of this lease agreement under the same terms and
     conditions to December 31, 2005, upon notice to the lessor. The Company
     could be subject to additional charges for related building services in
     years 2003 and thereafter, based upon increases in actual building costs,
     not to exceed six percent annually.

          The Company's lease on its laboratory facility in Houston, Texas
     expires on December 31, 2005 with an annual base rent of approximately
     $815,000. The Company also leases parking spaces at the facility
     established rate charged, which currently approximates $43,000 per year.
     The lease also includes a provision for the Company to pay certain
     additional charges to obtain utilities and building services during
     off-business hours. Currently, the amount of these charges is approximately
     $288,000 per annum, payable in monthly installments. These charges are
     subject to annual adjustments based on the local consumer price index.

          In October 2001, Revotar, the Company's majority-owned subsidiary,
     leased an 8,800 square foot office and laboratory facility in Berlin,
     Germany. The lease expires on September 30, 2006. Under the terms of the
     lease, the Company is obligated to pay $137,000 in year 2003 for rent and
     parking. Under the terms of the lease, base rent will increase at three
     percent per year on the anniversary date of the lease. In addition to the
     base rent and parking, the Company is obligated to pay $49,000 in year 2003
     for related building services. The charge for related building services is
     subject to annual adjustments, based upon actual increases in costs, up to
     six percent per year.

          For the years ended December 31, 2002, 2001 and 2000, rent and related
     building services totaled approximately $1,600,000, $1,200,000 and
     $1,100,000, respectively.

          At December 31, 2002, the Company's minimum aggregate commitments
     under long-term, non-cancelable operating leases are as follows ($ in
     thousands):


                        
2003 ..................    $1,616
2004 ..................     1,620
2005 ..................     1,506
2006 ..................       131
                           ------
                           $4,873
                           ======


     (c)  Foreign Currency Exchange Risk

          The Company is exposed to market risk primarily from changes in
     foreign currency exchange rates.

          The Company has a majority-owned subsidiary in Germany and
     consolidates the results of operations into its consolidated financial
     results. Although not significant to date, the Company's reported expenses
     and cash flows from this subsidiary are exposed to changing exchange rates.
     The Company had an intercompany receivable from our German subsidiary at
     December 31, 2002; however this amount was denominated in U.S. dollars and
     was not exposed to exchange risk. The Company contracts with entities in
     other areas outside the U.S. that are denominated in a foreign currency. To
     date, the currencies of these countries have not fluctuated materially.
     Through December 31, 2002, management has not deemed it cost effective to
     engage in a program of hedging the effect of foreign currency fluctuations
     on the Company's operating results using derivative financial instruments.
     During 2003, Revotar engaged in a program of hedging the effect of foreign
     currency fluctuations on approximately $1.6 million in future loan payments
     from us.

                                      F-23

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     (d)  Other Contingencies

          Like other biopharmaceutical companies, the Company is subject to
     other contingencies, including legal proceedings and claims arising out of
     its business that cover a wide range of matters, including, among others,
     environmental matters, contract and employment claims, and product
     liability. The Company may be involved in legal actions from time to time.
     The Company has used various substances in its research and development
     which have been or may be deemed to be hazardous or dangerous, and the
     extent of its potential liability, if any, under environmental, product
     liability and workers' compensation statutes, rules, regulations and case
     law is unclear. The Company is not a party to any legal actions.

