BUSINESS

Overview

        Momenta is a biotechnology company specializing in the detailed structural analysis and design of complex sugars for the development of improved versions of existing drugs, the development of novel drugs and the discovery of new biological processes. We are also utilizing our ability to sequence sugars to create technology-enabled generic products. Through detailed analysis of the molecular structure of complex sugars, our proprietary technology provides a more complete understanding of the roles that sugars play in cellular function, disease and drug action. Based on our understanding of complex sugars, we have developed a diversified pipeline of novel discovery and development candidates and near-term product opportunities. Our business strategy is to utilize near-term product opportunities to provide a funding source for our discovery and development programs. Over the long term, we expect to generate value by leveraging our understanding of sugars to create novel therapeutics which address critical unmet medical needs in a wide range of disease areas including oncology, cardiovascular disease, inflammation and immunology.

        Our most advanced product candidate, M-Enoxaparin, is designed to be a technology-enabled generic version of Lovenox, a LMWH, used to prevent and treat DVT, and treat ACS. Aventis reported worldwide sales of Lovenox to be approximately $1.9 billion in 2003, and analysts project sales to exceed $3.0 billion in 2008. The development of M-Enoxaparin is enabled by our ability to analyze sugars. We believe it will be difficult for others to perform similar analyses. We have formed a collaboration with Sandoz to jointly develop, manufacture and commercialize M-Enoxaparin. In addition, we intend to develop a technology-enabled generic version of Fragmin, another LMWH. Currently, there are no FDA approved generic equivalents of Lovenox or Fragmin.

        We intend to use our technology to improve existing drugs and develop novel drugs. Our novel development opportunities include:

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M118, which is a LMWH specifically designed for the treatment of ACS;



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a technology designed to use specific sugar sequences to improve the non-invasive delivery of therapeutic proteins, such as interferon-beta, erythropoietin, insulin and HGH; and



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capabilities that are designed to enable engineering of complex sugars on therapeutic proteins to improve the efficacy, reduce side effects and modify the dosing frequency of protein drugs.

        Our drug discovery program, which is focused initially in oncology, is designed to leverage our understanding of sugar biology. We believe that we will be able to use this understanding to develop sugar-based drugs and identify specific biological processes and pathways that can be targeted with small molecule or antibody drugs.

Background on Sugars

Overview

        The ability to sequence DNA and proteins enabled the first biotechnology companies to develop breakthrough products. Recent scientific studies have demonstrated that sugars also play fundamental roles in the regulation of biological activity and, consequently, in the cause and treatment of many diseases as well as in drug action. Sugars, together with DNA and proteins, are critical molecules that regulate biological processes and pathways in the human body. Due to the complex molecular structures of sugars and the lack of sophisticated analytical tools and methods required to examine the minute quantities of sugars that occur in nature, sugars have not been well defined or their molecular structures determined. Without being able to identify specific structures, it is not presently possible to monitor how these sugars act in biological organisms. As a consequence, the development of sugar-based drugs to date has been through more of a "trial-and-error" approach. We believe understanding

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the structure, specific function and manner in which complex sugars affect critical biological processes and pathways will provide significant commercial opportunities for drug discovery and development.

        Complex sugars influence fundamental biological processes and pathways, disease onset and progression and drug action. The manner in which a cell produces sugars is critical for normal cell function and communication. Importantly, malfunctions in complex sugar production and the resulting abnormalities in sugar structures have been shown to play a fundamental role in numerous major diseases, such as cancer, cardiovascular disease, inflammatory disease and viral infection.

Biology of Complex Sugars

        Complex sugars exist within, on the surface of and between cells, where they are attached to proteins, lipids, and other biologic molecules. In selected cases, complex sugars exist alone and unattached. Structurally, complex sugars are composed of individual saccharide building blocks, or monosaccharides, that may form linear or branched chains.

        The location of the complex sugar determines the distinct function that it performs:

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Sugars bound to the cell surface.   Complex sugars "coat" the surface of virtually all cells. Cell surface sugars are critical for proper cell function and may act alone or in conjunction with proteins to regulate cell growth, death or the future definition of a cell. In addition, in certain disease states, a cell's sugar coat changes, affecting how the cell perceives its environment and thereby responds to signaling molecules. For example, this can affect how cancerous cells proliferate and spread. Complex sugars at the surface of cells also influence the efficacy and side-effect profile of drugs.



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Sugars present in the extracellular matrix, or between cells.   Complex sugars located between cells help cells communicate with one another to orchestrate complex biologic processes. Tissue generation, wound healing and immune response to viral infection are examples of biological processes regulated by sugars present in the extracellular matrix. Additionally, complex sugars between cells affect diseases, such as asthma and inflammatory bowel disease, by controlling the inflammation process.



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Sugars attached to proteins.   Complex sugars coat proteins that are made by the cell. The sugar coat influences how long the protein remains in the body, where the protein goes and what activity it performs. The sugars that coat a protein thus "fine-tune" the protein's activity and provide an additional level of biological control.

Applications of Complex Sugars in Drug Discovery and Development

        Understanding where sugars are found in the body, as well as their role in selected therapeutics, creates opportunities for complex sugar-based drug discovery and development. In general, there are four major ways in which the knowledge of complex sugars can be applied to develop drugs:

        Complex sugar-based therapeutics.     Complex sugars, either synthesized chemically or isolated from natural sources, can be used as therapeutic drugs. One prominent example is the heparin class of sugars, which exist as heterogeneous mixtures of complex sugar chains extracted from the lining of pig intestines. Heparins are used therapeutically to prevent blood clotting and represented approximately a $2.8 billion worldwide market in 2002. Other complex sugar-based drugs in development include chondroitins for neural injury and pectins for cancer.

