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PART I

ITEM 1. BUSINESS

Texas Biotechnology Corporation ("TBC" or the "Company"), a
biopharmaceutical company, applies innovative drug discovery techniques and its
specialized knowledge of the role of vascular cell biology in cardiovascular
disease to the design and development of novel pharmaceutical compounds. The
Company was incorporated in Delaware in August 1989 under the name Cardiology
Institute of Texas, Ltd., and its name was changed to Texas Biotechnology
Corporation in October 1990. As of December 31, 1996, the Company had 73
employees, 60 of whom were engaged in research and development. References to
TBC or the Company include its subsidiary ImmunoPharmaceutics, Inc. ("IPI")
unless otherwise indicated.

OVERVIEW

PRODUCT PIPELINE

TBC's lead product is NOVASTAN(R), one of a new class of direct thrombin
inhibitors. NOVASTAN(R) is being developed for various indications as an
anticoagulant alternative to heparin. Heparin, discovered over 80 years ago,
is used at high intravenous doses in approximately 3 million patients annually
in the United States. Up to 10% of these patients develop a side effect known
as Heparin-Induced Thrombocytopenia ("HIT"), which may lead to potentially life
threatening blood clots. A significant portion, potentially over 50% of HIT
patients progress on to a life-threatening condition, Heparin-Induced
Thrombocytopenia with Thrombosis Syndrome ("HITTS"). The Company has completed
enrollment in a pivotal Phase III clinical trial for NOVASTAN(R) for the
treatment of both HIT and HITTS. The Company has also completed enrollment in
Phase II clinical trials for NOVASTAN(R) for use in the treatment of Acute
Myocardial Infarction ("AMI"). Those trials have been conducted to determine
whether NOVASTAN(R) could be used in combination with thrombolytics such as
tissue-plasminogen activator ("t-PA") or streptokinase ("SK") to treat AMI in
the approximately 250,000 persons who receive thrombolytics annually in the
U.S.

The Company sublicensed the United States and Canadian rights to
NOVASTAN(R) from Genentech in 1993, which licensed the product from Mitsubishi
as part of a multi-product cross-licensing agreement. The agreement included
the use of NOVASTAN(R) for certain cardiovascular indications and access to an
improved formulation patent granted in 1993 which expires in 2010 and a use
patent which expires in 2009. See "Licenses and Patents". Mitsubishi
currently sells NOVASTAN(R) in Japan for chronic arterial occlusion and stroke,
indications not being developed by TBC.

TBC's Endothelin Receptor Antagonist Program targets receptors believed to
be associated with vasoconstriction (narrowing of blood vessels). The Company
believes its compounds from this program could have efficacy in treating the
pulmonary hypertension associated with such diseases as Congestive Heart
Failure ("CHF") and Chronic Obstructive Pulmonary Disease ("COPD"). TBC's
scientists have developed a lead compound, TBC 11251, a synthetic small
molecule receptor antagonist that selectively blocks endothelinA receptors.
TBC 11251 entered Phase I clinical trials in 1996 for treatment of congestive
heart failure. An investigational new drug application ("IND") was filed in
early 1997. TBC intends to seek corporate partners for the development of TBC
11251 applications for CHF and COPD.

There are two Anti-Cell Adhesion programs currently underway that were
initiated and developed by TBC scientists. The first program evaluates the
anti-inflammatory effect of inhibitors of selectins, a family of three
carbohydrate binding proteins. Selectins primarily contribute to acute
inflammatory diseases that result in tissue injury. Using its proprietary drug
design technology, the Company developed TBC 1269, which it is assessing for
the treatment of asthma. TBC 1269 entered Phase I clinical trials in 1996,
with the expectation of filing an IND in March 1997. Selectin inhibitors may
also be effective in the treatment of inflammatory bowel disease and psoriasis;
the Company will likely seek corporate partners to pursue these indications.

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The Company's second Anti-Cell Adhesion program is based on the adhesion of
leukocytes to vascular cell tissue. There is evidence that Vascular Cell
Adhesion Molecules ("VCAM") at the sites of endothelial injury lead to an
accumulation of Very Late Antigen-4 ("VLA-4") containing macrophages that may
contribute to such inflammatory disorders as atherosclerosis, asthma,
rheumatoid arthritis and multiple sclerosis. The Company is currently
conducting preclinical studies on its VCAM/VLA-4 compounds in the treatment of
asthma and has ongoing research projects evaluating potential efficacy in
multiple sclerosis.

In collaboration with Synthelabo, TBC is also directing research in
Vascular Proliferative Diseases. Vascular Proliferative Diseases result in the
thickening and narrowing of blood vessels in such disorders as atherosclerosis,
coronary restenosis, vascular graft failure, post-transplant accelerated
atherosclerosis, and hemodialysis shunt failure. TBC's approach is to develop
antagonists against the production of Fibroblast Growth Factor ("FGF"). The
Company expects to begin preclinical studies on an FGF antagonist in 1998; if
successful, TBC plans to evaluate this compound for the treatment of coronary
restenosis.

TECHNOLOGY

TBC uses a wide variety of technologies to develop pharmaceutical
treatments for cardiovascular diseases. The Company applies its understanding
of vascular biology and advanced drug design techniques to discover novel
therapeutics and to test these therapeutics in-house in in vitro and in vivo
test systems.

The Company combines three-dimensional computer-aided drug design
techniques with unique chemistry approaches to construct small molecule
therapeutics. TBC believes that small synthetic molecules have significant
advantages over other types of therapeutics such as monoclonal antibodies,
peptides, and recombinant proteins. These advantages include easier synthesis
and production, simpler methods for administration, reduced production cost,
and better patent protection. The drug discovery process at TBC relies upon
its proprietary supercomputational chemistry capabilities (and, if necessary,
related structural science capabilities such as high-field nuclear magnetic
resonance and X-ray crystallography), molecular biology, and medicinal
chemistry, conducted in an integrated effort by TBC's scientific staff. The
core foundation for TBC's peptide- or protein-structure based approach to
rational drug discovery is contained in its proprietary computational chemistry
algorithms resident on in-house computer systems.

THROMBOSIS

BACKGROUND

The formation of a blood clot, or thrombus, is the end result of a complex
sequence of events. Thrombosis causes different vascular diseases, depending
on the location and type of the vessel in which the clot is lodged. An
arterial clot may lead to heart attack if lodged in a coronary artery, or to
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 agents. Anticoagulant agents, which prevent
clots from forming, are characterized as either antithrombotic or antiplatelet
agents. Antithrombotic agents block the action of the blood protein thrombin
and may be used to treat both arterial and venous clots. Antiplatelet agents
prevent the ability of platelets to clump together and effectively treat only
arterial clots. Heparin and aspirin are the two most widely-used
antithrombotic and antiplatelet agents, respectively. Thrombolytic drugs
dissolve existing clots in veins or arteries, but do not block the formation of
new blood clots. Tissue plasminogen activator ("t-PA") and streptokinase are
the most commonly used thrombolytic drugs. A combination of an anticoagulant
and a thrombolytic often achieves the best therapeutic effect.

The only parenteral (injectable) anticoagulant is intravenous heparin,
first discovered over 80 years ago. In the United States, approximately 3
million patients annually receive intravenous heparin at high doses to treat a
variety of conditions that require inhibition of the body's natural clotting
mechanism. Up to 10% of heparin-treated patients

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develop a profound immunological reaction to heparin which is known as
Heparin-Induced Thrombocytopenia ("HIT"); according to recent literature,
approximately 50% of these patients progress to a very serious thrombotic
condition, Heparin-Induced Thrombocytopenia with Thrombosis Syndrome ("HITTS").
HITTS patients suffer from a life-threatening clotting disorder that cannot be
treated with heparin.

TBC PROGRAM

TBC's lead product, NOVASTAN(R), is a novel, non-protein, synthetic small
molecule thrombin blocker that directly and selectively binds to and
inactivates thrombin in the blood plasma. Small molecule non-protein
therapeutics are generally less costly to produce, easier to administer and
have a longer shelf-life than a protein based therapeutic. Moreover,
NOVASTAN(R) is also effective against thrombin that is bound in blood clots.
TBC is developing NOVASTAN(R) as an anticoagulant alternative to heparin for
the United States and Canadian markets.

NOVASTAN(R) is manufactured and sold in Japan by Mitsubishi Chemical where
it is approved for the treatment of chronic arterial obstruction, acute
ischemic stroke and antithrombin III deficient patients undergoing
hemodialysis. Since the product introduction in June 1990 in excess of 58,000
patients have been treated with NOVASTAN(R) in Japan. Mitsubishi Chemical
licensed the drug to Genentech for the United States and Canada. Genentech
filed an IND in December 1988, and completed several Phase I clinical studies.
Genentech licensed and sublicensed NOVASTAN(R) related technology to TBC in May
1993.

The Company has completed enrollment for the NOVASTAN(R) Phase III clinical
trial for the treatment of patients with HIT/HITTS and three Phase II clinical
trials for the treatment of acute myocardial infarction ("AMI). The
compilation and analysis of the data is continuing. Although there can be no
assurance that NOVASTAN(R) will receive required regulatory approvals or be
successfully commercialized, the Company plans to file a New Drug Application
("NDA") for the treatment of HIT/HITTS in mid 1997. This date is contingent
upon various factors, including, trial results, and availability of funds. The
Company is pursuing collaboration opportunities to develop and market
NOVASTAN(R) within its licensed territory.

VASOSPASM/HYPERTENSION

BACKGROUND

Smooth muscle cells in the blood vessel, via a series of biochemical and
morphological events, are responsible directly for mediating changes in vessel
diameter. The regulation of tissue 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 loss of function (myocardial
infarction or kidney failure). Vascular endothelium, cells comprising the
innermost lining of all blood vessels, is an essential component of all tissue.
Recently, it has been determined that the vascular endothelium plays a pivotal
role in maintaining normal blood vessel tone by producing substances that cause
vasodilatation and vasoconstriction.

The endothelins ("ET"s) are a family of three peptides that are believed to
play a critical role in the pathophysiology of cardiac, vascular and renal
diseases. Originally isolated from vascular endothelium, endothelin-1 ("ET-1")
was shown initially to be an extremely potent, naturally occurring
vasoconstrictor substance that stimulates a persistent hypertensive effect.
There is now strong evidence that endothelins are involved in vasospasm,
myocardial infarction, congestive heart failure, renal disease, subarachnoid
hemorrhage, and certain types of hypertension. It has been determined that
this multiplicity of endothelin actions on different cell types can be
explained via its interactions with two distinct proteins (receptors) on cell
surfaces, termed ETA and ETB receptors. In general, ETA receptors are
associated with vasoconstriction and disorders of the cardiovascular and renal
systems. ETB receptors are primarily associated with vasodilation and
disorders of the central nervous system.

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TBC PROGRAM

The Company's research program is aimed at developing small molecules that
inhibit the binding of ET to its cell surface receptors. While there has been
some discussion of the need for combined inhibitors of both ETA and ETB
receptors, it is the Company's belief that specific agents for each receptor
subtype will have the best clinical utility and safety. The initial focus has
been to develop a highly potent and selective small-molecule based ETA receptor
antagonist. Company scientists have discovered a novel class of low molecular
weight compounds (mol.wt. less than 500) that antagonize ET-1 binding to the
ETA receptor at nanomolar concentrations. Using proprietary computational
methods, lead compounds were identified which mimicked the ability of ET-1 to
bind to the ETA receptor. Further optimization was then used to develop more
potent compounds until the current series of leads was identified. In addition
to their ability to block receptor binding, these compounds functionally
inhibit ET action on isolated blood vessels, in vitro, acting as full,
competitive antagonists. In addition, the lead compounds in this series have
been shown to exhibit in vivo efficacy using different rodent models: 1) to
prevent arterial pressure rise following ET-1 administration, 2) to reduce mean
arterial pressure in hypertensive rats, 3) to prevent the structural changes in
the heart in a pulmonary hypertension model, and (4) to correct hemodynamic
changes in a model of CHF. TBC has nine pending U.S. patent applications (four
of which have been issued) on the ET antagonists covering compositions of
matter and medical uses of these compositions.

TBC 11251, a selective ETA inhibitor, has been identified as the Company's
lead compound in this program and entered clinical development for congestive
heart failure during 1996. TBC filed an IND for TBC 11251 in January 1997.

VASCULAR INFLAMMATION

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 an injurious
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 injurious 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, as during an acute
inflammatory reaction leading to a build up of leukocytes and debris at the
inflammation site, causing tissue damage.

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 carbohydrate binding proteins. The binding of
E- selectin to its native ligand, sLex, and to related epitopes on neutrophils,
monocytes, a subset of T lymphocytes, eosinophils, and basophils is believed to
aid in the recruitment of these cells in response to inflammatory stimuli. The
selectins primarily contribute to acute inflammatory diseases that result in
tissue injury, such as adult respiratory distress syndrome and reperfusion
injury. The presence of Vascular Cell Adhesion Molecule ("VCAM") at sites of
endothelial injury leads to an accumulation at these sites of Very Late
Antigen-4 ("VLA-4")-containing macrophages. During chronic inflammatory
conditions, the body's own cells may become damaged as a consequence of the
production of harmful chemicals and debris. Diseases that are associated with
chronic inflammation include atherosclerosis, rheumatoid arthritis and
psoriasis.

TBC PROGRAM

Using its proprietary drug design technology, the Company has developed a
model of the E-selectin/sLex complex and used it to produce a novel class of
synthetic small molecule compounds that inhibit the selectin-mediated cellular
adhesion that occurs during acute inflammation. The Company believes that these
antagonists offer the possibility of reduced production cost, ease of synthesis
and oral delivery. The lead compound in the series, TBC 1269 in animal models
of inflammation, including canine coronary reperfusion injury and allergic
asthma. TBC is currently assessing TBC1269 for the treatment of asthma. TBC
1269 entered clinical development during 1996 and an IND filing is planned for
March 1997. This date is contingent upon various factors, including rate of
patient enrollment, trial results, and availability of funds.

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TBC has also identified antagonists for the VCAM-dependent intercellular
adhesion that occurs during the accumulation of plaque in the blood vessels
(atherosclerosis). The Company's initial lead compounds are small cyclic
peptides and synthetic small molecules that block the interactions of cells
that express VCAM and VLA-4. These lead compounds are being modified in an
attempt to improve efficacy. TBC has demonstrated efficacy of TBC 772, its
lead cyclic peptide, in an animal model of acute inflammation, suggesting that
VCAM/VLA-4 plays a role in this disease process. TBC chemists have also
identified small molecule antagonists of VCAM/VLA-4 interaction, which are
currently still in research.

VASCULAR PROLIFERATION DISEASE

BACKGROUND

Smooth muscle cells in the blood vessel wall proliferate in response to
injury to the vessel. When the endothelial cell layer is damaged, platelets
attach to the vessel surface. Platelets and other cells begin to release
cellular growth factors, including the proteins Fibroblast Growth Factor
("FGF"), Platelet-Derived Growth Factor (PDGF) and thrombin. In response to
these growth factors, specific genes are activated in the smooth muscle cells.
The products of these genes stimulate the smooth muscle cells to move and
divide, eventually forming a scar on the vessel wall. When the initial damage
is slight, the proliferation is limited to endothelial cell repair. If the
damage is more extensive, the smooth muscle cells continue to proliferate.
Eventually, the proliferation process thickens the vessel wall, reduces the
interior size of the blood vessel and produces a stenosis (blood vessel
closure). This stenosis is comprised primarily of smooth muscle cells and
protein called fibroproliferative material. The process of producing this
fibroproliferative material is referred to as the fibroproliferative response.
Fibroproliferative stenosis differs from stenosis produced by atherosclerotic
plaque, which contains smooth muscle cells, fatty deposits and macrophages. As
with atherosclerotic plaque stenosis, however, blood flow is restricted, and
the tissue served by the vessel is deprived of oxygen. If the stenosis occurs
in a coronary artery, the heart muscle is deprived of oxygen. A heart attack
may result, in which heart muscle cells are injured or destroyed. Heart
attacks may, in turn, eventually result in heart failure.

Fibroproliferative material is generally produced in response to extensive
damage to the blood vessel wall as a result of a mechanical injury. Mechanical
injury sufficient to produce the fibroproliferative response often occurs
during procedures designed to repair blood vessels that are occluded by plaque
or thrombus material, such as mechanical reopening of arteries (angioplasty)
and coronary artery bypass graft. Other surgical procedures, including vein
grafts, can also produce fibroproliferative stenosis. When fibroproliferative
stenosis occurs following the removal of the stenosis by surgical or other
means, it is referred to as restenosis. In addition, other types of injury to
the endothelial cell layer, such as may occur following organ transplantation,
may result in a fibroproliferative response leading to the failure of the
transplanted organ. Irrespective of how the injury is produced, the conditions
which lead to the fibroproliferative response are termed vascular proliferative
diseases.