                                      F-24

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(13) QUARTERLY FINANCIAL DATA (UNAUDITED)

          The following is a summary of the unaudited quarterly results of
     operations (in thousands, except per share data):



                                            YEAR ENDED DECEMBER 31, 2002
                           ---------------------------------------------------------------
                           QUARTER ENDED    QUARTER ENDED    QUARTER ENDED   QUARTER ENDED
                              MARCH 31         JUNE 30       SEPTEMBER 30     DECEMBER 31
                           -------------    -------------    -------------   -------------
                                                                 
Total revenues                $ 2,593          $ 2,626          $ 2,405         $ 2,809
Operating loss                $(7,774)         $(7,057)         $(6,760)        $(5,575)
Net loss                      $(6,750)         $(6,221)         $(5,840)        $(4,658)
                              =======          =======          =======         =======
Net loss per share data:
  Basic and diluted           $ (0.15)         $ (0.14)         $ (0.13)        $ (0.11)





                                            YEAR ENDED DECEMBER 31, 2001
                           ---------------------------------------------------------------
                           QUARTER ENDED    QUARTER ENDED    QUARTER ENDED   QUARTER ENDED
                              MARCH 31         JUNE 30       SEPTEMBER 30     DECEMBER 31
                           -------------    -------------    -------------   -------------
                                                                 
Total revenues                $ 2,269          $ 2,463          $ 1,704         $ 2,481
Operating loss                $(4,224)         $(6,107)         $(5,707)        $(9,089)
Net loss                      $(2,510)         $(4,539)         $(4,289)        $(7,804)
                              =======          =======          =======         =======
Net loss per share data:
Basic and diluted             $ (0.06)         $ (0.10)         $ (0.10)        $ (0.18)


          Because of the method used in calculating per share data, the
     quarterly per share data will not necessarily total to the per share data
     as computed for the year.


(14) SUBSEQUENT EVENTS

          In January 2003, the Company implemented a restructuring plan to
     reduce its annual fixed operating expenses. The Company eliminated
     approximately 21 positions, primarily in its research area, and cancelled
     approximately 15 open positions. The Company will incur a charge of
     approximately $600,000 in 2003 related to the implementation of its
     restructuring plan.

          On March 21, 2003, Nasdaq informed us that for the last 30 consecutive
     trading days, the bid price of our common stock has closed below the
     minimum $1.00 per share requirement for continued inclusion in The Nasdaq
     National Market. Therefore, in accordance with Nasdaq Rules, we will be
     provided 180 calendar days, or until September 17, 2003, to regain
     compliance. If, at any time before September 17, 2003, the bid price of our
     common stock closes at $1.00 per share or more for a minimum of 10
     consecutive trading days, Nasdaq will provide written notification that we
     have achieved compliance with this rule. If compliance with this rule
     cannot be demonstrated by September 17, 2003, the Nasdaq will provide
     written notification that our securities will be delisted. At that time, we
     may appeal this determination to a Listing Qualifications Panel or may
     apply to transfer our securities to The Nasdaq Small Cap Market.

                                      F-25

                               INDEX TO EXHIBITS



EXHIBIT NO                                                    DESCRIPTION OF EXHIBIT
- ----------                                                    ----------------------
                     