        Engineering sugars on therapeutics.     There are three major drug classes that frequently have complex sugar coats: proteins (including antibodies), vaccines and antibiotics. Therapeutic proteins, the vast majority of which contain sugar coats, are a rapidly growing area of the pharmaceutical and biotechnology industries. Worldwide annual sales of therapeutic proteins are estimated to be

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$30.3 billion. Altering the complex sugar coat of a protein can dramatically change the properties of a drug. For example, Amgen, Inc. modified its protein drug, Epogen®, by incorporating additional sugar groups to the protein creating a novel second generation anemia drug, Aranesp®, that has a decreased dosing schedule.

        Complex sugars in small molecule and antibody development.     The fields of genomics and proteomics have resulted in the identification of large numbers of genes and proteins. Understanding only DNA and proteins, however, provides incomplete information about the biological function of these potential drug targets. Identifying appropriate drug targets depends on understanding the sequential interaction of proteins in disease, known as disease pathways. Understanding the role of sugars, which can both activate and regulate these pathways, provides a more complete picture of biology and we believe can create critical new insights for drug discovery.

        Complex sugars as diagnostic and prognostic measures of disease.     Complex sugar patterns on proteins and cells can be used to diagnose disease, and we believe can enable a more accurate determination of the stage of disease and improve disease management. Diseases, such as cancer or inflammation, cause fundamental changes in affected cells, which in turn cause changes in complex sugar structures. These changes in sugars are often detectible earlier in the disease process than are elevations in protein levels, which have been previously used as markers for disease detection. By detecting changes in the sugar patterns, it may be possible to more accurately diagnose disease and determine disease severity with greater sensitivity than conventional protein-based markers.

Challenges to Developing Drugs Based on Complex Sugars

        A number of challenges have inhibited the widespread analysis and application of complex sugars to drug development:

        Structural complexity and information density.     Deciphering the role of complex sugars in promoting or treating human diseases has been challenging given the density of information contained in complex sugars and the lack of sophisticated tools to interpret their information content. Complex sugars have far more information density than DNA and proteins. DNA is comprised of four different bases and proteins can contain 20 different amino acids. The DNA bases and amino acids can be combined to produce 256 possible four-unit DNA structures and 160,000 potential four-unit protein structures, respectively. In comparison, complex sugars, such as heparin, may contain as many as 48 different disaccharide units, resulting in approximately 5.3 million possible four-unit disaccharide combinations. In addition, while proteins and DNA exist only in linear forms, sugars can also exist in branched forms, adding structural complexity and information density.

        Lack of amplification.     DNA and proteins can be easily amplified, or duplicated, in larger quantities for analysis, facilitating simple manipulation and rapid identification of sequences. Complex sugars, however, cannot be amplified due to their structural diversity and the manner in which they are synthesized. Consequently, the analysis of complex sugars requires the development of novel, highly sensitive, analytical tools and technologies that can work with small quantities of material.

        Heterogeneity.     DNA and proteins can be isolated and therefore, studied in pure or homogeneous forms, permitting straightforward analysis. In contrast, most complex sugars exist as heterogeneous mixtures of sugar chains. Current technologies are unable to adequately separate mixtures of sugar chains into individual sugar chains and sequence specific chains or individual saccharide building blocks.

        These limitations have made sugar-based drug research, discovery and development challenging, leading the National Institutes of Health, or NIH, to identify the study of sugars as a key field expected to shape the future of molecular and cellular biology and to devote significant financial resources to create the Consortium for Functional Glycomics.

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Momenta Technology Solution

        We have developed an integrated technology solution that addresses the challenges of creating drugs based on complex sugars. Our technology enables rapid, precise and comprehensive sequencing of complex sugars. Using proprietary enzymes or reagents, we break down structurally complex and information dense sugar chains, including those contained in complex mixtures, into measurable units. Our proprietary analytical techniques and expertise allow us to gather information regarding the components, structure and arrangement of the building blocks in the sugar chains. Our proprietary mathematical methods allow us to integrate the information we obtain from multiple sources into a specific, numerically derived solution describing the specific sugar sequence. The combined sensitivity of all of our analytical techniques allows us to work with very small quantities of material, avoiding the need for amplification.

        The specific elements that make up our proprietary technology include the following:

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Proprietary enzymes/reagents.   We have built a comprehensive library of recombinant enzymes and reagents which function like restriction enzymes and selectively cleave, or cut, complex sugars into distinct patterns to aid in our sequencing. By applying these enzymes and reagents to complex sugar sequences or mixtures, we gain specific knowledge about the basic saccharide units, or building blocks, which make up longer sugar chains as well as the sequence order of the units.



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Sugar-based analytic techniques.   We have taken established analytic methods such as Matrix Assisted Laser Desorption Ionization-Mass Spectrometry, or MALDI-MS, nuclear magnetic resonance, or NMR, and capillary electrophoresis, or CE, and made proprietary modifications to each of these methods enabling improved analysis of complex sugars. These techniques provide critical information about the molecular weight, chemical identity and bonds between complex sugar units.



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Mathematical methods for integrating data.   We employ patent-protected, mathematical methods that integrate the disparate information collected from various analytical techniques. These methods, allow us to interpret data and determine the specific sequences contained in complex sugar chains. These methods utilize a property encoded nomenclature that includes a hexadecimal coding system specifically designed to analyze the dense information content of complex sugars.