TBC PROGRAM

The Company's research program for vascular proliferative disease is based
on an understanding of the basic mechanisms underlying smooth muscle cell
proliferation and the prevention of vessel occlusion following vascular injury.

One approach to preventing smooth muscle cell proliferation is identifying
the factors that activate cells to proliferate and developing small molecule
antagonists to these factors. Using its knowledge of the signaling pathways
through which these factors stimulate cells to proliferate, the Company hopes
to develop products that disrupt the signaling process and prevent unnecessary
smooth muscle cell proliferation.

The Company has focused on FGF because of a growing body of evidence as to
its central role in blood vessel formation. The Company's research has shown
that some components of the signaling pathways used by FGF are important for
smooth muscle cell proliferation. TBC's current effort on FGF involves the
development of small molecules designed to prevent activation of latent FGF to
an active form, and to block FGF receptor targets. Lead compounds in the FGF
program were identified in 1994. Optimization of the lead compounds to obtain
a clinical candidate is continuing.

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OTHER INDICATIONS

The Company believes that a number of the small molecule non-carbohydrate
therapeutics that are being developed in its programs may have applications for
other indications. For example, an FGF antagonist might be developed to treat
rheumatoid arthritis, a selectin antagonist to treat psoriasis, transplant
rejection and adult respiratory distress syndrome, and a VCAM antagonist to
treat asthma, rheumatoid arthritis and multiple sclerosis. The Company intends
to license these non-cardiovascular indications to third parties, although no
assurance can be given that the Company will be successful in entering into any
such license.

RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS

The Company has established collaborations with a number of corporations,
research institutions and scientists to further the Company's research and
development objectives. These collaborations are generally conducted pursuant
to agreements that grant the Company a license, or the option to license,
certain technology, patent rights or material that may be valuable to the
Company. The Company's major agreements are summarized below.

GENENTECH/MITSUBISHI CHEMICAL

In May 1993, TBC entered into an agreement with Genentech to sublicense
Genentech's rights and technology relating to NOVASTAN(R) (argatroban)
originally licensed to Genentech by Mitsubishi Chemical Corporation
("Mitsubishi"), and to license Genentech's own proprietary technology developed
with respect to NOVASTAN(R) (the "Genentech Agreement"). Under the license and
sublicense, the Company has an exclusive license to use and sell NOVASTAN(R) in
the United States and Canada for specified human cardiovascular indications,
not including cerebral thromboembolism (stroke). The Company is required to
pay Genentech and Mitsubishi specified royalties on net sales of NOVASTAN(R) by
the Company and its sublicensees after its commercial introduction in the
United States and Canada. Genentech has the right to terminate the agreement
or to cause the license to become non-exclusive if the Company fails to
exercise due diligence in performing its obligations under the agreement for a
period of 60 days after receiving written notice from Genentech or fails to
maintain a minimum consolidated tangible net worth of $5.0 million. The
Genentech Agreement, as amended, provides that Mitsubishi may terminate
Genentech's license with Mitsubishi (which results in the termination of the
Genentech Agreement as well) if TBC does not file an NDA for NOVASTAN(R) with
the FDA no later than June 30, 1997, subject to certain additional goals being
met by TBC. As of December 31, 1995, TBC had not met certain of those goals.
However, Mitsubishi has agreed to withhold its rights to terminate the license
with Genentech if the NDA is filed by June 30, 1997, and if TBC accomplishes
the following milestones: (i) on or before December 31, 1996, TBC shall have
met certain enrollment guidelines for certain NOVASTAN(R) clinical trials; (ii)
on or before March 31, 1997, TBC shall complete, report and analyze certain
other NOVASTAN(R) clinical trials; (iii) on or before September 30, 1997, TBC
shall have agreed to proceed with the Phase III trial in AMI, and (iv) TBC
shall comply with certain reporting and information meeting requirements. If
these milestones are not met, Mitsubishi will retain the rights to terminate
the Genentech license; provided, that if such termination results from TBC's
violation of the milestone described in (iii) above, TBC will receive a license
from Mitsubishi in the field of HIT/HITTS on the same terms, as presently
included in the Genentech Agreement. As of December 31, 1996, TBC had not met
certain of these goals and to date, Mitsubishi has not asserted its rights to
terminate the license arising out of this default. Either party may terminate
the Genentech 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 attachment. The
Genentech Agreement is also subject to the continuation of Genentech's license
agreement with Mitsubishi, which is only terminable if Genentech defaults in
its material obligations under the agreement, declares bankruptcy or is
insolvent, or if a substantial portion of its property is subject to
attachment. Unless terminated sooner pursuant to the above described
termination provisions, the Genentech Agreement is expected to expire in June
2007. Under the Genentech Agreement, TBC has access to an improved formulation
patent granted in 1993 which expires in 2010 and a use patent which expires in
2009.

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TBC have agreed to discuss in good faith the means by which, and the party to
whom, NOVASTAN(R) production technology will be transferred. The transferee
may be a person or entity other than Genentech or TBC. At present, Mitsubishi
is the only manufacturer of NOVASTAN(R). Should Mitsubishi terminate or
default in its supply commitment, there can be no assurance that alternate
sources of bulk NOVASTAN(R) will be available to the Company at reasonable
cost, if at all. If such alternate sources of supply are unavailable or
uneconomic, the Company's results of operations would be materially and
adversely affected.

In exchange for the license to Genentech's NOVASTAN(R) technology, TBC
issued Genentech 285,714 shares of Common Stock and agreed to issue (i) an
additional 214,286 shares of Common Stock to Genentech within 10 days after the
filing of the first New Drug Application ("NDA") with the FDA for NOVASTAN(R),
and (ii) an additional 71,429 shares of Common Stock to Genentech within 10
days after the FDA's first approval of an NDA for NOVASTAN(R). The Company has
also agreed to grant Genentech a warrant to purchase an additional 142,858
shares of Common Stock at an exercise price of $14.00 per share, subject to
adjustment, within ten days of the filing of the first NDA for NOVASTAN(R)
with the FDA. If the Company is unable to issue any of the additional shares
of Common Stock or the warrant to Genentech due to circumstances beyond the
Company's control, the Company has agreed to pay Genentech, in lieu thereof, an
amount equal to the value of the securities plus interest from May 27, 1993 at
the prime rate plus one percent, compounded annually. The value of the Common
Stock is deemed to be $7.00 per share, which represents the cash consideration
the Company will be obligated to pay to Genentech as liquidated damages, and
the value of the warrants is to be determined by appraisal, based on the
warrants' market value. The Company will not be required to make any cash
payment if both of the filing and approval of the NDA do not occur. TBC has
also granted Genentech demand and piggyback registration rights with regard to
shares of Common Stock issued to Genentech. In connection with the Genentech
Agreement, a consultant involved in negotiations related to the Agreement will
receive a royalty on net sales of licensed products.

SYNTHeLABO

On October 11, 1994, the Company signed a collaborative agreement with
Synthelabo, a French pharmaceutical group, to develop and market compounds for
vascular proliferative disease derived from the Company's research programs.
Upon consummation of the transaction, Synthelabo purchased 1,428,571 shares of
Common Stock for $3.50 per share for a total of $5 million and paid the Company
a non-refundable licensing fee of $3 million. In addition, Synthelabo
committed to pay $3 million annually in research payments (payable in quarterly
installments of $750,000). Beginning October 31, 1996, the parties to the
agreement have agreed to revise the payment for the third year to be $750,000
which has already been paid. Synthelabo has agreed, upon the achievement of
certain milestones, to make further payments of up to $3 million per year for
up to $18 million in total. Synthelabo has the right to terminate the
agreement any time on or after October 15, 1997 for any reason and either party
has the right to terminate the contract for breach of any material obligation.
If Synthelabo exercises this termination right, the license granted to
Synthelabo will terminate and TBC will pay Synthelabo a royalty on net sales
of any products sold in a certain territory (Europe, Middle East, Africa and
countries of the former Soviet Union) for a period of time. In addition,
Synthelabo may, at its option, require that the technology be transferred to
and the development program be conducted by a joint venture owned by TBC and
Synthelabo should "net worth", as defined in the agreement, be less than $5
million as of the end of any calendar quarter during the term of the agreement.
For the years ended December 31, 1995 and December 31, 1996, TBC received $3
million related to the Synthelabo agreement. No such payments will be made in
1997. Synthelabo will pay royalties to TBC based on the net sales in those
areas covered in the agreement. In exchange for the above consideration,
Synthelabo will receive an exclusive license to manufacture, use, and sell any
products generated from the research, in Europe, the Middle East, Africa and
the countries of the former Soviet Union.

During 1996, the Company signed two agreements with Synthelabo with respect
to the supply of information related to certain clinical studies regarding
NOVASTAN(R). Over the term of the agreements as certain milestones are met,
Synthelabo has committed to pay TBC up to $2,920,000 of which $1,895,000 has
been received as of December 31, 1996. These payments are dependent on rate of
enrollment in certain clinical studies, the completion of certain clinical
studies and date of completion of certain clinical studies. Synthelabo is the
licensee for NOVASTAN(R) in certain territories other than those which were
sublicensed to TBC.

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LG CHEMICAL, LTD.

On October 10, 1996, the Company signed a strategic alliance agreement with
LG Chemical, Ltd. ("LG Chem"), a Korean corporation, to develop and market
compounds derived from the Company's Endothelin Receptor and Selectin
Antagonist for certain disease indications. Upon consummation of the
transaction, LG Chem purchased 1,250,000 shares of common stock for $4.00 per
share for a total of $5 million. In addition, LG Chem has committed to pay
$10.7 million in research payments. Of this amount, $100,000 was paid by
December 31, 1996, $1.0 million on each of June 30 and December 31 of 1997,
1998, 1999 and 2000, and $1.3 million on June 30 and December 31, 2001. LG
Chem has the right to terminate future research payments if TBC fails to meet
certain agreement milestones, which milestones will be established by the
parties in accordance with the agreement. LG Chem will pay royalties to TBC,
based on net sales, in those geographic areas covered by the agreement, which
include Korea, China, India and certain other Asian countries, excluding Japan.
The Company will pay its agents in the contract negotiations, a commission on
all future research payments as well as a royalty on net sales.

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. The Company's policy is to file patent
applications to protect technology, inventions and improvements that are
important to the development of its business. The Company has 13 pending
patent applications (1 of which has been allowed) and 9 issued United States
patents covering compounds including selectin inhibitors, endothelin
antagonists, VCAM/VLA-4 antagonists and proprietary rational drug design
technology. In addition, the Company has exclusive licenses to 2 patents
covering rational drug design technology. The Company has also filed patent
applications in certain foreign jurisdictions covering projects that are the
subject of United States applications and intends to file additional patent
applications as its research projects develop. The Company licensed the United
States and Canadian rights to NOVASTAN(R) from Genentech in 1993, which
licensed the product from Mitsubishi as part of a multi-product cross-licensing
agreement which included access to an improved formulation patent granted in
1993 which expires in 2010 and a use patent which expires in 2009. If any of
the NOVASTAN(R) patents remain outstanding at the time NOVASTAN(R) receives FDA
approval, the Company may apply, under the Waxman/Hatch Act, for up to a
five-year extension of one such patent. If all such patents have expired at
the time NOVASTAN(R) receives FDA approval, the Waxman/Hatch Act will grant the
Company NDA exclusivity for up to five years, during which time the FDA may not
accept or approve abbreviated applications for generic variations of
NOVASTAN(R). Although the Company believes that the expiration of the
NOVASTAN(R) patents will not have a material adverse effect on the
commercialization of NOVASTAN(R), there can be no assurance that the Company
will be able to take advantage of either the patent term extension or NDA
exclusivity provisions of the Waxman/Hatch Act. Moreover, even if the Company
receives either a patent term extension or NDA exclusivity, there can be no
assurance that generic pharmaceutical manufacturers will not ultimately enter
the market and compete with the Company.

The patent positions of biopharmaceutical firms, including the Company, are
uncertain and involve complex legal and factual questions. Consequently, the
Company does not know whether any of its 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 United States are maintained in secrecy until
patents issue, and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, the Company cannot be certain
that it was the first creator of inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions. Moreover, the Company may have to participate in interference
proceedings declared by the PTO to determine priority of invention, which could
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that the Company's
patents, if issued, would be held valid by a court of competent jurisdiction.
An adverse outcome could subject the Company to significant liabilities to
third parties, require disputed rights to be licensed from third parties or
require the Company 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

8
9
applications or received patents in this field. Some of these applications or
patents may be competitive with the Company's applications or conflict in
certain respects with claims made under the Company's applications. Such
conflict could result in a significant reduction of the coverage of the
Company's 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, no assurance can be given that the Company
would be able to obtain licenses to these patents at a reasonable cost or
develop or obtain alternative technology.

The Company also relies upon trade secret protection for its confidential
and proprietary information. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade
secrets.

The Company requires its employees, consultants, members of the Scientific
Advisory Board, outside scientific collaborators and sponsored researchers and
certain other advisors to enter into confidentiality agreements with the
Company 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 the Company is to be
kept confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the employee are the exclusive property of the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information.

GOVERNMENT REGULATION

Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
products which may be developed by the Company. The nature and the extent to
which such regulation may apply to the Company will vary depending on the
nature of any such products. Virtually all of the Company's products will
require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval procedures by the
FDA and similar health authorities in foreign countries. Various federal
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such products. The process
of obtaining these approvals and the subsequent compliance with appropriate
federal and foreign statutes and regulations requires the expenditure of
substantial resources.

The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or to impose costly procedures on the Company's activities, the
result of which may be to furnish an advantage to the Company's competitors.
Any delay in obtaining or failure to obtain such approvals would adversely
affect the marketing of the Company's products and its ability to earn product
revenue.

In order to test clinically, produce and market products for diagnostic or
therapeutic use, a Company must comply with mandatory procedures and safety
standards established by the FDA, the Health Protection Branch ("HPB") in
Canada, and comparable agencies in foreign countries. Before beginning human
clinical testing of a potential new drug, a Company must file an IND and
receive clearance from the FDA. This application is a summary of the
preclinical studies that were conducted to characterize the drug, including
toxicity and safety studies, as well as an in-depth discussion of the human
clinical studies which are being proposed.

The pre-marketing program required for approval of a new drug typically
involves a time-consuming and costly three-phase process. In Phase I, trials
are conducted with a small number of patients to determine the early safety
profile, the pattern of drug distribution and metabolism. In Phase II, trials
are conducted with groups of patients afflicted with a target disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase III, large scale, multi-center comparative trials are
conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA
and others.

The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that
point and its

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assessment of the risk/benefit ratio to the patient. Estimates of the total
time required for carrying out such clinical testing vary between two and ten
years. Upon completion of such clinical testing, a company typically submits a
new drug application to the FDA that summarizes the results and observations of
the drug during the clinical testing. Based on its review of the new drug
application, the FDA will decide whether or not to approve the drug. This
review process can be quite lengthy, and approval for the production and
marketing of a new pharmaceutical product can require a number of years and
substantial funding, and there can be no assurance that any approvals will be
granted on a timely basis, if at all.

Once the sale of a product is approved, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and effects. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained. Other countries in which any products developed
by the Company may be marketed impose a similar regulatory process.

COMPETITION

The development and sale of new drugs for the treatment of cardiovascular
diseases is highly competitive and the Company will face intense competition
from major pharmaceutical companies and biotechnology companies worldwide.
Competition may increase further as a result of advances made in the commercial
applicability of technologies and greater availability of capital for
investment in these fields. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, significant research in biotechnology and cardiovascular 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 the
Company in recruiting talented scientists.

Primary competitors for NOVASTAN(R) in the intravenous heparin replacement
market are initially expected to be Hirulog (bivalirudin), Revasc (desirudin)
and lepirudin, manufactured by Biogen, Inc., Ciba-Geigy and Hoechst Marion
Roussel ("HMR"), respectively. Both of these compounds are in Phase III
clinical trials.

Biogen has completed a large Phase III trial on Hirulog which demonstrated
better safety versus heparin but only equal efficacy. As a result of this
study, Biogen has halted development of Hirulog and is attempting to outlicense
the compound. The Company anticipates the Hirulog peptide will have a
relatively high cost of goods. An improved manufacturing process for Hirulog
with a lower cost of goods has been reported, and may become a competitive
factor should the product be approved for marketing.