   3.1                  -- Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company's
                           Form 10 (Commission File No. 000-20117) effective June 26, 1992 (as amended))
   3.2                  -- Amendment to the Certificate of Incorporation dated November 30, 1993 (incorporated by reference to
                           Exhibit 3.4 to the Company's Form 10-Q (Commission File No. 000-20117) filed with the Commission on
                           November 14, 1994)
   3.3                  -- Amendment to the Certificate of Incorporation dated May 20, 1994 (incorporated by reference to Exhibit
                           3.5 to the Company's Form 10-Q (Commission File No. 000-20117) filed with the Commission on November 14,
                           1994)
   3.4                  -- Certificate of Amendment of Certificate of Incorporation dated May 3, 1996 (incorporated by reference to
                           Exhibit 3.6 to the Company's Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30,
                           1996)
   3.5                  -- Amended and Restated By-laws of Texas Biotechnology Corporation adopted September 6, 1996 (incorporated
                           by reference to Exhibit 3.7 to the Company's Form 10-Q (Commission File No. 000-20117) for the quarter
                           ended September 30, 1996)
   3.6                  -- Amendment to Article II of By-laws adopted June 29, 2000 (incorporated by reference to Exhibit 3.8 to
                           the Company's Quarterly Report on Form 10-Q (Commission File No. 000-20117) for the quarter ended June
                           30, 2000 filed with the Commission on August 14, 2000)
   3.7                  -- Certificate of Designations, Preferences, Limitations and Relative Rights of The Series A Junior
                           Participating Preferred Stock of Texas Biotechnology Corporation (incorporated by reference to Exhibit 2
                           to the Company's Form 8-A (Commission File No. 000-20117) filed with the Commission on January 3, 2002)
   4.1                  -- Rights Agreement, dated as of January 2, 2002, between Texas Biotechnology Corporation and The Bank of
                           New York, as Rights Agent, including exhibits thereto. (incorporated by reference to Exhibit 1 to the
                           Company's Form 8-A (Commission File No. 000-20117) filed with the Commission on January 3, 2002)
   4.2                  -- Form of Rights Certificate (incorporated by reference to Exhibit 3 to the Company's Form 8-A (Commission
                           File No. 000-20117) filed with the Commission on January 3, 2002)
  10.1                  -- Consulting Agreement with John M. Pietruski dated January 1, 1992 (incorporated by reference to Exhibit
                           10.6 to the Company's Form 10 (Commission File No. 000-20117) effective June 26, 1992 (as amended))
  10.2                  -- Sixth amendment dated January 1, 2003 to Consulting Agreement with John M. Pietruski dated January 1,
                           1992 (incorporated by reference to Exhibit 10.2 to the Company's 10-K (Commission File No. 000-20117)
                           for the year ended December 31, 2002 filed with the Commission on March 28, 2003).
  10.3                  -- Employment Agreement with David B. McWilliams dated July 15, 1992 (incorporated by reference to Exhibit
                           19.1 to the Company's Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 1992)
  10.4                  -- Retirement Agreement between Texas Biotechnology Corporation and David B. McWilliams dated March 21,
                           2002 (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K (Commission File No.
                           000-20117) for the year ended December 31, 2001 filed with the Commission on March 29, 2002).
  10.5                  -- Termination Agreement between Texas Biotechnology Corporation and Bruce D. Given, M.D. dated March 21,
                           2003 (incorporated by reference to Exhibit 10.5 to the Company's 10-K (Commission File No. 000-20117)
                           for the year ended December 31, 2002 filed with the Commission on March 28, 2003).
  10.6                  -- Termination Agreement between Texas Biotechnology Corporation and Richard A. F. Dixon dated March 17,
                           2003 (incorporated by reference to Exhibit 10.6 to the Company's 10-K (Commission File No. 000-20117)
                           for the year ended December 31, 2002 filed with the Commission on March 28, 2003).
  10.7                  -- Termination Agreement between Texas Biotechnology Corporation and Stephen L. Mueller dated March 20,
                           2003 (incorporated by reference to Exhibit 10.7 to the Company's 10-K (Commission File No. 000-20117)
                           for the year ended December 31, 2002 filed with the Commission on March 28, 2003).