        Our proprietary technology has enabled us to rapidly sequence and accurately verify complex sugars in a matter of minutes to hours—a process which previously took years. We apply our various proprietary techniques to a specific complex sugar sample to yield distinct structural information including the sample's molecular weight, composition of its saccharide units, specific linkages and other characteristics. For example, we believe we were the first to rapidly and accurately sequence complex sugar chains comprised of ten saccharide units, which can contain up to 255 million possible combinations. Our approach is to first measure the mass of the sugar using our proprietary MALDI-MS techniques. Through this mass analysis, we can determine the chain length and certain chemical structures of the sugar chain. We utilize various proprietary enzymes to break the sugar chain into smaller units to determine the sequence order of sugar building blocks. We can also apply our proprietary approaches to NMR to ascertain information about the manner in which various sugar building blocks are linked to one another. The various sources of data are integrated using our proprietary mathematical methods, thereby enabling a precise characterization, or sequencing, of the complete structure of a complex sugar chain.

        Our technology has the following features:

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Rapid and accurate sequencing.   Our technology enables rapid sequencing of complex sugars with a high level of accuracy. Previously, sequencing complex sugars containing six or eight saccharide

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units, or building blocks, could take years and the accurate sequencing of longer complex sugars had never been accomplished. Our technology enables sequencing of these sugars in a matter of minutes to hours, and also allows us to sequence sugar chains longer than ten saccharide units.

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Highly sensitive techniques.   Since complex sugars cannot be amplified, or duplicated, for analysis, we have developed techniques that facilitate the analysis of small quantities of biological samples. This enables us to access and analyze blood and tissue samples to identify and link specific sugar structures with their corresponding biological function.



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Comprehensive analysis.   Despite the variability of complex sugars in composition and form, we can identify the detailed sequences and the complete chemical structure of complex sugars, not simply the basic underlying backbone of the sugar chain.

Applications of Momenta Technology

        We plan to apply our technology to product development in three primary ways:

        Enable generic versions of complex drugs through characterization.     Many currently marketed drugs containing sugars have not been fully characterized, or sequenced, due to lack of available technology. These drugs include heparins, therapeutic proteins, vaccines and antibiotics. Our technology allows us to elucidate the precise sugar sequences contained in marketed, complex sugar-based drugs, including those structures that had not previously been described. To approve generic versions of branded products, the FDA requires data demonstrating that the generic product contains the same active ingredients as the branded product. The inability to analyze existing complex sugar-based drugs has made it difficult to obtain approval of generic versions of such drugs to date. We believe that the information obtained from our detailed analysis can be applied to develop technology-enabled generic versions of complex sugar-based marketed products.

        Improve therapeutic products.     We intend to use our technology to create proprietary drugs that represent improvements over currently marketed drugs by:

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Rationally designing complex sugar structures.   We utilize our technology to rationally engineer heparin and protein drugs to improve their properties and address unmet medical needs. The engineering of sugars within drugs to date has been performed without a comprehensive understanding of the existing sugar structures. We believe that our ability to identify sugar structures, correlate them to biological activity and engineer these sugar structures will lead to improved drugs with enhanced clinical activity, reduced toxicity and optimal half-life. Our development candidate, M118, is a LMWH that has been engineered to possess an optimal therapeutic profile to treat patients diagnosed with ACS.



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Utilizing drug delivery technologies.   Most therapeutic proteins, as well as other large macromolecules, can only be introduced into the body through injection. We have discovered that sugars can efficiently transport these drugs across mucosal membranes, such as in the lungs and gastrointestinal tract. We believe our technology will enable improvements in the delivery of a broad range of therapeutic protein drugs, including increased bioavailability, or the quantity and duration of time a drug is present in the blood stream, improved safety and the ability to deliver larger drugs. We are currently applying this technology to develop pulmonary formulations of interferon-beta, erythropoietin, insulin and HGH.

        Discover novel drugs.     We intend to apply our understanding of the role sugars play in basic biology and in disease onset, progression and treatment to develop novel, sugar-based, small molecule and antibody drugs. Research has shown that malfunctions in sugar production and the resulting abnormal sugar structures play a fundamental role in diseases, including cancer, cardiovascular disease, Alzheimer's disease, inflammatory disease and viral infection. Our current focus on drug discovery is in

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oncology, where we believe we can apply our technology to develop drugs that act through novel mechanisms. Based on our recent research, we have shown that sugars can both decrease the growth and increase the death of cancer cells.

Our Business Strategy

        Our objective is to become a leading biotechnology company by applying our understanding of complex sugars and our proprietary technologies to drug discovery, development and commercialization. The key elements of our strategy are to:

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Maximize the commercial potential of M-Enoxaparin and leverage our analytic capabilities to commercialize other near-term opportunities.   We are currently focused on developing, filing a regulatory application, attaining regulatory approval and bringing M-Enoxaparin, our technology-enabled generic version of Lovenox, to market. We believe that this near-term opportunity does not require extensive human clinical studies or the typical investment required for new drugs. If successfully developed and approved by regulatory authorities, we believe M-Enoxaparin could enable us to realize significant commercial value on a compressed time line with comparatively limited capital investment. We plan to capitalize on this and other near-term revenue opportunities which apply our technology to foster long-term growth and to partially fund our novel drug discovery and development programs.



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Advance our improved development product opportunities into clinical trials.   We leverage our characterization capabilities and our understanding of the biological activity of specific sugar structures to engineer improvements to marketed products. M118 was engineered to include certain sugar sequences which we believe will offer key efficacy and safety improvements over current therapies. We utilize our knowledge about sugars that can transport large drugs across mucosal membranes to develop pulmonary formulations of therapeutic proteins. We believe these novel formulations offer improved dose administration over existing therapies. By advancing these product opportunities into clinical trials over the next several years, we believe that we will build a diversified product pipeline.



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Leverage our proprietary technology and apply our understanding of sugars to create novel therapeutics to address critical unmet needs.   Our understanding of the role of complex sugars in cellular processes and disease enables us to design drugs based on unexploited or completely new mechanisms. Our research is focused on diseases with critical unmet medical needs, such as oncology, immunology and inflammation.