Revasc from Ciba-Geigy has been studied in two large Phase III trials for
acute myocardial infarction and unstable angina. Both trials, TIMI-9 and GUSTO
II, were halted in late 1994 due to increased hemorrhagic stroke. Both trials
resumed with reduced Revasc dosing. The bleeding complications with Revasc may
handicap the product in the marketplace. Revasc was found to have mixed
efficacy results versus heparin in TIMI-9 and Gusto II in terms of efficacy.
As a result of these mixed efficacy and safety results, development of Revasc
for acute coronary syndrome has been halted. Another hirudin compound,
lepirudin, from HMR is in development for HIT and acute MI.

If either Hirulog, Revasc or lepirudin obtains regulatory approval prior to
NOVASTAN(R), these companies may gain a competitive advantage. Other compounds
which may be competitive with NOVASTAN(R) include napsagatran from Roche and
inogatran from Astra. These compounds are very similar to NOVASTAN(R) and
could have similar pharmacologic profiles. Both napsagatran and inogatran are
in phase II trials for various indications including unstable angina.

A defibrinogenating snake venom, ancrod from Knoll may be submitted for
approval to the FDA for HIT in the near future. This drug, which is available
in Canada, is believed to have certain competitive liabilities including
difficulty in dosing, allergic reactions to the medication, and limited
efficacy.

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Low Molecular Weight Heparins ("LMWH") are newer forms of heparin and are
used in prophylaxis for deep vein thrombosis following orthopedic surgery. In
the initial indication of interest to the Company, HIT and HITTS, most LMWHs
also carry an immunological risk for precipitating HIT, and may be
inappropriate as therapy in patients with HIT or HITTS. A low molecular weight
heparinoid, Orgaran (danapariod) from Organon has been approved for deep vein
thrombosis. Organon has conducted trials with this drug in HIT, although the
Company is not aware of an FDA filing for HIT.

The Company believes that its ability to compete successfully will depend
on its capability to create and maintain scientifically advanced technology,
develop proprietary products, attract and retain scientific personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market products either alone or
through other parties. Many competitors have substantially greater financial,
marketing, and human resources than those of the Company. Therefore, the
Company expects to encounter significant long-term competition.

MANUFACTURING AND MARKETING

TBC relies on its internal resources and third-party manufacturers to
produce compounds for preclinical development. Currently, the Company has no
manufacturing facilities for either the production of biochemicals or the
manufacture of final dosage forms. The Company believes that all of its
existing compounds can be produced using established manufacturing methods,
including traditional pharmaceutical synthesis.

TBC has established supply arrangements with third-party manufacturers for
clinical trials and ultimately will establish arrangements with third party
manufacturers for commercial distribution, although there can be no assurance
that such arrangements will be established on reasonable terms. Mitsubishi
Chemical has agreed to supply the Company's requirements of bulk NOVASTAN(R)
during the term of the Genentech Agreement. The Company's long-range plan is
to establish internal manufacturing of small molecule therapeutics, including
the ability to formulate, fill, label, package and distribute its products.
However, the Company does not anticipate developing this capability for some
time, nor is it able to determine which of its potential products, if any, will
be appropriate for internal manufacturing. The primary factors the Company
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.

TBC intends to market products for which it gains approval either directly
or through co-promotion or other licensing arrangements with large
pharmaceutical, biopharmaceutical or biotechnology companies. Ultimately, TBC
intends (i) to build a targeted, hospital-based sales force in the United
States and Canada to sell NOVASTAN(R) and subsequent products and (ii) to
establish strategic partner relationships for non-cardiovascular products and
for customer groups outside TBC's targeted markets or in some cases to
co-promote in such markets with partners to optimize the value of its products.

HUMAN RESOURCES

As of December 31, 1996, TBC employed 73 individuals. TBC has 60 employees
engaged directly in research and development activities and 11 in general and
administrative positions. None of the Company's employees is represented by a
labor union. The Company has experienced no work stoppages and believes that
its relations with its employees are good. During the first half of 1996 the
Company consolidated its IPI operations into its Houston location and relocated
certain employees to Houston, Texas.

The Company's policy is to have each employee enter into a confidentiality
agreement which contains provisions prohibiting the disclosure of confidential
information to anyone outside the Company and requiring disclosure to the
Company of ideas, developments, discoveries or inventions conceived during
employment and assignment to the Company of proprietary rights to such matters
related to the business and technology of the Company.

TBC's success is highly dependent on its ability to attract and retain
qualified scientific and management personnel. In order to commercialize its
products, the Company may need to substantially expand its personnel,

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12
particularly in the areas of clinical trial management, manufacturing, sales
and marketing. The Company faces intense competition for such personnel from
other companies, academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful
in hiring or retaining qualified personnel.

SCIENTIFIC ADVISORY BOARD AND CONSULTANTS

The Company has assembled a Scientific Advisory Board composed of
distinguished professors from some of the most prestigious medical schools.
The Scientific Advisory Board is assisting the Company in identifying research
and development opportunities, in reviewing with management the progress of the
Company's projects and in recruiting and evaluating scientific staff. Although
the Company expects to receive guidance from the members of its 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 the
Company. Management expects to meet with its Scientific Advisory Board members
as a group at least once each year and individually from time to time on an
informal basis. Each of the members of the Scientific Advisory Board has
entered into a consulting agreement with the Company. The Scientific Advisory
Board includes James T. Willerson, M.D., as Chairman, and the following
scientists.

Morris J. Karnovsky, M.D. has served since 1972 as Shattuck Professor of
Pathological Anatomy at Harvard Medical School, where he was Chairman of the
Program in Cell and Developmental Biology from 1975 to 1989. Dr. Karnovsky
received the E.B. Wilson Award from the American Society for Cell Biology and
was inducted into the Institute of Medicine by the National Academy of Sciences
in 1991. In 1984, Dr. Karnovsky was elected to serve as President of the
American Society for Cell Biology. He is a member of numerous professional and
honorary societies, editorial boards and is the author or co-author of more
than 275 scientific articles.

Joseph F. Sambrook, Ph.D. is a Professor of Pathology at Melbourne
University, Australia and Director of Research at Peter MacCallum Cancer
Institute. He is a member of various honorary and professional societies,
editorial boards and is the author of more than 100 scientific articles.
Professor Sambrook previously worked for 20 years in the USA where he served on
many blue ribbon government and non government committees.

Ajit Varki, M.D. has been a Professor of Medicine since 1991 and is
currently serving in that position as well as Associate Director for Basic
Research 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. Dr. Varki is the author or co-author
of 106 scientific publications.

The Company also has agreements with various outside scientific consultants
who assist the Company in formulating its research and development strategy.
All of the Company's consultants and advisors are employed by employers other
than the Company and may have commitments to or consulting or advisory
contracts with other entities that may affect their ability to contribute to
the Company.

Dr. Denton Cooley, Surgeon-in-Chief of the Texas Heart Institute, acts as
an advisory director to the Company.

ITEM 2. PROPERTIES

TBC leases approximately 29,300 square feet of office and laboratory space
in Houston, Texas, including a 16,671 square foot laboratory facility and a
3,909 square foot animal facility. The remaining area is being used for
clinical development and administrative offices, storage space and additional
offices for scientists. The lease was effective January 1, 1995, and calls for
a lease term of six years at an annual rate of $706,663 through December 2000,
subject to adjustments based on certain variable building operating expenses.
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 $253,400 per annum,
payable monthly and subject to annual adjustments based on the local consumer
price index. The Company may require additional space

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to accommodate future research and laboratory needs as necessary to bring
products into development and clinical trials. The Company believes that these
facilities are adequate for its present needs.

ITEM 3. LEGAL PROCEEDINGS

On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs are two
individuals who purchased shares of the Company on December 16, 1993 following
the Company's initial public offering. In their complaint, plaintiffs have
sued the Company, and certain members of the board of directors and certain
officers alleging violations of Sections 11, 12 and 15 of the Securities Act of
1933, as amended (the "Act"). Plaintiffs have also named David Blech, D. Blech
& Co., Incorporated and Isaac Blech as defendants. On January 23, 1995, the
Company and the members of the board of directors filed a motion to dismiss the
plaintiffs' complaint pursuant to Rule 9(b) and Rule 12b(6) of the Federal
Rules of Civil Procedure. In addition, defendant John Pietruski, Chairman of
the Board of Directors, filed a motion to dismiss the plaintiffs' complaint
pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. On February
7, 1995, the plaintiffs filed a motion for class certification. The Court
denied the motion by the Company and by John Pietruski.

On March 28, 1995, a second class action shareholders' suit was filed in
the United States District Court for the Southern District of New York seeking
unspecified damages. Plaintiffs are eight individuals who purchased shares in
various companies for which D. Blech & Co. acted as an underwriter (or
co-underwriter) or marketmaker. In their complaint, the plaintiffs have sued
the Company alleging violations of Section 10(b) of the Securities Exchange Act
of 1934, as Amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder
by the Securities and Exchange Commission (the "Commission"). Plaintiffs have
named a number of defendants, including David Blech and D. Blech & Co., four
individuals, two brokerage firms, one investment management company and ten
other companies for which D. Blech & Co. acted as underwriter or marketmaker.

On August 14, 1995, the Judicial Panel on The Multi-District Litigation
ordered that the action filed in the United States District Court for the
Southern District of Texas, Houston Division be transferred to the United
States District Court for the Southern District of New York for coordinated or
consolidated pretrial proceedings with the action pending there. In light of
the transfer and consolidation of the Texas case with similar cases against
other companies for which Blech acted as underwriter, the Company requested
that the Court in New York reconsider the Texas Court's denial of its motion to
dismiss as a part of the Court's consideration of similar motions to dismiss
filed by those companies. All of these motions were presented to the Court on
February 6, 1996. On June 6, 1996, the New York District Court entered two
memorandum opinions in the consolidated cases. In one of its opinions, the
Court dismissed all of the Exchange Act and common law fraud claims filed
against the Company and its officers and directors, but afforded those
plaintiffs the right to attempt to preserve those claims by repleading them.
The Court ordered that those claims be repleaded no later than July 26, 1996.
Plaintiffs did not replead those claims by the deadline, resulting in the
dismissal of all claims against the Company in that litigation. In its opinion
in the second case, i.e., the case filed on November 21, 1994, the Court
granted the Company and its officers and directors' motion for reconsideration,
but together with all other similar pending motions, denied the requested
relief. Pursuant to the court's order, the Company therefore filed an answer
in that case. The Company also filed a Motion seeking leave of court to
prosecute an immediate appeal of the Court's denial of the Company's Motion to
Dismiss. The Court heard argument on that Motion on October 10, 1996. The
motion was denied on January 16, 1997. Given the early stage of that case,
which is the only remaining shareholder litigation against the Company, the
Company is unable to evaluate its potential outcome at this time. The Company
disputes these claims and intends to contest them vigorously.

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

No matters were submitted to a vote of TBC's stockholders during the
fourth quarter of its fiscal year ended December 31, 1996.

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PART II

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

From December 16, 1993 until November 6, 1994, the Company's Unit security,
which consisted of one share of Common Stock and one redeemable common stock
purchase warrant, was traded on the American Stock Exchange ("AMEX") under the
symbol TXB.E. Prior to December 16, 1993, there was no public market for the
Company's securities. On November 7, 1994, the Unit separated, and the Common
Stock and redeemable common stock purchase warrants began trading separately on
the American Stock Exchange under the symbols TXB and TXB.WS, respectively.

HIGH LOW
---- ---

YEAR ENDED DECEMBER 31, 1995
First Quarter 1 3/4 1 1/4 Common Stock
Second Quarter 1 15/16 1 1/4 Common Stock
Third Quarter 3 3/4 1 5/16 Common Stock
Fourth Quarter 2 13/16 1 11/16 Common Stock

YEAR ENDED DECEMBER 31, 1996
First Quarter 5 1/2 2 Common Stock
Second Quarter 6 9/16 3 1/2 Common Stock
Third Quarter 4 7/16 2 3/8 Common Stock
Fourth Quarter 4 3/4 2 15/16 Common Stock

As of February 28, 1997 there were approximately 467 holders of record of
common stock of the Company. On February 28, 1997, the last sale price
reported on the AMEX was $5 13/16 per share. The Company has never paid
dividends and does not anticipate paying any cash dividends in the foreseeable
future. The Company intends to retain any future earnings and capital for use
in its business.

RECENT SALES OF UNREGISTERED SECURITIES

Common Stock Transactions

On February 13, 1996, the Company completed a private placement of Common
Stock to institutional investors and certain individuals (the "Private
Placement"). The Company issued 6,550,990 shares of Common Stock at $2 1/8 per
share for aggregate gross proceeds of $13,920,854, and paid selling commissions
of $759,283. In connection with the Private Placement, the co-exclusive agent,
Harris, Webb & Garrison received a $634,630 selling commission. The
co-exclusive agent, Aurora Capital Corp., received a $124,653 selling
commission. In accordance with the terms of the offering, the Company filed,
pursuant to Rule 415 of the Securities Act, a Shelf Registration Statement as
to the resale of the shares of Common Stock sold to the purchasers in the
Private Placement which became effective on June 4, 1996. The Common Stock
issuance was exempt from registration under Section 4 (2) of the Securities Act
of 1933, as amended, and Regulation D promulgated thereunder.

On April 1, 1996, May 30, 1996, June 10, 1996, June 30, 1996 and July 1,
1996, the Company issued an aggregate of 57,274 shares of its Common Stock to a
certain institution and individuals, pursuant to the exercise of outstanding
warrants for an aggregate purchase price of $200,459. The issuance of the
Common Stock was exempt from registration under Section 4 (2) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder. The warrants
and the Common Stock underlying the warrants may not be sold in the United
States absent registration or an applicable exemption from registration
requirements.

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Warrant Transactions

In conjunction with the Private Placement completed on February 13, 1996,
the Company issued warrants to the co- agents who participated in the offering.
Co-agent, Harris, Webb & Garrison received 49,775 warrants with an exercise
price of $3.05 per share and no registration rights, and 497,749 warrants with
an exercise price of $3.66 per share with the underlying Common Stock being
registered, under certain circumstances, on a "piggyback" basis. Co-agent,
Aurora Capital Corp. received 25,587 warrants with an exercise price of $3.36
per share, and 157,350 warrants, with an exercise price of $4.58 per share.
The resale of the Common Stock underlying Aurora's warrants was registered
along with the Common Stock issued in the Private Placement. The issuance of
the warrants was exempt from registration under Section 4 (2) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder. The Common
Stock underlying the warrants may not be sold in the United States absent
registration or an applicable exemption from registration requirements.

On October 10, 1996 the Company signed a strategic alliance agreement and
Common Stock purchase agreement with LG Chemical, Ltd., a Korean corporation
("LG Chem"), and in conjunction therewith, the Company's agents in the contract
negotiations, Raymond James & Associates, Inc. and Mitani & Co., Inc., each
received 56,818 warrants exercisable at $4.40 per share with the resale of the
underlying Common Stock subject to certain piggyback registration rights. The
issuance of the warrants was exempt from registration under Section 4 (2) of
the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder. The warrants and the Common Stock underlying the warrants may not
be sold in the United States absent registration or an applicable exemption
from registration requirements.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below as of and for each of the
fiscal years in the five-year period ended December 31, 1996 and for the period
from August 2, 1989 to December 31, 1996 are derived from the Company's audited
financial statements. These selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto.