                     
  10.8                  -- Form of Termination Agreement between Texas Biotechnology Corporation and Tom Brock, Philip Brown,
                           Heather Giles, Pam Mabry, Dan Thompson, and Patrick Ward (incorporated by reference to Exhibit 10.8 to
                           the Company's 10-K (Commission File No. 000-20117) for the year ended December 31, 2002 filed with the
                           Commission on March 28, 2003).
  10.9                  -- Form of Indemnification Agreement between Texas Biotechnology Corporation and its officers and directors
                           dated March 12, 2002 (incorporated by reference to Exhibit 10.27 to the Company's Form 10-K (Commission
                           File No. 000-20117) for the year ended December 31, 2001 filed with the Commission on March 29, 2002).
  10.10                 -- Amended and Restated 1990 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.33 to the
                           Company's Form 10-K (Commission File No. 000-20117) for the year ended December 31, 1994)
  10.11                 -- Amended and Restated 1992 Incentive Stock Option Plan (as of March 3, 1995) (incorporated by reference
                           to Exhibit 10.34 to the Company's Form 10-K (Commission File No. 000-20117) for the year ended December
                           31, 1994)
  10.12                 -- Amended and Restated Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit
                           10.39 to the Company's Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 1995)
  10.13                 -- 1995 Stock Option Plan (incorporated by reference to Exhibit 10.40 to the Company's Form 10-Q
                          (Commission File No. 000-20117) for the quarter ended June 30, 1995)
  10.14                 -- Amendment to the 1995 Stock Option Plan of Texas Biotechnology Corporation dated March 4, 1997
                           (incorporated by reference to Exhibit 10.62 to the Company's Form 10-Q (Commission File No. 000-20117)
                           for the quarter ended June 30, 1997 filed with the Commission on August 14, 1997)
  10.15                 -- Amended and Restated 1995 Non-Employee Director Stock Option Plan (as amended by the Board of Directors
                           on June 30, 1996) (incorporated by reference to Exhibit 10.55 to the Company's Form 10-Q (Commission
                           File No. 000-20117) for the quarter ended June 30, 1996)
  10.16                 -- Amendment to the 1995 Non-Employee Director Stock Option Plan of Texas Biotechnology Corporation dated
                           March 4, 1997 (incorporated by reference to Exhibit 10.63 to the Company's Form 10-Q (Commission File
                           No. 000-20117) for the quarter ended June 30, 1997 filed with the Commission on August 14, 1997)
  10.17                 -- Amendment to Amended and Restated 1995 Non-Employee Director Stock Option Plan, dated March 6, 2000
                           (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
                           (Commission File No. 333-41864) filed with the commission on July 20, 2000)
  10.18                 -- Texas Biotechnology Corporation 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.71 to
                           the Company's Form 10-Q (Commission File No. 000-20117) for the Quarter ended March 31, 1999 filed with
                           the Commission on May 14, 1999)
  10.19                 -- Amendment to the 1999 Stock Incentive Plan adopted on March 13, 2001 (incorporated by reference to
                           Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Commission File No. 333-72468) filed
                           with the commission on October 30, 2001)
  10.20                 -- Lease Agreement dated, February 24, 1995 between Texas Biotechnology Corporation and Doctors Center,
                           Inc. (incorporated by reference to Exhibit 10.31 to the Company's Form 10-K (Commission File No.
                           000-20117) for the year ended December 31, 1994)
  10.21                 -- Third Amendment to Lease Agreement dated January 1, 2003 between Texas Biotechnology Corporation and the
                           Board of Regents of The University of Texas System (incorporated by reference to Exhibit 10.21 to the
                           Company's 10-K (Commission File No. 000-20117) for the year ended December 31, 2002 filed with the
                           Commission on March 28, 2003).
  10.22                 -- Lease Agreement dated February 20, 2002 between Texas Biotechnology Corporation and FRM West Loop
                           Associates #6, LTD (incorporated by reference to Exhibit 10.22 to the Company's 10-K (Commission File
                           No. 000-20117) for the year ended December 31, 2002 filed with the Commission on March 28, 2003).
  10.23*                -- Sublicense and License Agreement dated May 27, 1993 between Company and Genentech, Inc., together with
                           exhibits (incorporated by reference to Exhibit 10.17 to the Company's Form 10-Q (Commission File No.
                           000-20117) for the quarter ended June 30, 1993 and incorporated by reference to Exhibit 10.17 to the
                           Company's Form 10-Q/A-1 (Commission