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Enhance our internal development programs through selective partnering.   We intend to internally develop products from our pipeline that fit with our therapeutic areas of expertise and which we believe we can develop and commercialize successfully on our own. We may seek joint development and marketing partnerships for products that require a significant capital investment or specialized expertise that may be better provided by pharmaceutical companies. In addition, we will seek to out-license certain opportunities that do not fit within our strategy.



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Establish development capabilities and sales and marketing capabilities focused on key in-hospital markets.   We intend to build internal product development and sales and marketing capabilities to become a fully-integrated biotechnology company. Given that most of our products address patients who are either hospitalized or recently discharged from the hospital, we intend to focus our sales and marketing capabilities in these areas. The initial focus for our internal development will likely be oncology and cardiovascular disease.

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In collaboration with Sandoz

Near-Term Product Opportunities

M-Enoxaparin

        Our most advanced product candidate, M-Enoxaparin, which is enabled by our technology and understanding of complex sugars, is designed to be a generic version of Lovenox. Lovenox is distributed worldwide by Aventis and is also known outside the United States as Clexane® and Klexane®. Lovenox is the most widely-prescribed LMWH in the world used for the prevention and treatment of DVT and treatment of ACS. In 2003, Aventis reported worldwide sales of Lovenox of approximately $1.9 billion, and analysts project sales to exceed $3.0 billion in 2008. Lovenox is a heterogeneous mixture of complex sugar chains that has not been adequately analyzed to date. Aventis, in a Citizen Petition filed with the FDA in February 2003 and in a supplement filed in February 2004, requested, among other things, that the FDA refrain from approving any ANDA for a generic version of Lovenox until such time as Lovenox has been fully characterized. Our ability to sequence and analyze complex mixtures of sugars has allowed us to analyze Lovenox and develop a process that we believe can be used to make a generic version of Lovenox that will meet the FDA requirements for ANDA approval. We believe it will be difficult for others to perform similar analyses. We have formed a collaboration with Sandoz to jointly develop, manufacture and commercialize a generic version of Lovenox. We intend to file an ANDA, or other regulatory application as determined by the FDA, in the next 12 months.

        Market Overview.     DVT affects approximately 2.0 million people in the United States each year, approximately 600,000 of whom experience potentially fatal pulmonary embolisms. In addition, more than 20 million people in the United States annually undergo major surgeries or have restricted mobility due to medical illnesses, which place them at risk for DVT. Each year, approximately 1.3 million patients in the United States are also diagnosed with ACS. ACS includes several diseases from unstable angina, which is characterized by chest pain at rest, to acute myocardial infarction, or heart attack, which is caused by a complete blockage of a coronary artery. All diseases in ACS are associated with the formation of blood clots.

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        According to industry forecasts, the LMWH class of drugs is projected to grow from annual sales of $2.5 billion worldwide today to annual sales of over $3.6 billion by 2010. Lovenox is the leading LMWH product, with the broadest set of approved indications of any of the LMWHs currently marketed. Aventis reported worldwide sales of Lovenox of approximately $1.9 billion in 2003, with approximately $1.2 billion coming from the United States market alone. Fragmin (Pfizer) and Fraxiparine® (Sanofi-Synthelabo) are the next closest competitors to Lovenox. In 2002, worldwide sales of Fragmin were $270 million, and in 2003, worldwide sales of Fraxiparine were $361 million. Analysts project that Lovenox will remain the dominant LMWH product, growing to over $3.0 billion in annual sales by 2008, which represents over 83% of the estimated LMWH market.

        Aventis has publicly disclosed its plans to secure Lovenox's position as the leading injectable anticoagulant by seeking approval for additional indications in ACS, in which unfractionated heparin, or UFH, is currently the leading drug. In addition, Aventis is seeking to both grow existing and secure new indications for the prevention and treatment of DVT and pulmonary embolism. These new indications may lead to substantial sales growth, especially in the United States, where Lovenox currently dominates the LMWH market.

        Lovenox composition.     Lovenox is derived from UFH, which is a naturally occurring sugar mixture derived from the lining of pig intestines. UFH exists as a complex, heterogeneous mixture of sugar chains of varying length and varying sequence. Lovenox is made by chemically cutting these longer UFH chains into shorter chains, which are also heterogeneous with respect to length and sequence, resulting in a diversity of chemical structures in the mixture.

        The current description of Lovenox includes molecular weight distribution and in vitro measurements of Lovenox's ability to inhibit blood clotting factors Xa and IIa, or its anti-Xa and anti-IIa activity. Molecular weight distribution provides a rough measure of the range of chain lengths but provides no information about detailed sequences or chemical structures. The in vitro measures of anti-Xa and anti-IIa activity describe certain aspects of anticoagulation but only partially define the biological and clinical activity of Lovenox. According to Aventis, only 15% to 25% of the chains in LMWHs contain sequences that bind to the factor that is responsible for anti-Xa and anti-IIa activity. We believe our technology enables a detailed description of the Lovenox mixture.

        The need for detailed analysis of enoxaparin.     According to FDA regulations, a generic drug must have, among other requirements, the same active ingredients as the innovator or the "reference listed drug product" upon which the generic application is based. The FDA's definition of an active ingredient is "any component that is intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of man or other animals."

        We believe the many sugar structures in Lovenox contribute to the drug's various biological activities and thus represent components of the active ingredients by the FDA's definition. There is significant evidence that specific structures contained in heparins, such as Lovenox, contribute to various biological activities beyond the current description of anticoagulation. Specifically, it has been shown in scientific literature that heparins bind to many biologically important factors. These structures are not described by molecular weight distribution or anti-Xa and anti-IIa activity measures. Through our technology, we have the ability to analyze the Lovenox mixture and demonstrate that a generic product has the same active ingredients as Lovenox.