AUGUST 2,
1989 (DATE OF
INCORPORATION)
YEARS ENDED TO
DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------- -------------
1996 1995 1994 1993 1992 1996
------------ ------------ ------------ ------------ ------------ ------------

STATEMENT OF OPERATIONS DATA:
Revenues $ 5,405,776 $ 7,234,002 $ 4,718,785 $ 149,764 $ -- $ 17,508,327
------------ ------------ ------------ ------------ ------------ ------------
Expenses:
Research & Development 22,251,895 14,949,822 8,936,004 6,098,282 3,012,880 55,839,550
Charge for purchase of in-process
research and development -- 2,061,383 6,404,227 1,000,000 -- 9,465,610
General & Administrative 4,067,505 4,693,019 3,992,183 2,590,900 1,994,710 19,472,139
Restructuring & Impairment 421,165 643,750 -- -- -- 1,064,915
------------ ------------ ------------ ------------ ------------ ------------
Total expenses 26,740,565 22,347,974 19,332,414 9,689,182 5,007,590 85,842,214
------------ ------------ ------------ ------------ ------------ ------------
Other Income
Interest Income 898,039 1,200,921 1,011,251 212,433 474,967 4,117,158
Interest Expense -- (1,068) (1,315) (1,509) -- (91,647)
------------ ------------ ------------ ------------ ------------ ------------
Net loss $ 20,436,750 $ 13,914,119 $ 13,603,693 $ 9,328,494 $ 4,532,623 $ 64,308,376
============ ============ ============ ============ ============ ============
Net loss per share(1) $ .87 $ .83 $ .97 $ 1.05 $ .52 $ 6.14
============ ============ ============ ============ ============ ============
Weighted average common shares
used to compute net loss per share 23,616,033 16,748,995 14,018,269 8,896,780 8,635,229 10,470,502

DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------

BALANCE SHEET DATA:
Working capital $ 10,109,803 $ 11,927,296 $ 22,930,263 $ 23,188,611 $ 9,680,218
Total assets 18,180,121 18,926,499 31,192,345 27,996,255 14,657,943
Short-term debt -- -- -- 79,536 --
Stockholders' equity 13,627,406 15,710,125 27,557,596 27,087,065 14,319,645

- --------------
(1) For information concerning calculation of net loss per share, see Note
1(g) of Notes to Consolidated Financial Statements.

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

OVERVIEW

Since its inception in 1989, the Company has primarily devoted its
resources to fund research, drug discovery and development. The Company has
been unprofitable to date and expects to incur substantial losses for the next
several years as the Company invests in product research and development,
preclinical and clinical testing and regulatory compliance. The Company has
sustained net losses of $64,308,376 from inception to December 31, 1996. The
Company has primarily financed its operations to date through private
placements of common stock and debt, which have raised an aggregate of $21.3
million in net proceeds, an initial public offering ("IPO") of a Unit security
which raised an aggregate of $24.2 million in net proceeds including the
over-allotment sold in January 1994 and a private placement of common stock on
February 13, 1996, which raised $13.0 million in net proceeds. On July 25,
1994, the Company acquired all of the outstanding stock of IPI in exchange for
common stock of the Company. IPI's results of operations have been included in
the consolidated results of operations beginning August 1, 1994. The Company
signed a collaborative agreement with Synthelabo, a French pharmaceutical group
on October 11, 1994. Upon consummation of the transaction, Synthelabo
purchased 1,428,571 shares of common stock for a total of $5 million and paid a
licensing fee of $3 million. In addition, Synthelabo has paid $3 million
annually in research payments (payable in quarterly installments) for two years
and paid $750,000 for the third year. During 1996, TBC signed an agreement
with Synthelabo to provide copies of certain clinical data. Over the life of
the agreement TBC may receive as much as $2.9 million, of which $1.9 million
has been received as of December 31, 1996. The Company's operating results
have fluctuated significantly during each quarter, and the Company anticipates
that such fluctuations, largely attributable to varying research and
development commitments and expenditures, will continue for the next several
years. During October 1996, the Company executed a research and common stock
purchase agreement with LG Chem. LG Chem purchased $5 million in Common Stock
of the Company and committed to pay up to $10.7 million over a five year period
to develop and market two compounds in clinical development.

The Company expended approximately $22,252,000, $14,950,000, $8,936,000,
$6,098,000, $3,013,000, $501,000 and $90,000 on research and development and
clinical development during the years 1996, 1995, 1994, 1993, 1992 and 1991 and
the period from August 2, 1989 (date of incorporation) through December 31,
1990, respectively. In addition, the Company recorded non-cash charges of
$2,061,383 and $6,404,227 during the years 1996 and 1995, respectively for
purchase of in-process research and development. Expenditures on research and
development and clinical development are expected to increase during 1997 and
subsequent years.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Revenues were $5,405,776, $7,234,002 and $4,718,785 during 1996, 1995 and
1994, respectively. Revenues included grant income of $1,727, $227,938 and
$289,522 in 1996, 1995 and 1994, respectively. For the years 1996, 1995 and
1994, respectively, revenues also included $8,939, $217,707 and $178,934 of
product sales from the Company's subsidiary IPI and $5,395,110, $6,788,357 and
$4,250,329 from research agreements and collaborations with various other
companies. Revenues from research agreements in 1996 includes $2.6 million in
research payments from Synthelabo and $2.3 million for data supplied to
Synthelabo. Revenues from research agreements in 1995 includes $3 million in
research payments related to the agreement with Synthelabo and a $2 million
additional research payment from EISAI for attainment of a milestone. Revenues
from research agreements in 1994 includes a $3 million license fee and $500,000
in research payments related to the agreement with Synthelabo. Interest income
was $898,039, $1,200,921 and $1,011,251, for the years 1996, 1995 and 1994
respectively. Interest income for the year 1995 was significantly higher over
1994 due to funds received in conjunction with the Synthelabo agreement and
EISAI and generally higher interest rates. From 1995 to 1996, interest income
declined approximately $300,000 due to lower average invested balances and a
general decline in interest rates.

Total operating expenses increased 20% from $22,347,974 in 1995 to
$26,740,565 in 1996 and 16% from $19,332,414 in 1994 to $22,347,974 in 1995.
The Company recorded noncash charges for the purchase of in-

17
18
process research and development of $2,061,383 and $6,404,227 during 1995 and
1994, respectively. The Company impaired the remaining goodwill, $643,750, at
December 31, 1995, associated with the IPI purchase due to the expected
consolidation of IPI operations into TBC's in the first half of 1996 and
charged $421,165 to expense during 1996 costs related to restructuring IPI.
The change in operating expenses would have been 34% and 52% for the years 1995
to 1996 and 1994 to 1995 respectively, without these charges. The increase from
1995 to 1996 was primarily due to increases related to the costs associated
with the clinical trials of NOVASTAN(R). The increase from 1994 to 1995 was
primarily due to inclusion of a full year of costs for IPI and increased costs
associated with the clinical trials of NOVASTAN(R). The Company had 73
employees at December 31, 1996, 98 at December 31, 1995 of which 25 were IPI
employees, and 97 at December 31, 1994, of which 35 were IPI employees.

Research and development expenses increased 49% from $14,949,822 in 1995 to
$22,251,895 in 1996 and 67% from $8,936,004 in 1994 to $14,949,822 in 1995
without including the noncash charge for purchase of in-process research and
development of $6,404,227 and $1,000,000 for the years 1995 and 1994,
respectively. The increase from 1996 to 1995 was primarily due to the increase
in clinical development expenses related to the ongoing clinical trials of
NOVASTAN(R). The increase from 1994 to 1995 was primarily due to inclusion of
a full year of costs for IPI and increased costs associated with the clinical
trials of NOVASTAN(R).

General and administrative expenses decreased 13% from $4,693,019 in 1995
to $4,067,505 in 1996 and increased 18% from $3,992,183 in 1994 to $4,693,019
in 1995. The decrease in 1996 was primarily due to the restructuring of IPI and
the related decrease in general and administrative expenses. In addition,
legal expense decreased approximately $300,000 due primarily to lower
litigation expense in 1996. The increase in 1995 was primarily due to a full
year of IPI's general and administrative expenses of $814,724 and legal
expenses related to shareholder lawsuits and patent applications for TBC's
compounds.

Rent and related expense, which is a component of both research and
development and general and administrative expense was approximately $1,025,000
in 1996, $1,218,000 in 1995 and $1,416,000 in 1994. The decrease of
approximately $193,000 in 1996 from 1995 was due to decreases in leased space
at IPI and credits applied to the Houston space due to the lease renegotiation.
The decrease of approximately 198,000 from 1994 to 1995 was a net of higher
rent due to a full year of rent from IPI office and lab space and lower rent
and utilities for the Houston space due to renegotiation of the lease.

The Company incurred net losses of $20,436,750, $13,914,119 and $13,603,693
for the years ended December 31, 1996, 1995 and 1994, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its research and development activities to date
principally through (i) private sales of common stock and an initial public
offering of a unit security, (ii) issuances of common stock in conjunction with
assumption of liabilities and assets to acquire IPI and the NOVASTAN(R)
license, (iii) revenues from research and collaborative agreements and (iv)
investment income, net of interest expense.

The Company expects to incur substantial research and development
expenditures as it designs and develops biopharmaceutical products for the
prevention and treatment of cardiovascular diseases. The Company anticipates
that operating expenses will continue to increase during 1997 and subsequent
years. The Company began to incur costs to develop NOVASTAN(R) during the
third quarter of 1993. These costs will continue during 1997 due to the
continuation of clinical trials and will continue to be significant through the
FDA approval process and additional clinical trial work for other clinical
indications. These costs include, among other things, hiring personnel to
direct and carry out all operations related to the clinical trials, paying for
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. In addition, the Company anticipates that the administrative
costs associated with this effort will be significant. The amounts and timing
of expenditures will depend on the progress of ongoing research and clinical
development and product launch costs.

18
19
At December 31, 1996 and December 31, 1995, the Company had cash, cash
equivalents and short-term investments of approximately $13.4 million and $13.9
million, respectively. In February 1996, the Company completed a private
placement offering with net proceeds of approximately $13.0 million. The
Company consolidated the IPI operations into TBC's during 1996, which had a
positive impact on liquidity. The Company anticipates that its existing
capital resources should be sufficient to fund its cash requirements into the
third quarter of 1997. This date is contingent upon various factors, including
rate of patient enrollment and spending rate for the clinical trials of
NOVASTAN(R), Selectin and Endothelin compounds, and expenditures on research
and development of other compounds. However, the Company's existing capital
resources will not be sufficient to fund the Company's operations through
commercialization of its first product. Moreover, the Genentech and Synthelabo
Agreements require the Company to maintain a tangible net worth of at least
$5.0 million during the term of the Agreements. If the Company fails to
maintain the prescribed net worth or fails to exercise due diligence in
performing its obligations under the Genentech Agreement, Genentech may, at its
option, terminate the Genentech Agreement or cause the license to become
non-exclusive. For failure to maintain at least $5.0 million of net worth,
Synthelabo may require that the technology be transferred to, and the
development program be conducted by, a joint venture owned by TBC and
Synthelabo. The outcome of certain lawsuits that have been filed against the
Company could also have an impact on liquidity.

The Company will need to raise substantial funds for future operations and
is actively seeking such funding through collaborative arrangements, public or
private financing, including equity financing, and other arrangements. The
Company expects that additional expenditures will be required if additional
product candidates enter clinical trials which may require additional
expenditures for laboratory space, scientific and administrative personnel, and
services of contract research organizations. There can be no assurance that
the Company will be able to obtain additional financing on acceptable terms or
in time to fund any necessary or desirable expenditures. In the event such
financing are not obtained, the Company's development and research projects
will be delayed or scaled back. See Item 3. Legal Proceedings.

HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

The Company's research and development activities involve the controlled
use of hazardous and radioactive materials. The Company is subject to federal,
state, and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Management
believes that the Company is in compliance with all such laws, regulations and
standards currently in effect and that the cost of compliance with such laws,
regulation, and standards will not have a material adverse effect on the
Company. The Company does not expect to incur any capital expenditures for
environmental control in the foreseeable future.

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
operations.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This Report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this Report are forward looking
statements. Such forward looking statements include, without limitation,
statements under (a) "Part I - Business and Note 1 to the Financial Statements
- -- regarding TBC's expectations for future drug discovery and development and
related expenditures and regulatory filings and approvals (b) "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" - regarding TBC's estimate of sufficiency of
existing capital resources and ability to raise additional capital to fund cash
requirements for future operations. Although TBC believes that the
expectations reflected in such forward looking statements are reasonable, it
can give no assurance that such expectations reflected in such forward looking
statements will prove to have been correct. The ability to achieve

19
20
TBC's expectations is contingent upon a number of factors which include (i)
ongoing cost of research and development activities, (ii) cost of clinical
development of product candidates, (iii) attainment of research and clinical
goals of product candidates, (iv) timely approval of TBC's product candidates
by appropriate governmental and regulatory agencies, (v) effect of any current
or future competitive products, (vi) ability to manufacture and market products
commercially, (vii) retention of key personnel and (viii) obtaining and timing
of sufficient financing through capital raising or collaborative agreements to
fund operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company required to be included in this
Item 8 are set forth in Item 14 of this Report.

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

Not applicable.

20
21
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:

NAME AGE POSITION
---- --- --------

John M. Pietruski (1)(2) . . . . . . 64 Chairman of the Board of Directors
David B. McWilliams (1) . . . . . . . 53 President, Chief Executive Officer
and Director
Richard A. F. Dixon, Ph.D. (1) . . . 43 Vice President of Research and Director
Stephen L. Mueller . . . . . . . . . 49 Vice President of Administration,
Secretary and Treasurer Richard
P. Schwarz, Jr., Ph.D. . . . . . . . 46 Vice President of Clinical and
Regulatory Affairs
Joseph M. Welch . . . . . . . . . . . 56 Vice President of Business Development
James T. Willerson, M.D. (1)(2) . . . 57 Chairman of the Scientific Advisory
Board and Director
Patrick Owen Burns (2) . . . . . . . 59 Director
Frank C. Carlucci (3) . . . . . . . . 66 Director
Robert J. Cruikshank (3) . . . . . . 66 Director
James A. Thomson, Ph.D. (3) . . . . . 52 Director

- ---------------
(1) Member, Executive Committee of the Board of Directors
(2) Member, Compensation and Personnel Committee of the Board of Directors
(3) Member, Audit Committee of the Board of Directors

The additional information requested by this item will be contained in
the Company's definitive Proxy Statement ("Proxy Statement") for its 1997
Annual Meeting of Stockholders to be held on May 6, 1997 and is incorporated by
reference from the sections titled "Election of Directors" and "Executive
Officers". Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to December 31, 1996.

ITEM 11. EXECUTIVE COMPENSATION

The information requested by this item is incorporated by reference from
the section titled "Executive Compensation" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 6, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information requested by this item is incorporated by reference from
the section titled "Principal Stockholders" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 6, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information requested by this item is incorporated by reference from
the sections titled "Principal Stockholders," "Compensation Committee
Interlocks and Insider Participation," "Director Compensation", "Employment
Agreements" and "Certain Transactions" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 6, 1997.

21
22
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1. INDEX TO 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 and Schedules.

PAGE
----

Independent Auditors' Report F-1

Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2

Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994, and the period from August 2, 1989 (date of
incorporation) to December 31, 1996 F-3

Consolidated Statements of Stockholders' Equity for the period from
August 2, 1989 (date of incorporation) to December 31, 1996 F-4

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994, and the period from August 2, 1989
(date of incorporation) to December 31, 1996 F-7

Notes to Consolidated Financial Statements F-8

2. 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 cost
of duplication and mailing the requested items.

(B) REPORTS ON FORM 8-K:

No reports on Form 8-K filed during the quarter ended December 31, 1996.

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 notes thereto.

22
23

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 11TH DAY OF MARCH, 1997.

TEXAS BIOTECHNOLOGY CORPORATION

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

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS AND IN THE CAPACITIES
INDICATED ON THE 11TH DAY OF MARCH, 1997.