                     
                           File No. 0-20117) for the quarter ended June 30, 1993)
  10.24*                -- Stock Agreement dated May 27, 1993 between the Company and Genentech, Inc. (incorporated by reference to
                           Exhibit 10.18 to the Company's Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30,
                           1993)
  10.25                 -- Agreement between Mitsubishi Chemical Corporation, Texas Biotechnology Corporation and SmithKline
                           Beecham plc dated August 5, 1997 (incorporated by reference to Exhibit 99.1 to the Company's Form 8-K
                           (Commission File No. 000-20117) filed with the Commission on August 25, 1997)
  10.26*                -- Product Development License and Co-Promotion Agreement between Texas Biotechnology Corporation and
                           SmithKline Beecham plc dated August 5, 1997 (incorporated by reference to Exhibit 99.2 to the Company's
                           Form 8-K (Commission File No. 000-20117) filed with the Commission on August 25, 1997)
  10.27*                -- Common Stock Purchase Agreement between Texas Biotechnology Corporation and SmithKline Beecham plc dated
                           August 5, 1997 (incorporated by reference to Exhibit 99.3 to the Company's Form 8-K (Commission File No.
                           000-20117) filed with the Commission on August 25, 1997)
  10.28*                -- Amended and Restated License and Research Development Agreement dated January 24, 2003 between Revotar
                           Biopharmaceuticals AG and Texas Biotechnology Corporation (incorporated by reference to Exhibit 10.28
                           to the Company's 10-K (Commission File No. 000-20117) for the year ended December 31, 2002 filed with
                           the Commission on March 28, 2003).
  10.29*                -- Agreement of Limited Partnership of ICOS-Texas Biotechnology L.P. among ICOS-ET-LP LLC and Texas
                           Biotechnology Corporation, as Limited Partners, and ICOS-ET-GP LLC and TBC-ET, Inc., as General Partners
                           dated June 6, 2000. (incorporated by reference to Exhibit 99.4 to the Company's Quarterly Report on
                           Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 2000 filed with the Commission
                           on August 14, 2000)
  10.30*                -- Endothelin License Agreement by and between Texas Biotechnology Corporation and ICOS-Texas Biotechnology
                           L.P. dated June 6, 2000. (incorporated by reference to Exhibit 99.5 to the Company's Quarterly Report on
                           Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 2000 filed with the Commission
                           on August 14, 2000)
  10.31*                -- Formation and Performance Agreement by and between ICOS Corporation and Texas Biotechnology Corporation
                           dated June 6, 2000. (incorporated by reference to Exhibit 99.6 to the Company's Quarterly Report on
                           Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 2000 filed with the Commission
                           on August 14, 2000)
  10.32*                -- Research and Development Service Agreement by and between ICOS Corporation, Texas Biotechnology
                           Corporation and ICOS-Texas Biotechnology L.P. dated June 6, 2000. (incorporated by reference to Exhibit
                           99.7 to the Company's Quarterly Report on Form 10-Q (Commission File No. 000-20117) for the quarter
                           ended June 30, 2000 filed with the Commission on August 14, 2000)
  10.33*                -- Research Collaboration and License Agreement by and between Texas Biotechnology Corporation and
                           Schering-Plough LTD. dated June 30, 2000. (incorporated by reference to Exhibit 99.8 to the Company's
                           Quarterly Report on Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 2000 filed
                           with the Commission on August 14, 2000)
  10.34*                -- Research Collaboration and License Agreement by and between Texas Biotechnology Corporation and Schering
                           Corporation dated June 30, 2000. (incorporated by reference to Exhibit 99.9 to the Company's Quarterly
                           Report on Form 10-Q (Commission File No. 000-20117) for the quarter ended June 30, 2000 filed with the
                           Commission on August 14, 2000)
  21.1                  -- Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Company's 10-K
                           (Commission File No. 000-20117) for the year ended December 31, 2002 filed with the Commission on March
                           28, 2003).
  23.1+                 -- Independent Auditors' Consent of KPMG LLP, Seattle, Washington
  23.2+                 -- Independent Auditors' Consent of KPMG LLP, Houston, Texas
  31.1+                 -- Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated
                           under the Securities Exchange Act of 1934, as amended.
  31.2+                 -- Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated
                           under the Securities Exchange Act of 1934, as amended.
  32.1+                 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.
  32.2+                 -- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.

- ----------

*    The Company has omitted certain portions of these agreements in reliance on
     Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.

+    Filed herewith