        While Aventis publicly acknowledges that they have not characterized large portions of Lovenox, they have been able to analyze certain additional chemical features of the product. Through their analysis, Aventis has stated that it is possible to make an "alternative LMWH" that possesses the same molecular weight distribution and in vitro anti-Xa and anti-IIa activity as Lovenox, but contains different chemical structures, making it chemically distinct from Lovenox. They have shown that these chemical differences can result in changes in biological activities, which are relevant to the efficacy of

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the product. These changes impact biological processes that are important in clot formation and ACS, such as the growth of smooth muscles in blood vessels and the activity of factors, such as fibroblast growth factor, that can help to increase blood flow through growing new blood vessels. They have also shown that these structures can potentially affect anticoagulation parameters that are not measured by in vitro anti-Xa and anti-IIa activity alone and may affect both efficacy and bleeding risks associated with the product.

        Based on evidence that multiple structures in Lovenox contribute to its overall activity, we believe any regulatory application for generic enoxaparin must demonstrate that it has the same active ingredients as Lovenox, thereby enabling the FDA to approve the application. We believe this detailed analysis is required to assure the equivalent efficacy and safety of the generic product to Lovenox.

        M-Enoxaparin development strategy.     Through the application of our technology, we believe we will meet FDA requirements and, therefore, have our regulatory application for M-Enoxaparin approved. Under FDA guidelines, generic drugs are considered pharmaceutically equivalent to their branded counterparts if, among other things, they contain the same active ingredient(s), dosage form, route of administration and are identical in strength or concentration. To be therapeutically equivalent, a generic product must be pharmaceutically equivalent and be expected to have the same clinical effect and safety profile, thus making it typically interchangeable with the branded product; interchangeable products are denoted by an "A" rating by the FDA. Products with "A" ratings are generally substituted for the innovator drug by both in-hospital and retail pharmacies and many health insurance plans require automatic substitution of "A" rated generic versions when they are available.

        We plan to manufacture and provide the appropriate stability and reproducibility data on multiple batches of M-Enoxaparin and demonstrate that our proposed product has the same active ingredients and is therapeutically equivalent to Lovenox. Detailed information on the reproducibility and validation of our methodology, such as techniques and assays, will be presented to the FDA, in accordance with FDA regulations and requirements. In addition, all activities will be conducted in accordance with cGMP.

        To date, we have successfully accomplished the following:

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Analysis of Lovenox.   We have obtained and analyzed multiple batches of commercially available Lovenox, all within expiry dating. This analysis has allowed us to develop criteria for comparing our own version of enoxaparin to the branded product.



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Process development.   We believe we have identified a process that will allow us to produce a generic enoxaparin which has the same active ingredients as Lovenox.



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Manufacturing capabilities.   Through third-party contract manufacturers, we are establishing a supply chain to manufacture drug substance and drug product.



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Sandoz agreement.   We have entered into an exclusive collaboration agreement with Sandoz to jointly develop and commercialize M-Enoxaparin.

        Prior to submitting a regulatory application, we intend to complete our scale up of the bulk drug substance, fill the drug substance into syringes and vials to create the final drug product presentations and test stability of the finished drug substance and product lots.

        Legal matters.     Currently, Aventis has listed two patents for Lovenox in the Orange Book, the FDA's listing of approved drug products. According to Aventis, United States Patent No. 4,692,435 expires December 24, 2004, which is prior to the date we anticipate we will commercialize M-Enoxaparin, and Patent No. 5,389,618, or the '618 patent, expires on February 14, 2012. We are currently evaluating our options with respect to the '618 patent.

        It is typical for the manufacturer of the branded product to initiate litigation against generic competitors seeking FDA approval to commercialize their products prior to expiration of the branded

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company's patents. Aventis has sued both Amphastar and Teva for patent infringement based upon their respective generic enoxaparin filings, and we anticipate Aventis may also initiate legal proceedings against us following our regulatory filing. There is also the possibility that other third party patent infringement claims will be brought against us. With certain exceptions, Sandoz will indemnify us for any losses we incur or must pay to a third party which result from patent infringement litigation by Aventis, and certain other claims, in each case which relate to the development and commercialization of our generic enoxaparin product. Sandoz may offset certain of these costs against the profit-sharing amounts, the royalties and the commercial milestone payments they may be required to make to us.

M-Dalteparin

        We intend to develop a technology-enabled generic version of Fragmin (dalteparin), the second largest selling LMWH product in the United States. Fragmin is currently marketed by Pfizer in the United States and Europe and Kissei Pharmaceutical Co, Ltd. in Japan. The product is indicated for the prevention of DVT following abdominal and hip replacement surgeries and selected indications in ACS. In 2002, Fragmin had worldwide sales of $270 million, representing approximately 11% of the LMWH market. Sales in the United States were approximately $87 million in 2002.

        Similar to Lovenox, Fragmin is currently described by molecular weight distribution, anti-Xa activity and anti-IIa activity. We believe that additional criteria are necessary to fully demonstrate the presence of the same active ingredients to support the filing of a generic application.

        We expect M-Dalteparin will leverage the same technical, regulatory and commercial strategy as M-Enoxaparin. We believe limited technical effort and costs will be required to successfully analyze Fragmin and develop an approvable technology-enabled generic product that could be considered by the FDA to be interchangeable with Fragmin.

        Our plan is to submit a regulatory application for M-Dalteparin in the next 18 to 24 months. Over the next year, we expect to analyze multiple commercial batches of Fragmin and then develop a manufacturing process to produce a therapeutically equivalent product. The Orange Book patent listed for Fragmin will expire in January 2005, prior to our plans for commercialization.