SIGNATURE TITLE
--------- -----

/s/ JOHN M. PIETRUSKI Chairman of the Board of Directors
---------------------------
John M. Pietruski

/s/ DAVID B. MCWILLIAMS Director, President and Chief Executive Officer
--------------------------- (Principal Executive Officer)
David B. McWilliams

/s/ RICHARD A.F. DIXON Director and Vice President of Research
---------------------------
Richard A.F. Dixon

/s/ STEPHEN L. MUELLER Vice President of Administration,
--------------------------- Secretary and Treasurer
Stephen L. Mueller (Principal Financial and Accounting Officer)

/s/ PATRICK OWEN BURNS Director
---------------------------
Patrick Owen Burns

/s/ FRANK C. CARLUCCI Director
---------------------------
Frank C. Carlucci

/s/ ROBERT J. CRUIKSHANK Director
---------------------------
Robert J. Cruikshank

/s/ JAMES A. THOMSON Director
---------------------------
James A. Thomson

/s/ JAMES T. WILLERSON Director
---------------------------
James T. Willerson

23
24

Independent Auditors' Report

The Board of Directors
Texas Biotechnology Corporation:

We have audited the accompanying consolidated balance sheets of Texas
Biotechnology Corporation and subsidiary (a development stage enterprise) (the
Company) as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, and for the period from
August 2, 1989 (date of incorporation) to December 31, 1996. 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 generally accepted auditing
standards. 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 subsidiary (a development stage enterprise) as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, and for the
period from August 2, 1989 (date of incorporation) to December 31, 1996, in
conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
February 21, 1997

F-1
25
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, DECEMBER 31,
1996 1995
ASSETS ------------ -----------

Current assets:
Cash and cash equivalents $ 2,127,999 5,724,264
Short term investments 11,262,292 8,195,307
Short term note receivable (note 13) 122,500 122,500
Prepaids 546,752 554,208
Other current assets 602,975 547,391
---------- ----------
Total current assets 14,662,518 15,143,670

Equipment and leasehold improvements, at cost less
accumulated depreciation and amortization (note 5) 3,458,012 3,782,829

Other assets 59,591 --
----------- ----------
Total assets $18,180,121 18,926,499
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 1,661,339 1,370,708
Accrued expenses 2,266,376 1,195,556
Deferred revenue (note 8) 625,000 650,110
----------- ----------
Total current liabilities 4,552,715 3,216,374

Commitments and contingencies (notes 6, 7, 8, 9, 12 and 14)

Stockholders' equity (notes 2, 3 and 6):
Preferred stock, par value $.005 per share. At December 31, 1996
and 1995, 5,000,000 shares authorized; none outstanding -- --
Common stock, par value $.005 per share. At December 31, 1996,
75,000,000 shares authorized; 25,490,269 shares issued and
outstanding. At December 31, 1995, 40,000,000 shares authorized;
17,439,365 shares issued and outstanding 127,451 87,198
Additional paid-in capital 77,808,331 59,540,730
Deferred compensation expense -- (46,177)
Deficit accumulated during the development stage (64,308,376) (43,871,626)
----------- ----------
Total stockholders' equity 13,627,406 15,710,125
----------- ----------
Total liabilities and stockholders' equity $18,180,121 18,926,499
=========== ==========

See accompanying notes to consolidated financial statements

F-2
26
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31, 1996, 1995 and 1994, and the
period from August 2, 1989 (date of incorporation) to December 31, 1996

AUGUST 2, 1989
(DATE OF
INCORPORATION)
TO
DECEMBER 31,
1996 1995 1994 1996
----------- --------- --------- -------------

Revenues:
Research agreements (note 8) $ 5,395,110 6,788,357 4,250,329 16,433,796
Products and services 8,939 217,707 178,934 405,580
Grant revenue 1,727 227,938 289,522 668,951
----------- ---------- ---------- ----------
Total revenues 5,405,776 7,234,002 4,718,785 17,508,327
----------- ---------- ---------- ----------

Expenses:
Research and development 22,251,895 14,949,822 8,936,004 55,839,550
Charge for purchase of in-process research
and development (notes 9 and 14) -- 2,061,383 6,404,227 9,465,610
General and administrative 4,067,505 4,693,019 3,992,183 19,472,139
Restructuring & Impairment charges (note 14) 421,165 643,750 -- 1,064,915
----------- ---------- ---------- ----------
Total expenses 26,740,565 22,347,974 19,332,414 85,842,214
----------- ---------- ---------- ----------

Operating loss 21,334,789 15,113,972 14,613,629 68,333,887
----------- ---------- ---------- ----------
Other income (expense):
Interest income 898,039 1,200,921 1,011,251 4,117,158
Interest expense -- (1,068) (1,315) (91,647
----------- ---------- ---------- ----------
Total other income (expense) 898,039 1,199,853 1,009,936 4,025,511

Net loss $20,436,750 13,914,119 13,603,693 64,308,376
=========== ========== ========== ==========

Net loss per share $ 0.87 0.83 0.97 6.14
=========== ========== ========== ==========

Weighted average common shares used to compute
net loss per share 23,616,033 16,748,995 14,018,269 10,470,502
=========== ========== ========== ==========

See accompanying notes to consolidated financial statements

F-3
27
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the period August 2, 1989 (date of incorporation) to December 31, 1996

DEFICIT
COMMON STOCK ACCUMULATED
------------------------- ADDITIONAL DEFERRED DURING THE
SHARES PAID-IN COMPENSATION DEVELOPMENT
ISSUED AMOUNT CAPITAL EXPENSE STAGE TOTAL
----------- ----------- ------------ ------------ ------------ ------------

Issuance of shares for cash pursuant to
subscription agreements between
March and April 1990 1,885,700 $ 9,428 56,572 -- -- 66,000
Repurchase and retirement of
shares (note 2) (107,140) (536) (3,214) -- -- (3,750)
Net loss -- -- -- -- (692,951) (692,951)

----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31, 1990 1,778,560 $ 8,892 53,358 -- (692,951) (630,701)
----------- ----------- ------------ ------------ ------------ ------------

Issuance of shares upon conversion of
notes payable and accrued interest
to stockholders and related trusts 554,355 2,772 1,937,483 -- -- 1,940,255
Issuance of common stock and
warrants through private
placement, net of expenses 6,302,314 31,512 19,310,948 -- -- 19,342,460
Net loss -- -- -- -- (1,799,746) (1,799,746)

----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31, 1991 8,635,229 $ 43,176 21,301,789 -- (2,492,697) 18,852,268
----------- ----------- ------------ ------------ ------------ ------------

Net loss -- -- -- -- (4,532,623) (4,532,623)

----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31, 1992 8,635,229 $ 43,176 21,301,789 -- (7,025,320) 14,319,645
----------- ----------- ------------ ------------ ------------ ------------

Issuance of shares related to Genentech
license acquisition 285,714 1,429 998,571 -- -- 1,000,000
Issuance of shares pursuant to research
and consulting agreements 6,999 35 24,465 -- -- 24,500
Deferred compensation expense -- -- 287,158 (287,158) -- --
Compensation expense related to certain
stock options -- -- -- 52,265 -- 52,265
Issuance of common stock, warrants
and underwriter's purchase options
through initial public offering,
net of expenses 3,550,000 17,750 21,001,399 -- -- 21,019,149
Net loss -- -- -- -- (9,328,494) (9,328,494)

----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31, 1993,
carry forward 12,477,942 $ 62,390 43,613,382 (234,893) (16,353,814) 27,087,065
----------- ----------- ------------ ------------ ------------ ------------

See accompanying notes to consolidated financial statements

F-4
28
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED

Balance at December 31, 1993,
brought forward 12,477,942 $ 62,390 43,613,382 (234,893) (16,353,814) 27,087,065
----------- ----------- ------------ ------------ ------------ ------------

Issuance of shares related to
initial public offering
overallotment 532,500 2,663 3,206,002 -- -- 3,208,665
Issuance of common stock to former
ImmunoPharmaceutics'
shareholders 1,599,958 8,000 5,799,848 -- -- 5,807,848
Issuance of common stock to former
ImmunoPharmaceutics'
shareholders held in escrow 999,956 -- -- -- -- --
Issuance of shares for common
stock option exercise 477 2 1,667 -- -- 1,669
Issuance of common stock to
Synthelabo for cash, net of
expenses 1,428,571 7,143 4,952,948 -- -- 4,960,091
Compensation expense related to
stock options -- -- -- 95,951 -- 95,951
Net loss -- -- -- -- (13,603,693) (13,603,693)
----------- ----------- ------------ ------------ ------------ ------------

Balance at December 31, 1994 17,039,404 $ 80,198 57,573,847 (138,942) (29,957,507) 27,557,596
----------- ----------- ------------ ------------ ------------ ------------

Issuance of common stock to former
ImmunoPharmaceutics'
shareholders held in escrow -- 5,000 1,404,938 -- -- 1,409,938
Issuance of common stock to former
ImmunoPharmaceutics'
shareholders pursuant to issue rights 399,961 2,000 561,945 -- -- 563,945
Compensation expense related to
stock options -- -- -- 92,765 -- 92,765
Net loss -- -- -- -- (13,914,119) (13,914,119)
----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31, 1995,
carryforward 17,439,365 $ 87,198 59,540,730 (46,177) (43,871,626) 15,710,125
----------- ----------- ------------ ------------ ------------ ------------

See accompanying notes to consolidated financial statements

F-5

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED

Balance at December 31, 1995,
brought forward 17,439,365 $ 87,198 59,540,730 (46,177) (43,871,626) 15,710,125
----------- ----------- ------------ ------------ ------------ ------------

Issuance of common stock and
warrants through private
placement, net of expenses 6,550,990 32,754 12,958,327 -- -- 12,991,081
Issuance of common stock for
stock option exercises 192,640 963 590,092 -- -- 591,055
Issuance of common stock for
warrant exercises 57,274 286 200,173 -- -- 200,459
Issuance of common stock to
LG Chem for cash, net of
expenses 1,250,000 6,250 4,519,009 -- -- 4,525,259
Compensation expense related to
stock options -- -- -- 46,177 -- 46,177
Net loss -- -- -- -- (20,436,750) (20,436,750)
----------- ----------- ------------ ------------ ------------ ------------

Balance at December 31, 1996 25,490,269 $ 127,451 77,808,331 -- (64,308,376) 13,627,406
=========== =========== ============ ============ ============ ============

See accompanying notes to consolidated financial statements

F-6

30
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 1996, 1995 and 1994, and
the period from August 2, 1989 (date of incorporation) to December 31, 1996

AUGUST 2, 1989
(DATE OF
INCORPORATION)
TO
DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(20,436,750) (13,914,119) (13,603,693) (64,308,376)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write-off of deferred offering costs related
to delayed offering 24,140 -- -- 349,078
Depreciation and amortization 759,328 800,614 1,098,602 4,612,167
Interest expense converted on notes payable
to stockholders -- -- -- 87,755
Non cash acquisition costs expensed (notes 9 and 14) -- 2,061,383 6,404,227 9,465,610
Expenses paid with stock -- -- -- 24,500
Deferred compensation expense 46,177 92,765 95,951 287,158
Loss on disposition of fixed assets 7,056 -- -- 7,056
Impairment of intangible assets -- 643,750 -- 643,750
Change in operating assets and liabilities, net of
effect of acquisition:
(Increase) decrease in prepaids 7,456 (108,799) (15,031) (369,094)
(Increase) decrease in receivables -- 71,843 (125,064) (90,286)
(Increase) in other current assets (55,584) (219,601) (435,682) (710,867)
(Increase) in other assets (33,594) -- -- (33,594)
Decrease in inventories -- 59,118 2,127 61,245
(Decrease) increase in current liabilities 1,361,451 2,010,466 (419,508) 3,861,599
Increase (decrease) in deferred revenue (25,110) (2,428,841) 1,406,829 (1,047,122)
------------ ------------ ------------ ------------
Net cash used in operating activities (18,345,430) (10,931,421) (5,591,242) (47,159,421)
------------ ------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (494,965) (199,750) (1,169,128) (7,715,920)
Proceeds from disposition of fixed assets 27,400 -- -- 27,400
Purchase of short term investments (31,176,391) (23,448,580) (28,472,640) (83,097,611)
Maturity of short term investments 28,109,406 33,104,073 10,621,840 71,835,319
Acquisition of subsidiary, net of cash acquired -- -- (167,331) (167,331)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (3,534,550) 9,455,743 (19,187,259) (19,118,143)
------------ ------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to stockholders and
related trusts (note 2) -- -- -- 1,852,500
Proceeds from sale of common stock and warrants, net 18,307,855 -- 8,170,427 66,905,891
Repurchase of common stock -- -- -- (3,750)
Cost of delayed offering (24,140) -- -- (349,078)
------------ ------------ ------------ ------------
Net cash provided by financing activities 18,283,715 -- 8,170,427 68,405,563
------------ ------------ ------------ ------------

Net increase (decrease) in cash and cash equivalents (3,596,265) (1,475,678) (16,608,074) 2,127,999

Cash and cash equivalents at beginning of period 5,724,264 7,199,942 23,808,016 --
------------ ------------ ------------ ------------

Cash and cash equivalents at end of period $ 2,127,999 5,724,264 7,199,942 2,127,999
============ ============ ============ ============

Supplemental schedule of noncash financing activities
(see notes 2, 9 and 14) $ -- 2,061,383 6,404,227 11,405,865
============ ============ ============ ============

See accompanying notes to consolidated financial statements

F-7
31
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

Texas Biotechnology Corporation (the "Company" or "TBC"), a
biopharmaceutical company, applies innovative drug discovery
techniques and its specialized knowledge of the role of vascular
cell biology in cardiovascular disease to the design and
development of novel pharmaceutical compounds. The Company was
incorporated in the state of Delaware in 1989.

During the period from August 2, 1989, (date of incorporation)
through March 1990, the Company was largely inactive. Since that
time, the Company has been engaged principally in research and
drug discovery programs and clinical development of a drug
compound. On July 25, 1994, the Company acquired all of the
outstanding common stock of ImmunoPharmaceutics, Inc. ("IPI"), a
San Diego, California based company, in exchange for common stock
of the Company. TBC consolidated the IPI operation into TBC in
the first half of 1996. (See note 14)

The Company is presently working on a number of long-term
development projects which involve experimental and unproven
technology, which may require many years and substantial
expenditures to complete, and which may be unsuccessful. To date,
other than small amounts of monoclonal antibody compounds and
services produced and sold by IPI (now discontinued), the Company
has not developed or sold any products, and no assurance can be
given that the Company will be able to develop, manufacture or
market any products in the future. In addition, no assurance
exists that future revenues will be significant, that any sales
will be profitable, or that the Company will have sufficient funds
available to complete its research and development programs or
market any products which it may develop. Accordingly, the
Company is considered to be in the development stage as it has not
to date derived significant revenues from its planned principal
operations.

(b) Basis of Consolidation

The Company's consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, IPI. All
material intercompany transactions have been eliminated. The
Company's consolidated financial statements include the activity
related to IPI since August 1, 1994.

Cash equivalents are considered to be those securities or
instruments with original maturities, when purchased, of three
months or less. At December 31, 1996, approximately $1,643,000
was invested in demand and money market accounts. Short term
investments are those investments which have an original maturity
of less than one year and greater than three months. At December
31, 1996, the Company's short term investments consisted of
approximately $998,000 in U.S. Treasury Bills and $10,264,000 in
Corporate Commercial Paper. Cash equivalents and short term
investments are stated at cost, which approximates market value.
Interest income is accrued as earned.

On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (Statement 115), Accounting for
Certain Investments in Debt and Equity Securities. Statement 115
provides for the use of the amortized cost method for investments
in debt securities when management has the positive intent and

F-8

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ability to hold such securities to maturity. In connection with
the adoption of Statement 115, the Company classified all short
term investments as held to maturity.

(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) Intangible Assets

Intangible assets are amortized on a straight line basis over ten
years.

(f) Research and Development Costs

All research and development costs are expensed as incurred and
include salaries of research and development employees. For the
years ended December 31, 1996, 1995, 1994 and the period from
August 2, 1989 (date of incorporation) through December 31, 1996,
salaries and benefits totaled approximately $6,233,000,
$7,005,000, $4,841,000 and $23,286,000, respectively, of which
approximately $4,893,000, $5,612,000, $3,420,000 and $16,946,000,
respectively, was charged to research and development. Payments
related to the acquisition of in-process research and development
are expensed.

(g) Net Loss Per Share

Net loss per share is calculated using the weighted average shares
of common stock outstanding during the period. For the years ended
December 31, 1996, 1995, 1994 and the period from August 2, 1989
(date of incorporation) through December 31, 1996, the weighted
average common shares used to compute net loss per share totaled
23,616,033, 16,748,995, 14,018,269 and 10,470,502, respectively.
Stock options and stock warrants are considered common stock
equivalents, however they are not included in the loss per share
computations as their effect is anti-dilutive. Shares held in
escrow through June 30, 1995, pending satisfaction of certain
future conditions, and shares related to contingent stock issue
rights related to the IPI acquisition have been excluded from the
net loss per share calculation until such shares were released or
issued.

(h) Reclassifications

Certain reclassifications have been made to prior period financial
statements to conform with the December 31, 1996 presentation with
no effect on net loss reported.

(i) Revenue Recognition

Revenue from grants is recognized as earned under the terms of the
related grant agreements. Revenue from service contracts is
recognized as the services are performed and/or as milestones are
achieved. Revenue from products and services is recognized when
the products are shipped or the services are performed. Amounts
received in advance of services to be performed under contracts
are recorded as deferred revenue.

F-9
33

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(j) Patent Application Costs

Costs incurred in filing for patents are expensed as incurred.

(k) Use of Estimates

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

(l) Accounting Pronouncements

In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (Statement
121). The Company has adopted the statement effective December
31, 1995. Statement 121 requires that long-lived assets and
certain identifiable intangible assets to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. In addition, Statement 121 requires that
certain long-lived assets and certain identifiable intangible
assets to be disposed of be reported at the lower of carrying
amount or fair value less costs to sell. The Company believes the
goodwill associated with IPI, $643,750, is impaired due to the
decision to cease operations at IPI and the sale of the QED
business unit and has recorded a charge to expense during 1995.
(See note 14)

In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation"
(Statement 123). Statement 123 establishes financial accounting
and reporting standards for stock-based employee compensation
plans using a fair value based methodology as an alternative to
intrinsic value based methodology. In addition, Statement 123
establishes the fair value as the measurement basis for
transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The accounting and
reporting requirements of Statement 123 are effective beginning
January 1, 1996. The Company continues to use the intrinsic value
method. (See Note 3)

(2) CAPITAL STOCK

At December 31, 1996, the Company's authorized capital stock consisted of
75,000,000 shares of common stock, (in May 1996, the Board of Directors
proposed, and stockholders approved, an amendment to the Company's
Certificate of Incorporation to increase the authorized number of shares
of the Company's common stock from 40 million shares to 75 million
shares) par value $.005 per share, and 5,000,000 shares of preferred
stock, par value $.005 per share, issuable in one or more series. During
March and April 1990, 1,885,700 shares of common stock were sold pursuant
to subscription agreements for $.035 per share (initial offering).
Certain stockholders sold a total of 107,140 shares back to the Company.
In addition, certain employees and consultants who purchased stock were
granted registration rights in certain circumstances, limited pre-emptive
rights and limited rights of co-sale with two principal stockholders.

During 1991, 6,302,314 shares of common stock were sold pursuant to a
private placement. Proceeds to the Company were approximately $19.3
million, net of selling expenses. The sales agent, D. Blech & Co. (whose
sole stockholder was a principal stockholder of the Company), received
approximately $2.3 million in commissions and

F-10
34

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expense reimbursement, and purchased 629,566 warrants for $.035 each.
Each warrant entitles the holder to purchase one share of common stock at
$3.50 per share and expires between August 1, 1998 and October 25, 1998.
The warrant holder has certain "piggy-back" and demand registration
rights with respect to the warrants and underlying shares. As of
December 31, 1996, 261,599 of the 629,566 outstanding warrants for shares
of stock were assigned to selected dealers who participated in the
private placement and others. A total of 57,274 warrants had been
exercised as of December 31, 1996.

Between December 1989 and July 1991, two principal stockholders (and
certain related trusts) who were also members of the Board of Directors
made loans to the Company totaling $1,852,500. Notes were executed for
the loans which carried mandatory conversion provisions. At the time of
the 1991 private placement, all principal and accrued interest, which
totaled $1,940,255, was converted into 554,355 shares of Common Stock.

During May, 1993, the Company issued 285,714 shares of common stock to
Genentech, Inc. in connection with the Stock Agreement and Sublicense and
License Agreement entered into with Genentech, Inc. on the same date.
(See note 9) In August, 1993, the Company issued 6,999 shares of common
stock in connection with certain collaboration and consulting agreements.

In December 1993, D. Blech & Company, Incorporated acted as underwriter
for an initial public offering of Company securities. Pursuant to this
offering, 4,082,500 units were sold including the over-allotment, 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 were
transferable only as a unit until November 7, 1994, at such time when the
Company separated the unit into its common stock and warrant components.
The warrants are exercisable at $8.44 per share and expire on December
15, 1998. The warrants are redeemable for $.05 per warrant, at the option
of the Company, upon 30 days' prior written notice at any time after the
last sale price of the common stock has been at least $11.82 for 30
consecutive business days ending within 15 days of the date of the notice
of redemption. All of the warrants must be redeemed if any are redeemed.
The underwriter received approximately $2.9 million in commissions and
expense reimbursement and purchased options to purchase 355,000 units at
an exercise price of $11.14. These options were sold for $.001 each and
expire on December 15, 1998.

In July, 1994, the Company acquired all of the outstanding common stock
of IPI in exchange for common stock of the Company. TBC issued (i)
1,599,958 shares of common stock which was distributed to the existing
IPI shareholders, (ii) 999,956 shares of common stock, issued in the
names of IPI shareholders that were held in escrow pending satisfaction
of certain research and development milestones and released from escrow
on June 30, 1995, and (iii) contingent stock issue rights to issue an
aggregate of 1,400,000 shares of common stock, the conversion of which is
pending satisfaction of research and development milestones, in exchange
for all the issued and outstanding shares of IPI. On June 30, 1995, the
Company issued 399,961 shares pursuant to the contingent stock issue
rights, upon attainment of certain research and development milestones.
In conjunction with the acquisition, in addition to granting piggyback
registration rights under certain circumstances, the Company has filed a
registration statement on Form S-3 covering the resale of the TBC common
stock, which became effective on December 6, 1995. (See note 14)

In October, 1994, the Company signed a collaborative agreement with
Synthelabo, a French pharmaceutical group. In conjunction with the
agreement, Synthelabo purchased 1,428,571 shares of common stock for
$3.50 per share for a total of $5 million. In addition, the Company has
granted demand and piggyback registration rights with respect to such
shares under certain circumstances. (See note 8)

F-11
35

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February, 1996, the Company completed a private placement of common
stock. The Company issued 6,550,990 shares of Common Stock at $2 1/8 per
share with proceeds of approximately $13.0 million, net of selling
commissions and expenses of approximately $900,000. In accordance with
the terms of the offering, the Company filed, pursuant to Rule 415 of the
Securities Act, a Shelf Registration Statement as to the resale of the
shares of Common Stock sold to the purchasers in the private placement
which became effective on June 4, 1996. In connection with the private
placement, the co-exclusive agent, Harris, Webb & Garrison received a
$634,630 selling commission, 49,775 warrants with an exercise price of
$3.05 per share and no registration rights, and 497,749 warrants with an
exercise price of $3.66 per share with the underlying common stock being
registered, under certain circumstances, on a "piggyback" basis in the
event of a public offering of common stock by the Company. The
co-exclusive agent, Aurora Capital Corp., received a $124,653 selling
commission, 25,587 warrants with an exercise price of $3.36 per share,
and 157,350 warrants, of which 8,348 were canceled pursuant to an
agreement for services with one of the selected dealers, with an exercise
price of $4.58 per share. The common stock underlying Aurora's warrants
were registered with the Common Stock issued in the private placement.
The co-exclusive agents assigned some of these warrants to others.

On October 10, 1996 the Company signed a strategic alliance agreement and
common stock purchase with LG Chemical, Ltd. ("LG Chem"), a Korean
corporation. In conjunction with the agreement, LG Chem purchased
1,250,000 shares of common stock for $4.00 per share for a total of $5
million. In addition, LG Chem has the option to purchase up to $5
million of common stock on one of four exercise dates ending at December
31, 1997. The minimum purchase amount is $1,000,000 and LG Chem and TBC
must agree on the purchase price or the option cannot be exercised on the
given exercise date. These shares were issued pursuant to "Regulation S"
and may not be sold by LG Chem for a period of one year per the
agreement. The Company's agents in the contract negotiations received
$420,000 in commissions and 113,636 warrants exercisable at $4.40 per
share with the resale of the underlying common stock being subject to
certain piggyback registration rights.

(3) STOCK OPTIONS

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 230,590 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 1,562,008 shares of common
stock are reserved for issuance out of authorized but unissued shares of
the Company.

The Stock Option Plan for Non-Employee Directors ("Director Plan") allows
for the issuance of non-qualified options to non-employee directors,
pursuant to which 71,429 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.

The 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 1,000,000 shares of common stock are reserved for
issuance out of authorized but unissued shares of the

F-12
36

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company. The Board of Directors amended the 1995 Plan effective April 1,
1997 to allow 2,000,000 shares to be reserved for issuance subject to the
approval of stockholders at the annual meeting on May 6, 1997.

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 200,000 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. In June 1996, the 1995
Director Plan was amended with respect to the election date requirement
for a director to request stock in lieu of cash payment of director fees.
The Board of Directors amended the 1995 Director Plan effective April 1,
1997 to allow 300,000 shares to be reserved for issuance subject to the
approval of stockholders at the annual meeting on May 6, 1997.

A summary of stock options as of December 31, 1996, follows:

Exercise Price Available
Stock Option Plans Per Share Authorized Outstanding Exercised Exercisable for Grant
------------------ -------------- ---------- ----------- --------- ----------- ---------

1990 Plan $3.50 - $3.56 285,715 173,369 55,125 165,369 57,221

1992 Plan $1.41 - $5.36 1,700,000 1,305,513 137,992 683,794 256,495

Director Plan $2.40 - $4.54 71,429 42,576 --- 33,148 28,853

1995 Plan $1.31 - $4.38 1,000,000 564,500 --- 37,500 435,500

1995 Director Plan $1.38 - $5.19 200,000 82,806 --- 49,422 117,194
--------- --------- ------- ------- -------
TOTALS 3,257,144 2,168,764 193,117 969,233 895,263
========= ========= ======= ======= =======

As of March 4, 1997, the Board of Directors approved increases in the
number of shares authorized of 1,000,000 shares in the 1995 Plan and
100,000 shares in the 1995 Director Plan respectively, subject to the
approval of stockholders at the annual meeting on May 6, 1997. See (note
16)

The Company applies APB Opinion 25 and related interpretations on
accounting for its plans. The Company has recorded deferred compensation
for the difference between the grant price and the deemed fair value for
financial statement presentation purposes related to certain options
granted in the period subsequent to May 27, 1993 and prior to the initial
public offering. Such amount totaled $287,158, of which $92,765 was
charged to expense in 1995. The unamortized deferred compensation
expense of $46,177 at December 31, 1995 was expensed during 1996. Had
compensation costs for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's proforma net loss
and proforma net loss per share for the year ended December 31, 1996
would have been $21,057,088 and $0.89, respectively and for December 31,
1995 would have been $14,116,842 and $0.84, respectively.

The fair value of options granted during the years ended December 31,
1996 and 1995 for employee services were estimated on the date of grant
using the Black-Scholes Pricing Model with the following weighted average
assumptions: risk-free interest rate of between 5.82 and 6.65 percent,
expected life of between 3 and 8 years, expected volatility of 69 percent
and no dividends. There were no options granted for other than employee
services.

F-13
37

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Company's stock option plans as of
December 31, 1996 and 1995 and the changes during the years then ended is
presented below:

WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- --------------

Outstanding at December 31, 1994 . . . . . . . . . 1,546,800 $ 3.62
Granted . . . . . . . . . . . . . . . . . . . . . 717,154 1.51
Canceled . . . . . . . . . . . . . . . . . . . . . (208,523) 3.43
Exercised . . . . . . . . . . . . . . . . . . . . --- ---
---------
Outstanding at December 31, 1995 . . . . . . . . . 2,055,431 2.90
Granted . . . . . . . . . . . . . . . . . . . . . 600,102 4.42
Canceled . . . . . . . . . . . . . . . . . . . . . (294,129) 3.52
Exercised . . . . . . . . . . . . . . . . . . . . (192,640) 3.07
---------
Outstanding at December 31, 1996 . . . . . . . . . 2,168,764 $ 3.22

December 31, 1996 December 31, 1995
----------------- -----------------

Weighted-average fair value of options granted
during the period at an exercise price equal to
market at issue date . . . . . . . . . . . . . . . $ 2.72 $ 0.88

The following tables summarize information about the Company's stock
options outstanding as of December 31, 1996 and December 31, 1995,
respectively:

Weighted
Weighted Average Weighted
Options Average Exercise Options Average
Option Outstanding Remaining Price of Exercisable Exercise Price
Exercise Price as of 12/31/96 Contractual Life Outstanding as of 12/31/96 of Exercisable
-------------- -------------- ---------------- ----------- -------------- ----------------

$1.31 - $3.50 1,238,673 4.39 $2.18 727,483 $2.56

$3.56 - $5.36 930,091 6.53 $4.61 241,750 $4.94
--------- -------
$1.31 - $5.36 2,168,764 5.31 $3.22 969,233 $3.15

F-14
38

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Weighted Weighted Weighted
Options Average Average Options Average
Option Outstanding Remaining Exercise Price Exercisable Exercise Price
Exercise Price as of 12/31/95 Contractual Life of Outstanding as of 12/31/95 of Exercisable
-------------- -------------- ---------------- -------------- -------------- ---------------

$1.31 - $3.50 1,463,029 5.10 $2.21 477,225 $3.12

$3.59 - $5.36 592,402 3.32 $4.60 208,833 $4.58
---------- --------

$1.31 - $5.36 2,055,431 4.59 $2.90 686,058 $3.56

The fair value of warrants issued during the years ended December
31, 1996 and 1995 for other than employee services were estimated on
the date of grant using the Black-Scholes Pricing Model with the
following weighted average assumptions: risk-free interest rate of
6.06 percent, expected life of 5 years, expected volatility of 69
percent and no dividends.

The following table summarizes the status of the Company's warrants as of
December 31, 1996 and 1995, and changes during the periods then ended is
presented below:

WEIGHTED-AVERAGE
WARRANTS EXERCISE PRICE
-------- --------------

Outstanding at December 31, 1994 . . . . . . . . . 4,712,066 $ 7.78
Issued . . . . . . . . . . . . . . . . . . . . . . --- ---
Forfeited . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . (373,633) 3.50
Reissued . . . . . . . . . . . . . . . . . . . . . 373,633 3.50
---------
Outstanding at December 31, 1995 . . . . . . . . . 4,712,066 7.78
Issued . . . . . . . . . . . . . . . . . . . . . . 844,097 3.89
Forfeited . . . . . . . . . . . . . . . . . . . . --- ---
Canceled . . . . . . . . . . . . . . . . . . . . . (124,732) 3.93
Exercised . . . . . . . . . . . . . . . . . . . . (57,274) 3.50
Reissued . . . . . . . . . . . . . . . . . . . . . 116,384 3.88
---------
Outstanding at December 31, 1996 . . . . . . . . . 5,490,541 $ 7.23

DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------

Weighted-average fair value of warrants issued during
the year ended at an exercise price equal to market
price at issue date . . . . . . . . . . . . . . . $0.00 $0.00

Weighted-average fair value of warrants issued during
the year ended at an exercise price less than market
at issue date . . . . . . . . . . . . . . . . . . $2.26 $0.00

Weighted-average fair value of warrants issued during
the year ended at an exercise price greater than
market at issue date . . . . . . . . . . . . . . . $2.17 $0.00

F-15
39

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The warrants shown above were issued in connection with equity
transactions of the Company and, therefore, there is no effect on net
income.

During December 1996, the Compensation and Personnel Committee of the
Board of Directors authorized the extension of options originally granted
for a five year period to ten years upon election by individual option
holders. No elections were made in 1996 and when such elections are made
in 1997, may result in compensation expense being recorded for any
difference between the original option exercise price and fair market
value on the effective date of the election.

(4) INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109, 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 carry forwards. 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.

At December 31, 1996 and 1995, the net deferred tax asset totaled
approximately $22,000,000 and $15,355,000, respectively, and was fully
reserved. The Company did not incur any tax expense in any year due to
operating losses.

At December 31, 1996, 1995 and 1994, the Company had net operating loss
carry forwards of approximately $45,496,000, $28,292,000 and $19,411,000,
respectively, for federal income tax return purposes. Utilization of the
Company's net operating loss carry forwards is subject to certain
limitations due to specific stock ownership changes which have occurred
or may occur. To the extent not utilized, the carry forwards will expire
during the years beginning 2002 through 2011.