Other Opportunities

        Over the next few years, many existing therapeutic protein drugs, or biologics, containing sugars which were approved as Biological Licensing Applications, or BLAs, will lose patent and marketing exclusivity protection. Developing generic versions of these drugs will prove challenging because there is significant scientific, regulatory and legal debate about the ability and precedent for developing equivalent versions of these drugs given their inherent complexity. As sugars play a critical role in many of these protein-based products, we may seek to apply our technology to create technology-enabled generic versions of these marketed products, leveraging strategies similar to that of M-Enoxaparin. These product opportunities are longer term because there is uncertainty related to the regulatory approval process for generic biologics.

Improved Development Products

        We are developing proprietary drug candidates based upon our sugar sequencing technology and expertise. We intend to apply our technology to improve existing drugs and develop novel drugs. Our development opportunities include:

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M118, our rationally designed LMWH for the treatment of ACS;



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a sugar-mediated technology that we designed to improve the non-invasive delivery of therapeutic proteins such as interferon-beta, erythropoietin, insulin and HGH; and

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capabilities that we designed to enable engineering of complex sugars on therapeutic proteins, such as anti-tumor necrosis factor, or anti-TNF drugs, to modify certain biological activities, improve efficacy, reduce side effects and modify dosing frequency of protein drugs.

M118

        M118 is a LMWH that we rationally designed to provide improved anti-clotting activity and flexible administration to treat patients with ACS. M118 is a potent inhibitor of multiple factors in the blood that lead to clot formation, whereas currently marketed LMWHs primarily inhibit a single factor contributing to clot formation. This is critical in ACS patients who have an existing clot in a coronary artery because M118 prevents not only the formation of new clots, but also the extension of the existing clot.

        Heparins, including UFH and LMWHs, are used as baseline therapy in ACS, and if required, in subsequent invasive procedures. The selection of a particular heparin is dictated by efficacy, predictability, safety and the ability to monitor the level of and reverse anticoagulation. Due to M118's beneficial biological activities and flexible administration, we believe M118 could be the baseline heparin of choice to treat patients diagnosed with ACS and to treat those patients who subsequently require angioplasty or coronary artery bypass graft surgery, or CABG. Angioplasty is a procedure involving the deployment of a device inside an obstructed artery to restore normal blood flow. CABG is a procedure involving the bypass of a blocked coronary artery with a grafted new artery.

        Market overview.     ACS includes several diseases ranging from unstable angina, which is characterized as chest pain at rest, to acute myocardial infarction, or heart attack, which is caused by a complete blockage of a coronary artery. Approximately 37% of the 1.3 million patients that are diagnosed with ACS in the United States annually respond favorably to initial medical management with anti-clotting agents, such as UFH or LMWH. The remaining patients who do not respond well to this treatment will typically require additional interventional or surgical procedures, such as angioplasty or CABG. Both angioplasty and CABG require anticoagulant therapy to prevent clot formation during the procedure. UFH is currently the foundation anti-clotting agent used in both angioplasty and CABG. There are no LMWHs currently approved for use in either angioplasty or CABG.

        The decision regarding which anti-clotting agent is initially administered depends upon the physician's assessment of the patient's anticipated treatment path. LMWH has demonstrated superior efficacy, or effectiveness, over UFH in the initial clinical setting where patients are managed medically. LMWHs are easier to administer, as they may be injected subcutaneously, as opposed to UFH, which must be administered intravenously. Existing LMWHs, however, have undesirable properties that limit their use in those situations where the patient might require angioplasty or CABG. LMWHs cannot be monitored by standard laboratory clotting tests. If a patient initially receives LMWH in the emergency room and subsequently requires angioplasty, the physician will be unable to quickly determine the degree of anticoagulation previously attained. Consequently, administering too little or too much anticoagulant during the procedure may result in stroke or serious bleeding complications. The ability to monitor UFH thus makes UFH the anti-clotting drug of choice in virtually all patients undergoing angioplasty, even though it has relatively unpredictable biological activities. In addition, LMWHs are not suitable drugs for CABG procedures because their anti-clotting activity cannot be reversed. This is particularly problematic in CABG patients who typically receive protamine sulfate following invasive surgery to reverse the anti-clotting activity of UFH and restore normal clotting mechanisms. Since the physician cannot always determine initially whether a patient will require medical management, angioplasty or CABG, the default anticoagulant chosen for patients entering the emergency room is often UFH.

        M118 development strategy.     To design M118, we utilized our proprietary analytical methods and enzymes, together with our ability to sequence the complex sugar chains within UFH starting material, to identify the sugar sequences responsible for anti-clotting activity. Using our proprietary enzymes to

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precisely cut the longer chains of UFH in specific locations, we developed a drug candidate specifically designed to address the unmet medical needs of anticoagulation therapy in ACS. By choosing M118 as the primary baseline therapy for ACS patients, we believe physicians will be able to deliver safer, more efficacious and consistent therapy, while retaining the flexibility to make the appropriate clinical care treatment decisions for all ACS patients, regardless of the need for medical management, angioplasty or CABG.

        Our preclinical animal studies have demonstrated potential benefits of M118 over UFH and other LMWHs. These potential benefits include:

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Increased efficacy.   Our preclinical studies have demonstrated that M118 is a potent inhibitor of clot formation and extension. In direct comparison with UFH and other LMWHs, M118 more effectively prevented clotting of injured arteries in a rat model. We have demonstrated through in vivo and in vitro experiments that M118 acts at multiple points in the coagulation cascade by inhibiting factor Xa and factor IIa and through the release of tissue factor pathway inhibitor. Results from early animal tests, however, are not always duplicated when product candidates are tested in humans.