(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following:

December 31,1996 December 31, 1995
---------------- -----------------

Laboratory and office equipment $ 4,079,728 $ 3,827,643
Leasehold improvements 3,701,772 3,701,772
----------- -----------
7,781,500 7,529,415
Less accumulated depreciation and amortization (4,323,488) (3,746,586)
----------- -----------
$ 3,458,012 $ 3,782,829
=========== ===========

F-16
40

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) COMMON STOCK RESERVED

The Company has reserved common stock for issuance as of December 31,
1996 as follows:

Stock option plans 3,064,027
Agreement with Genentech, Inc. 285,715
Warrants issuable under the Genentech Agreement 142,858
Warrants outstanding 5,490,541
Underwriters purchase options and related warrants 710,000
IPI acquisition (contingent shares) 1,000,000 (See note 14)
----------
Total shares reserved 10,693,141
==========

LG Chem has the option to purchase up to $5 million of common stock on
one of four exercise dates ending at December 31, 1997. The minimum
purchase amount is $1,000,000 and LG Chem and TBC must agree on the
purchase price or the option cannot be exercised on the given exercise
date. As of March 4, 1997, the Board of Directors approved an additional
1.1 million in Common Stock issuable pursuant to the stock option plans,
subject to the approval of stockholders at the annual meeting on May 6,
1997, which would be in addition to the reserved shares shown. See (note
16)

(7) CLINICAL RESEARCH AGREEMENTS

On February 10, 1995, the Company entered into an agreement with Coromed,
Inc., a contract research organization, to coordinate the clinical
evaluation of NOVASTAN(R) as an adjunct to streptokinase in acute
myocardial infarction. Coromed is responsible for managing all aspects
of the clinical trial and making all financial remuneration to testing
sites. The term of the agreement is 19 months, subject to extension upon
the mutual written agreement of both parties. The parties have agreed to
a total budget of approximately $3,196,000. Of this amount, $106,000 was
paid upon execution of a letter of intent and approximately $450,000 was
paid upon execution of the agreement. Subsequent payments will be made
monthly on a per patient basis, to a maximum total of approximately
$2,490,000. Three additional payments of $50,000 each will be made upon
completion of specified tasks by Coromed. If the clinical trial is
completed in less than 19 months, the Company will pay Coromed a bonus
calculated as a percentage of personnel costs as set forth in the budget,
to a maximum bonus amount of approximately $327,000. In addition, the
Company has engaged Coromed to provide various services related to other
ongoing NOVASTAN(R) trials being conducted by the Company.

On May 1, 1996, the Company amended the above agreement with Coromed,
Inc. The term of the contract was extended to 24 months with an
additional cost of $1,200,000. The bonus payment, if any, is now based
on the completion in less than 24 months.

On April 1, 1995 the Company entered into an agreement with Coromed, Inc.
for data management services for the clinical trial related to use of
NOVASTAN(R) in patients with Heparin-Induced Thrombocytopenia ("HIT").
The term of the agreement is 17 months, subject to extension upon the
mutual written agreement of both parties. The parties have agreed to a
total budget of $245,295. Of this amount, $24,530 was paid upon
execution of the contract. Subsequent payments will be paid upon
completion of certain tasks. In addition, the Company has engaged
Coromed to provide various services related to other ongoing NOVASTAN(R)
trials being conducted by the Company.

On June 1, 1995, the Company entered into an agreement with Coromed,
Inc., to coordinate the clinical evaluation of NOVASTAN(R) as an adjunct
to t-PA in acute myocardial infarction. Coromed is responsible for
managing all aspects

F-17
41

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the clinical trial and making all financial remuneration to testing
sites. The term of the agreement is 16 months, subject to extension upon
the mutual written agreement of both parties. The term of the contract
expired on October 1, 1996, however, the trials are still ongoing and the
terms of the contract remain in effect. The parties have agreed to a
total budget of $961,659. Of this amount, $44,000 was paid upon
execution of a letter of intent and $138,566 was paid upon execution of
the agreement. Subsequent payments will be made monthly on a per patient
basis, to a maximum total of approximately $734,000. Three additional
payments of $15,000 each will be made upon completion of specified tasks
by Coromed. If the clinical trial is completed in less than 13 months,
the Company will pay Coromed a bonus calculated as a percentage of
personnel costs as set forth in the budget, to a maximum bonus amount of
approximately $45,000.

On July 1, 1995 the Company entered into an agreement with Coromed, Inc.
for program management services and clinical monitoring services for a
clinical trial comparing the efficacy and safety of NOVASTAN(R) versus
Arvin(R) in patients with Heparin-Induced Thrombocytopenia ("HIT") or
Heparin-Induced Thrombocytopenia and Thrombosis Syndrome ("HITTS"). The
original term of the agreement was 15 months, and was extended until
March 31, 1997. The parties have agreed to a total budget of $409,270
including the extension. Of this amount, $30,000 was paid upon execution
of a letter of intent. Subsequent payments will be paid upon completion
of certain tasks.

(8) RESEARCH AGREEMENTS

During September 1993, IPI entered into an agreement to provide research
and development services, over a period of 30 months, to EISAI Co., LTD
("EISAI"). The agreement guaranteed $3,900,000 in contract research
funding and allowed for additional amounts to be received upon the
attainment of certain milestones. In addition, the contract provided for
an extension for up to two additional years at the sole discretion of
EISAI, if TBC received written notification from EISAI in September 1995.
EISAI did not send written notification extending the contract. The
agreement provides for payment of royalties under certain conditions. As
of December 31, 1995, the total $3,900,000 in contract payments had been
received, of which approximately $400,000 was included in current
deferred revenue at December 31, 1995. On August 10, 1995, IPI received
a $2,000,000 milestone payment from EISAI, which was recognized as income
in the third quarter. In conjunction with the agreement, IPI remunerated
a former director of the Company as a third party consultant under an
agreement which provides for compensation based upon cash received from
EISAI pursuant to the EISAI agreement. The agreement expired in March
1996.

On October 11, 1994, the Company signed a collaborative agreement with
Synthelabo, a French pharmaceutical group, to develop and market
compounds for vascular proliferative disease derived from the Company's
research programs. Upon consummation of the transaction, Synthelabo
purchased 1,428,571 shares of Common Stock for $3.50 per share for a
total of $5 million becoming the Company's largest shareholder at that
time and paid the Company a non-refundable licensing fee of $3 million.
In addition, Synthelabo committed to pay $3 million annually in research
payments (payable in quarterly installments of $750,000). Beginning
October 31, 1996, the parties to the agreement have agreed to revise the
payment for the third year to be $750,000 which has already been paid.
No such payments will be made in 1997. Synthelabo has agreed, upon the
achievement of certain milestones, to make further payments of up to $3
million per year for up to $18 million in total. Synthelabo has the
right to terminate the agreement any time on or after October 15, 1997
for any reason and either party has the right to terminate the contract
for breach of any material obligation. If Synthelabo exercises this
termination right, the license granted to Synthelabo will terminate and
TBC will pay Synthelabo a royalty on net sales of any products sold in a
certain territory (Europe, Middle East, Africa and countries of the
former Soviet Union) for a period of time. In addition, Synthelabo may,
at its option, require that the technology be transferred to and the
development program be conducted by a joint venture owned by TBC and
Synthelabo should "net worth", as defined in the agreement, be less than
$5 million as of the end of any calendar quarter during the term of the
agreement. For the years ended

F-18
42

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1995 and December 31, 1996, TBC received $3 million related
to the Synthelabo agreement. Synthelabo will pay royalties to TBC based
on the net sales in those areas covered in the agreement. In exchange
for the above consideration, Synthelabo will receive an exclusive license
to manufacture, use, and sell any products generated from the research,
in Europe, the Middle East, Africa and the countries of the former Soviet
Union. The first quarterly research payment of $750,000 was received on
October 31, 1994, of which $500,000 was recognized in 1994. During the
year ended December 31, 1996, research payments of $3,000,000 were
received of which $2,625,000 was recognized as income during the year.
Synthelabo amended the contract effective on November 1, 1996 noting that
the November 1996 research payment of $750,000 would be for research
conducted during the period of November 1, 1996 through October 31, 1997.
As of December 31, 1996, $625,000 is included in current deferred
revenue. Synthelabo will pay royalties to TBC, based on the net sales,
in those geographic areas covered in the agreement.

During 1995, the Company and Synthelabo mutually agreed to exchange
certain clinical data. During 1996, the Company signed two agreements
with Synthelabo with respect to the supply of information related to
certain clinical studies. Over the term of the agreements as certain
milestones are met, Synthelabo has committed to pay TBC up to
$2,920,000. These payments are dependent on rate of enrollment in
certain clinical studies, the completion of certain clinical studies and
date of completion of certain clinical studies. As of December 31, 1996,
TBC has recognized approximately $2.3 million of revenue related to these
agreements. Synthelabo is the licensee for NOVASTAN(R) in certain
territories other than those which were sublicensed to TBC.

On October 10, 1996, the Company signed a strategic alliance agreement
with LG Chem, a Korean corporation, to develop and market compounds
derived from the Company's Endothelin Receptor and Selectin Antagonist
for certain disease indications. Upon consummation of the transaction,
LG Chem purchased 1,250,000 shares of common stock for $4.00 per share
for a total of $5 million. In addition, LG Chem has committed to pay
$10.7 million in research payments. Of this amount, $100,000 will be
paid on or before December 31, 1996, $1.0 million will be paid on each
of June 30 and December 31 of 1997, 1998, 1999 and 2000, and $1.3
million on June 30 and December 31, 2001. LG Chem has the right to
terminate future research payments if TBC fails to meet certain
Agreement milestones, which milestones will be established by the
parties in accordance with the agreement. LG Chem will pay royalties to
TBC, based on net sales, in those geographic areas covered by the
agreement, which include Korea, China, India and certain other Asian
countries, excluding Japan. The Company will pay its agents in the
contract negotiations, a commission on all future research payments as
well as a royalty on net sales.

(9) LICENSE AGREEMENT

F-19
43
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

being met by TBC. As of December 31, 1995, TBC had not met certain of those
goals. However, Mitsubishi has agreed to withhold its rights to terminate the
license with Genentech if the NDA is filed by June 30, 1997, and if TBC
accomplishes the following milestones: (i) on or before December 31, 1996, TBC
shall have met certain enrollment guidelines for certain NOVASTAN(R) clinical
trials; (ii) on or before March 31, 1997, TBC shall complete, report and
analyze certain other NOVASTAN(R) clinical trials; (iii) on or before September
30, 1997, TBC shall have agreed to proceed with the Phase III trial in AMI, and
(iv) TBC shall comply with certain reporting and information meeting
requirements. If these milestones are not met, Mitsubishi will retain the
rights to terminate the Genentech license; provided, that if such termination
results from TBC's violation of the milestone described in (iii) above, TBC
will receive a license from Mitsubishi in the field of HIT/HITTS on the same
terms, as presently included in the Genentech Agreement. As of December 31,
1996, TBC had not met certain of these goals and to date, Mitsubishi has not
asserted its rights to terminate the license arising out of this default.
Either party may terminate the Genentech 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 attachment. The Genentech Agreement is also subject to the
continuation of Genentech's license agreement with Mitsubishi, which is only
terminable if Genentech defaults in its material obligations under the
agreement, declares bankruptcy or is insolvent, or if a substantial portion of
its property is subject to attachment. Unless terminated sooner pursuant to
the above described termination provisions, the Genentech Agreement is expected
to expire in June 2007. Under the Genentech Agreement, TBC has access to an
improved formulation patent granted in 1993 which expires in 2010 and a use
patent which expires in 2009.

Mitsubishi further agreed to supply the Company with its requirements of
NOVASTAN(R) throughout the term of the Genentech Agreement for TBC's clinical
testing and commercial sales of NOVASTAN(R) in the United States and Canada.
In the event Mitsubishi should discontinue the manufacture of NOVASTAN(R),
Mitsubishi, Genentech and TBC have agreed to discuss in good faith the means by
which, and the party to whom, NOVASTAN(R) production technology will be
transferred. The transferee may be a person or entity other than Genentech or
TBC. At present, Mitsubishi is the only manufacturer of NOVASTAN(R). Should
Mitsubishi terminate or default in its supply commitment, there can be no
assurance that alternate sources of bulk NOVASTAN(R) will be available to the
Company at reasonable cost, if at all. If such alternate sources of supply are
unavailable or uneconomic, the Company's results of operations would be
materially and adversely affected.

In exchange for the license to Genentech's NOVASTAN(R) technology, TBC issued
Genentech 285,714 shares of Common Stock and agreed to issue (i) an additional
214,286 shares of Common Stock to Genentech within 10 days after the filing of
the first New Drug Application ("NDA") with the FDA for NOVASTAN(R), and (ii)
an additional 71,429 shares of Common Stock to Genentech within 10 days after
the FDA's first approval of an NDA for NOVASTAN(R). The Company has also
agreed to grant Genentech a warrant to purchase an additional 142,858 shares of
Common Stock at an exercise price of $14.00 per share, subject to adjustment,
within ten days of the filing of the first NDA for NOVASTAN(R) with the FDA.
If the Company is unable to issue any of the additional shares of Common Stock
or the warrant to Genentech due to circumstances beyond the Company's control,
the Company has agreed to pay Genentech, in lieu thereof, an amount equal to
the value of the securities plus interest from May 27, 1993 at the prime rate
plus one percent, compounded annually. The value of the Common Stock is deemed
to be $7.00 per share, which represents the cash consideration the Company will
be obligated to pay to Genentech as liquidated damages, and the value of the
warrants is to be determined by appraisal, based on the warrants' market value.
The Company will not be required to make any cash payment if both of the filing
and approval of the NDA do not occur. TBC has also granted Genentech demand
and piggyback registration rights with regard to shares of Common Stock issued
to Genentech.

F-20
44

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the Genentech Agreement, a consultant involved in
negotiations related to the Agreement will receive a royalty on net sales
of licensed products.

(10) 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 $9,500 per employee in 1996. At the
present time, no matching contributions have been authorized by the Board
of Directors. Costs associated with administering the plan totaled
approximately $10,000 in 1996. During 1995, the existing 401(k) plan of
ImmunoPharmaceutics, Inc. was merged into the Texas Biotechnology
Corporation plan.

(11) CONSOLIDATION OF IMMUNOPHARMACEUTICS, INC.

The Company decided to consolidate the IPI operation into TBC's in the
first half of 1996. The Company believes the goodwill associated with IPI,
$643,750, was impaired due to the decision to cease operations at IPI and
the sale of the QED business unit and has charged it to expense in the
year ended December 31, 1995. The restructuring costs associated with the
consolidation of the IPI operation were approximately $421,000 and have
been expensed in the three months ended March 31, 1996. This cost
included waste disposal, future lease commitments, severance pay and
related taxes.

(12) COMMITMENTS AND CONTINGENCIES

a) Employment Agreements

Since inception, the Company has entered into employment
agreements with certain officers and key employees. The Company
has signed agreements with five 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 (18) months to three (3) years of annual base salary and
annual bonus if any. The base salary portion of the agreements
would aggregate approximately $1.6 million at 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 (18) months
to three (3) years and reimbursement of certain legal expenses in
conjunction with the agreements. These provisions are intended to
replace compensation continuation provisions of any other
agreement in effect for an officer if the specified event occurs.

(b) Lease Agreements

The Company has renegotiated its noncancelable lease agreement
which began December 1, 1990 for its facilities in Houston, Texas
and executed a new lease agreement. The new lease is effective
January 1, 1995 and calls for a lease term of six years at an
annual rate of $706,663 for 1995 and $712,449 for 1996 through
December 2000 subject to adjustments based on certain variable
building operating expenses. The Company also amended the lease
effective for the period from October 1, 1996 through June 30,
1997 to include additional expansion space for research and
development. For the years ended December 31, 1996, 1995, 1994,
and the period from August 2, 1989 (date of incorporation) to
December 31, 1996, rent and related building services totaled
approximately $1,025,000, $1,218,000, $1,416,000 and $6,969,000,
respectively, of which approximately $924,000, $1,076,000,
$1,225,000 and $5,242,000, respectively, was charged to research
and development expense.

F-21
45

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total committed lease payments from January 1, 1997 through
December 31, 2000 equal $2,849,796. The Company has also
committed to pay for seventy-four parking spaces during the lease
at the facility established rate charged which currently
approximates $45,000 per annum. 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 $250,000
per annum, payable in monthly installments. These charges are
subject to annual adjustments based on the local consumer price
index. Should the Company terminate the use of non-standard
services, an additional amount of up to $4,167 per month shall be
due in addition to base rent on the remaining lease payments
through December 2000. In addition, the lease grants certain
credits to rent and utilities which at December 31, 1996 totaled
approximately $225,000, and which will be amortized on a straight
line basis over the lease term.

The Company leases certain scientific equipment and computer
hardware and software. These have been classified as operating
leases. The future minimum lease payments for noncancelable
equipment leases are $45,310 and $3,776 for the years ended
December 31, 1997 and 1998. For the year ended December 31, 1996
and the period August 1, 1994 through December 31, 1996, lease
expenses totaled $114,321 and $314,246, respectively.

c) Legal Proceedings

On November 21, 1994, a class action shareholders' suit was filed
in the United States District Court for the Southern District of
Texas, Houston Division seeking damages in the amount of $16
million. Plaintiffs are two individuals who purchased shares of
the Company on December 16, 1993 following the Company's initial
public offering. In their complaint, plaintiffs have sued the
Company, and certain members of the board of directors and certain
officers alleging violations of Sections 11, 12 and 15 of the
Securities Act of 1933, as amended (the "Act"). Plaintiffs have
also named David Blech, D. Blech & Co., Incorporated and Isaac
Blech as defendants. On January 23, 1995, the Company and the
members of the board of directors filed a motion to dismiss the
plaintiffs' complaint pursuant to Rule 9(b) and Rule 12b(6) of the
Federal Rules of Civil Procedure. In addition, defendant John
Pietruski, Chairman of the Board of Directors, filed a motion to
dismiss the plaintiffs' complaint pursuant to Rule 12(b)(2) of the
Federal Rules of Civil Procedure. On February 7, 1995, the
plaintiffs filed a motion for class certification. The Court
denied the motion by the Company and by John Pietruski.