•

Reversibility.   We have demonstrated that the anti-clotting effects of M118 are fully reversible in animals by administering protamine sulfate, the standard drug used to reverse anticoagulant activity. In preclinical studies, we observed that M118 required lower doses of protamine sulfate than UFH to rapidly reverse anti-clotting effects, which is important due to the potential adverse effects associated with protamine sulfate, including severe allergic reaction and low blood pressure. There are no currently approved drugs that counteract the bleeding in a patient treated with a conventional LMWH. Results from early animal tests, however, are not always duplicated when product candidates are tested in humans.



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More predictable response.   The anti-clotting effect of M118 is more predictable than other LMWHs and UFH due to the relatively uniform structure of the compound. This predictable response may allow physicians to carefully target an appropriate level of anticoagulation without risk of overdose, which can lead to excessive bleeding.



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Ability to monitor.   Due to the presence of certain saccharide sequences in M118, the anti-clotting activity of M118 can be monitored by standard laboratory tests that detect the presence of factor IIa, or thrombin. We believe physicians performing angioplasty and CABG will be able to accurately monitor the level of anti-thrombotic activity of M118 during these procedures. Currently, LMWHs cannot be monitored efficiently with routine laboratory tests.



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Diminished adverse reaction risk.   M118 has been engineered to reduce certain sugar sequences contained within UFH and other LMWHs that may provoke a potentially life-threatening reaction known as heparin-induced thrombocytopenia, or HIT.

        M118 is an early preclinical product candidate and, therefore, we have not yet demonstrated statistically significant differences in our animal experiments due to the small number of animals treated.

        Product development status.     M118 is currently in preclinical development. We are working with a third-party manufacturer to produce both our proprietary enzyme and drug substance required in the manufacturing process for M118. The UFH starting material has been obtained from a qualified manufacturer.

        We are currently increasing our manufacturing capabilities to produce sufficient quantities of the drug substance required to develop M118 through the end of Phase I clinical trials. We anticipate that the manufacturing activities will be completed in the first half of 2004.

        We intend to submit an IND to the FDA prior to the end of the first half of 2005 and begin Phase I clinical trials shortly thereafter. We plan to develop M118 through Phase IIa clinical trials and

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then seek a profit-sharing arrangement with a collaborator that includes co-development and co-promotion rights.

Sugar-Mediated Non-Invasive Delivery

        We have identified that sugars facilitate the transport of molecules, including proteins, across mucosal membranes, leading to high levels of bioavailability. Through our sequencing capabilities, we have identified sugars that regulate this transport process. These sugars can be mixed with a variety of protein drugs enabling their delivery across mucosal membranes into the blood stream. We have demonstrated in our animal studies that the sugar transport process is rapid and fully reversible within a matter of minutes, though results from animal tests are not always duplicated when product candidates are tested in humans. In addition, these early preclinical studies did not include adequate numbers of animals to demonstrate statistical significance.

        Our technology targets the many mucosal membranes present in the body, including those membranes in the lungs, nasal passages and gastrointestinal tract. As a result, our technology may enable the pulmonary, nasal or oral delivery of both small and large molecule drugs currently administered by injection. Our current focus is on the pulmonary delivery of therapeutic proteins, where bioavailability has been a challenge. Our initial proof-of-concept, preclinical studies designed to test the delivery of insulin and HGH through the lung, have been completed. In our studies, we have been able to achieve five to ten times greater bioavailability compared with other published advanced technologies in comparable animal studies. In addition, our studies with pulmonary insulin have demonstrated that the insulin remains effective at lowering blood glucose levels.

        Market opportunity.     Based upon industry reports, the estimated market size of the largest therapeutic protein markets, which specifically includes anemia, diabetes, multiple sclerosis, growth hormone deficiency and rheumatoid arthritis, represented a $16.0 billion opportunity in 2001 and is estimated to grow to approximately $30.0 billion in 2010. We believe the largest opportunities for pulmonary formulations of protein drugs are for interferon-beta, also known as Avonex® and Rebif®, which is used to treat multiple sclerosis, and erythropoietin, also known as Epogen® and Procrit®, which is used to treat anemia. We are currently exploring co-development opportunities for our pulmonary insulin and pulmonary HGH programs.

        We are focusing our initial internal development efforts on the following product opportunities:

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Pulmonary interferon-beta.   We have begun preclinical testing of pulmonary interferon-beta in various animal inhalation models, including initiating bioavailability studies. We intend to continue our preclinical and formulation activities through 2004.



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Pulmonary erythropoietin.   We plan to initiate early development activities, including formulation and preliminary safety and bioavailability studies, in the second half of 2004.



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Pulmonary insulin.   We have completed our preliminary evaluation of pulmonary insulin in safety, efficacy and bioavailability studies, demonstrating five times greater bioavailability as compared with other technologies, and have observed no adverse findings.



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Pulmonary HGH.   We have conducted preliminary evaluations of HGH in animal models and have demonstrated a ten-fold increase in bioavailability as compared with other technologies in comparable models.

        Potential benefits of sugar-mediated pulmonary delivery.     We believe our pulmonary delivery of therapeutic proteins has distinct advantages over current technologies. Some of these advantages include:

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Upper airway delivery.   Existing technologies target delivery of small drug particles to the deep lung. Our technology, in contrast, delivers larger drug particles to the upper lung. The upper lung has more efficient clearance mechanisms and is better able to eliminate excess material

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than the deep lung, which may result in reduced toxicity or decreased risk of developing an immune response from an inhaled product. We have demonstrated in animals that approximately 99% of an inhaled insulin dose is rapidly carried into the blood stream or cleared. We have not observed undesired local effects on the lung tissues in gross pathology and histology studies.