On March 28, 1995, a second class action shareholders' suit was
filed in the United States District Court for the Southern
District of New York seeking unspecified damages. Plaintiffs are
eight individuals who purchased shares in various companies for
which D. Blech & Co. acted as an underwriter (or co-underwriter)
or marketmaker. In their complaint, the plaintiffs have sued the
Company alleging violations of Section 10(b) of the Securities
Exchange Act of 1934, as Amended (the "Exchange Act") and Rule
10b-5 promulgated thereunder by the Securities and Exchange
Commission (the "Commission"). Plaintiffs have named a number of
defendants, including David Blech and D. Blech & Co., four
individuals, two brokerage firms, one investment management
company and ten other companies for which D. Blech & Co. acted as
underwriter or marketmaker.

F-22
46

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consideration of similar motions to dismiss filed by those
companies. All of these motions were presented to the Court on
February 6, 1996. On June 6, 1996, the New York District Court
entered two memorandum opinions in the consolidated cases. In one
of its opinions, the Court dismissed all of the Exchange Act and
common law fraud claims filed against the Company and its officers
and directors, but afforded those plaintiffs the right to attempt
to preserve those claims by repleading them. The Court ordered
that those claims be repleaded no later than July 26, 1996.
Plaintiffs did not replead those claims by the deadline, resulting
in the dismissal of all claims against the Company in that
litigation. In its opinion in the second case, i.e., the case
filed on November 21, 1994, the Court granted the Company and its
officers and directors' motion for reconsideration, but together
with all other similar pending motions, denied the requested
relief. Pursuant to the court's order, the Company therefore
filed an answer in that case. The Company also filed a Motion
seeking leave of court to prosecute an immediate appeal of the
Court's denial of the Company's Motion to Dismiss. The Court
heard argument on that Motion on October 10, 1996. The motion was
denied on January 16, 1997. Given the early stage of that case,
which is the only remaining shareholder litigation against the
Company, the Company is unable to evaluate its potential outcome
at this time. The Company disputes these claims and intends to
contest them vigorously.

(13) SHORT TERM NOTE RECEIVABLE

On April 12, 1994, the Company loaned $350,000 to D. Blech and Company,
Incorporated in exchange for a non-interest bearing promissory note of
even amount. The loan represents advance payment of a success fee
pursuant to a consulting agreement with D. Blech and Company,
Incorporated payable in connection with the IPI acquisition (note 14).
As of December 31, 1996, $227,500 of the fee had been earned. The
remaining amount of the note will be considered earned as fees upon
issuance of the remaining Company stock related to the IPI acquisition
upon the satisfaction of the conditions to issuance. Any amount not
earned will be due and payable on the day following the date the
conditions cannot be met or June 18, 1997.

(14) ACQUISITION OF IMMUNOPHARMACEUTICS, INC.

On July 25, 1994, the Company acquired all of the outstanding common
stock of IPI in exchange for common stock of the Company. TBC issued (i)
1,599,958 shares of common stock which was distributed to the existing
IPI shareholders, (ii) 999,956 shares of common stock, issued in the
names of IPI shareholders that was held in escrow pending satisfaction of
certain research and development milestones and released from escrow on
June 30, 1995, and (iii) contingent stock issue rights to issue an
aggregate of 1,400,000 shares of common stock, the conversion of which is
pending satisfaction of research and development milestones, in exchange
for all the issued and outstanding shares of IPI (after conversion of the
IPI Series A and Series B preferred stock and all options and warrants).
On June 30, 1995, the Company issued 399,961 shares pursuant to the
contingent stock issue rights, upon attainment of certain research and
development milestones.

The acquisition of IPI was accounted for under the purchase method of
accounting. The aggregate purchase price (consisting of the fair value
of non-contingent TBC shares issued, transaction expenses and liabilities
assumed) was allocated to the tangible and intangible assets acquired
based on their estimated fair value as of the date of the acquisition.
The common stock issued on July 25, 1994 was valued at $3.63 per share
which was derived by discounting the value of the TBC shares without the
attached warrant on July 25, 1994. The common stock issued on June 30,
1995 and the common stock released from escrow was valued at $1.41 per
share which was derived by discounting the value of the TBC shares on
June 30, 1995. During the second quarter of 1995, the Company charged
$1,973,883 to in-process research and development expense which
represented the value of the 1,399,917 shares of TBC common stock
(including 999,956 shares released from escrow and 399,961 shares issued
pursuant to the

F-23
47

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

contingent stock issue rights) given as consideration for acquired
technology. The value of the remaining shares issuable upon conversion
of the contingent stock issue rights will be determined when the research
and development milestones are met by IPI, if ever, and additional
in-process research and development expense will be recorded at such
time. As of December 31, 1996, the Company had determined that the
contractual requirements for issuance of additional shares pursuant to
the contingent stock issue rights had not been met. The Company has
received notification from the committee representing former IPI
shareholders that it does not agree with this determination. Any
further discussion would be by arbitration pursuant to the Acquisition
Agreement.

The following is an allocation of the purchase price to the tangible and
intangible assets acquired based on their estimated fair value as of the
date of the IPI acquisition:

Common stock issued to IPI shareholders on July 25, 1994 $ 5,807,848
Common stock released from escrow on June 30, 1995 1,409,938
Common stock issued pursuant to contingent stock issue
rights on June 30, 1995 563,945
Costs and expenses of acquisition 461,368
Liabilities assumed 1,738,238
------------
Total purchase price $ 9,981,337
============

Current assets $ 457,263
Equipment, furniture and fixtures and leasehold improvements 308,464
Intangible assets 750,000
In-process research and development 8,465,610
------------
$ 9,981,337
============

The Company consolidated the IPI operation into TBC's in the first half
of 1996. The overall financial impact on the Company's performance was
positive in 1996 due to the reduction in general and administrative
expenses and the elimination of some research and development positions
associated with IPI. The Company believes the goodwill associated with
IPI, $643,750, is impaired due to the decision to cease operations at IPI
and the sale of the QED business unit and has charged it to expense in
the year ended December 31, 1995. The restructuring costs associated
with the consolidation of the IPI operation were approximately $421,000
and have been expensed in 1996. The costs included waste disposal,
future lease commitments, severance pay and related taxes.

(15) ASSET SALE

On October 2, 1995, IPI sold the assets of a division, QED, which
manufactures and sells monoclonal antibodies. The buyer was QED
Bioscience, Inc., a California corporation ("QEDB"), owned by Dr. Edward
T. Maggio, two former IPI employees and two other individuals. Dr.
Maggio is also an officer of QEDB. The sale agreement restricts the
activities that Dr. Maggio can perform as an officer and shareholder of
QEDB as long as he is an employee of the Company. The Company received
$150,000 in cash, payment for certain prepaid items and inventory and
royalties of $30,000, in total, to be paid at the rate of $10,000 per
year. Five IPI employees that were assigned to QED resigned and are now
employed by QEDB. The divestiture of the QED assets will have no
material future impact on the operations of the Company.

During the fourth quarter of 1996, the Company concluded an agreement
with Structural BioInformatics, Inc. ("SBI"), wherein the Company
received 468,334 shares of common stock of SBI in exchange for certain
assets and use of a portion of facilities and equipment. The common
stock was valued at $59,591 which is comprised of

F-24
48

TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$25,997 in net book value of assets given up and $33,594 representing the
value of facilities and equipment use provided. Pursuant to the
agreement, the Company has the right to certain databases developed by
SBI. Dr. Maggio is an officer of SBI.

(16) SUBSEQUENT EVENTS (UNAUDITED)

F-25
49
INDEX TO EXHIBITS

Exhibit No Description of Exhibit
---------- ----------------------

2.1 (8)* Plan and Agreement of Merger, dated June 17, 1994, among the
Company, TBC Acquisition Company No. 1 and certain major
shareholders of ImmunoPharmaceutics, Inc.

2.2 (9) Common Stock Purchase Agreement between the Company and
Sylamerica, Inc., a Subsidiary of Synthelabo S.A. dated
October 11, 1994 (the "Purchase Agreement") and Disclosure
Schedule

3.1 (1) Certificate of Incorporation, as amended

3.2 (1) By-laws, as amended

3.3 (1) Amendment to Article IV of By-laws

3.4 (10) Amendment to the Certificate of Incorporation dated
November 30, 1993

3.5 (10) Amendment to the Certificate of Incorporation dated
May 20, 1994

3.6 (18) Certificate of Amendment of Certificate of Incorporation

3.7 (19) Amended and Restated By-laws of Texas Biotechnology Corporation

4.1 (1) Article II of the By-laws

4.4 (1) Agreement with Dr. James T. Willerson dated March 6, 1990

4.5 (1) Agreement with Dr. Richard Dixon dated February 23, 1990

4.6 (7) Form of Warrant Agreement (with Form of Warrant)

4.7 (7) Form of Underwriter's Unit Purchase Options

10.3 (1) Employment Agreement with Dr. Richard A. F. Dixon dated
July 15, 1990

10.4 (1) Consulting Agreement with Dr. James T. Willerson dated
January 1, 1990

10.6 (1) Consulting Agreement with Mr. John M. Pietruski dated
January 1, 1992

10.11 (2) Employment Agreement with David B. McWilliams dated
July 15, 1992

10.12 (3) Consulting Agreement with Hennessey & Associates, Ltd.

10.17 (4)(5)* Sublicense and License Agreement dated May 27, 1993 between
Company and Genentech, Inc., together with exhibits

10.18 (4)* Stock Agreement dated May 27, 1993 between the Company and
Genentech, Inc.

10.19 (4) Technology License Agreement dated June 1, 1993 between the
Company and University of Houston- University Park

10.25 (6) Consulting Agreement dated August 1, 1993, between the
Company and D. Blech & Company, Incorporated

10.27 (9)* License and Research and Development Agreement between the
Company and Synthelabo S.A. dated October 11, 1994 (the
"License Agreement"), Schedule 1 - Patent Applications,
Schedule 1.27 - Territories, and Schedule 3.2(c) - Work Plan
for the Company's Restenosis Program

- Schedule 1 - Patent Applications.

- Schedule 1.27 - Territories.

- Schedule 3.2(c) - Work Plan for the Company's Restenosis
Program.

10.28 (11)* Agreement between ImmunoPharmaceutics, Inc. And EISAI Co., LTD

- Exhibit A-1 - Work plan timelines.

- Exhibit A-2 - Project research proposal.

- Exhibit B - Proposed EISAI Additional Research Payment.

- Exhibit C - Royalty terms.

- Exhibit D - Principal License Terms.

- Exhibit E - List of the Countries in Asia.

- Exhibit F - Personnel Allocation

10.31 (12) Lease Agreement dated, February 24, 1995 between Texas
Biotechnology Corporation and Doctors Center, Inc.

10.33 (12) Amended and Restated 1990 Incentive Stock Option Plan

10.34 (12) Amended and Restated 1992 Incentive Stock Option Plan (as of
March 3, 1995)

10.36 (12) Employment Agreement, dated February 7, 1995 between Richard
P. Schwarz Jr., Ph.D. and Texas Biotechnology Corporation

10.38 (13) Clinical Trial Research Agreement dated February 10, 1995
between Texas Biotechnology Corporation and Coromed, Inc.

10.39 (14) Amended and Restated Stock Option Plan for Non-Employee
Directors

10.40 (14) 1995 Stock Option Plan

10.42 (16) Clinical Trial Research Agreement dated April 1, 1995 between
Texas Biotechnology Corporation and Coromed, Inc.

10.43 (16) Clinical Trial Research Agreement dated June 1, 1995 between
Texas Biotechnology Corporation and Coromed, Inc.

10.44 (16) Clinical Trial Research Agreement dated July 1, 1995 between
Texas Biotechnology Corporation and Coromed, Inc.

10.45 (15)* Extension Agreement between the Company, Genentech, Inc.
and Mitsubishi Chemical Corporation dated as of June 30, 1995
(the "Extension Agreement").

10.46 (16) Employee Agreement with Stephen L. Mueller and Texas
Biotechnology Corporation dated July 1, 1995.

10.47 (16) Employee Agreement with David B. McWilliams and Texas
Biotechnology Corporation dated July 1, 1995.

10.48 (16) Employee Agreement with Richard A. F. Dixon, Ph.D. and Texas
Biotechnology Corporation dated July 1, 1995.

10.49 (16) Employee Agreement with Richard P. Schwarz, Jr., Ph. D. and
Texas Biotechnology Corporation dated July 1, 1995.

10.50 (16) Employee Agreement with Joseph M. Welch and Texas
Biotechnology Corporation dated July 1, 1995.

10.51 (17)* Letter Agreement regarding Argatroban Studies Information
dated December 14, 1995, between the Company and Synthelabo
Recherche

10.52 (17) Amendment B to Clinical Trial Research Agreement dated
February 10, 1995 between Texas Biotechnology Corporation
and Coromed Inc.

10.53 (18) Letter of Understanding between Texas Biotechnology
Corporation and Mitsubishi Chemical Corporation dated
July 10, 1996

10.54 (18) Form of Indemnification Agreement between Texas Biotechnology
Corporation and its officers and directors dated May 3, 1996

10.55 (18) Amended and Restated 1995 Non-Employee Director Stock Option
Plan (as amended by the Board of Directors on June 30, 1996)

10.56 (19)* Strategic Alliance Agreement between Texas Biotechnology
Corporation and LG Chemical, Ltd. dated October 10, 1996

10.57 (19) Common Stock Purchase Agreement between Texas Biotechnology
Corporation and LG Chemical, Ltd. dated October 10, 1996

10.58 Third Amendment dated January 1, 1997 to Consulting Agreement
with John M. Pietruski dated January 1, 1992.

10.59 Amendment to License and Research and Development Agreement
between the Company and Synthelabo S.A.

23.1 Independent Auditors' Consent

27.1 Financial Data Schedule

- -----------------

* 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.

(1) Filed as an exhibit to the Company's Form 10 (File No. 0-20117) effective
June 26, 1992 (as amended) and incorporated herein by reference.

(2) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended June 30, 1992 and incorporated herein by reference.

(3) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended September 30, 1992 and incorporated herein by reference.

(4) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended June 30, 1993 and incorporated herein by reference.

(5) Filed as an exhibit to the Company's Form 10-Q/A-1 (File No. 0-20117) for
the quarter ended June 30, 1993 and incorporated herein by reference.

(6) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for the
quarter ended September 30, 1993 and incorporated herein by reference.

(7) Filed as an exhibit to the Company's Form S-1 registration statement
(File No. 0-20117) effective December 15, 1993 (as amended) and
incorporated herein by reference.

(8) Filed as an exhibit to the Company's Form 8-K (File No. 0-20117) filed
with the Securities and Exchange Commission (the "Commission") on October
5, 1994 (as amended) and incorporated herein by reference.

(9) Filed as an exhibit to the Company's Form 8-K/A (File No. 0-20117) filed
with the Commission on March 13, 1995 (as amended) and incorporated herein
by reference.

(10) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) filed
with the Commission on November 14, 1994.

(11) Filed as an exhibit to the Company Form 10-Q/A-1 (File No. 0-20117) for
the quarter ended September 30, 1994 filed with the Commission on March
13, 1995.

(12) Filed as an exhibit to the Company's Form 10-K (File No. 0-20117) for
the year ended December 31, 1994 and incorporated herein by reference.

(13) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for
the quarter ended March 31, 1995 and incorporated herein by reference.

(14) Filed as an exhibit to the Company's Form 10-Q (File No. 0-20117) for
the quarter ended June 30, 1995 and incorporated herein by reference.
52
(15) Filed as an exhibit to the Company's Form 8-K (File No. 1-12574)
initially filed with the Securities and change Commission on October 6,
1995 and incorporated herein by reference.

(16) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for
the quarter ended September 30, 1995 and incorporated herein by reference.

(17) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for
the quarter ended March 31, 1996 and incorporated herein by reference.

(18) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for
the quarter ended June 30, 1996 and incorporated herein by reference.

(19) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for
the quarter ended September 30, 1996 and incorporated herein by reference.