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Delivery of larger therapeutic proteins.   Technologies currently being evaluated in clinical trials do not enable efficient delivery of larger proteins. We believe our technology will enable us to efficiently deliver larger proteins to the upper lung, in comparison with other technologies that are limited to delivery of smaller proteins, such as insulin.



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Natural sugar formulations.   Our pulmonary delivery formulations are comprised of naturally occurring complex sugar sequences that are mixed with therapeutic proteins. We do not modify the proteins to be delivered in the formulation process or make any structural changes to the protein that might cause an unwanted immune response. This allows us to deliver a currently marketed drug by altering the formulation rather than chemically modifying the active ingredient.



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Higher bioavailability.   We have demonstrated significantly greater levels of bioavailability of therapeutic proteins than levels reported by others. For example, we have consistently achieved bioavailability levels greater than 80% with pulmonary insulin in our animal models. This higher level of bioavailability permits smaller quantities of drugs to be administered relative to other inhaled delivery methods. Higher bioavailability results in less variability in patient dosing and more cost efficient pulmonary delivery of established injectable proteins.



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Rapid onset of action.   Our preclinical studies demonstrate that therapeutic proteins quickly enter the blood stream when administered through the lung.

Capabilities that Enable Engineering of Complex Sugars on Therapeutic Proteins

        Our analytical and sequencing technologies can also be applied to characterize and re-engineer sugars that exist on the surface of therapeutic proteins. We can engineer new forms of sugars by determining how the manufacturing process changes the distribution of sugars present on the protein, thereby changing biological properties. Altering the complex sugar coat of a protein can potentially improve efficacy and tissue targeting, reduce negative side effects, such as allergic reactions and modify the dosing frequency of the protein drugs. We have also licensed technology that can add or change the sugar units attached to proteins.

        We believe our technology will allow us to efficiently engineer desired modifications to existing proteins, to address significant unmet needs and capitalize on a number of potential product opportunities. For example, unmet needs within chronic diseases such as rheumatoid arthritis, which is treated by anti-TNF agents, include reductions in the dose frequency and increased efficacy among existing therapies. We believe we may be able to affect these multiple properties through the isolation, quantification and systematic modification to the sugar structures on these proteins.

Discovery Product Candidates

        Drug discovery efforts to date have generally ignored the role that complex sugars play in modulating biological systems. Recent research has shown that sugars play a critical role in influencing signaling between proteins in pathways to fundamentally affect basic biology. We believe the role of sugars in disease progression can be exploited to discover novel therapeutics for a range of diseases. We believe a drug discovery program that incorporates both protein and sugar biology will result in the discovery of many new mechanisms that can be targeted with small molecule or antibody drugs. We also believe it will be possible to develop drugs made from sugars to modulate these pathways.

        Our initial area of focus is in oncology. Cancer is a disease characterized by unregulated cell growth. Complex sugars are involved in the conversion of normal cells into cancerous cells, regulating

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tumor growth and playing a role in tumor invasion and metastasis. As normal cells change into cancerous cells, the sugar coats on their cell surfaces also change as part of tumor progression. Detection of these changes potentially provides a new, sensitive means to detect cancer. In addition, since sugars play a role in tumor growth and metastasis, the introduction of sugar structures that can prevent these processes provides a potential avenue for development of new therapeutics. We have shown through studies that these sugars selectively inhibit proliferation of cancer cells and increase apoptosis, or cell death. Finally, a better understanding of the role that sugars play in modulating protein pathways can aid in the understanding of cancer mechanisms and the discovery of new small molecule and antibody drugs.

        Sugar-based drugs.     We have identified sugar sequences that have demonstrated potent anti-tumor effects in animals, as compared with control groups. Results from early testing in animals, however, are not always duplicated when product candidates are tested in humans. These sugar sequences were capable of both inhibiting tumor growth and preventing metastasis. These anti-cancer activities were obtained at microgram per kilogram doses, one thousand fold below the projected clinical dose, demonstrating the high potency of these compounds, though these early preclinical studies did not include adequate numbers of animals to demonstrate statistical significance.

        Sugar-based diagnostics.     Prostate specific antigen, or PSA, is a protein expressed by the prostate in human males. When males develop cancer of the prostate, the level of PSA expressed in the blood increases. We have determined that there are distinctive changes that occur in the sugars that are bound to the PSA protein that can better discriminate between cancerous and non-cancerous states. We believe our technology could be used to develop an improved diagnostic of prostate cancer. We are evaluating whether to devote resources to further pursue development of sugar-based diagnostics.

Collaboration and Licenses

Sandoz

        In November 2003, we entered into a collaboration and license agreement with Sandoz to jointly develop and commercialize injectable enoxaparin and any improved injectable form of enoxaparin for which Lovenox is the reference listed drug and for which an ANDA could be approved by the FDA. Under the terms of this agreement, we and Sandoz agree to exclusively work with each other to develop and commercialize injectable enoxaparin for any and all medical indications within the United States. In addition, we granted Sandoz an exclusive license, under our intellectual property rights, to develop and commercialize injectable enoxaparin for all medical indications within the United States.

        We have granted to Sandoz the right to negotiate additional rights under certain circumstances. Sandoz has exercised an exclusive right to negotiate an exclusive license to develop and commercialize injectable enoxaparin outside of the United States. We will negotiate in good faith a definitive agreement on terms generally consistent with the agreement, but with certain specified variations. If we and Sandoz have not entered into a license agreement by November 1, 2004, then we may arrange to work with third parties to develop or commercialize injectable enoxaparin, provided that we give Sandoz a right of first refusal with respect to such activities. Further, Sandoz may exercise a right of first negotiation to work with us on the research, development, manufacturing or commercialization, inside and/or outside the United States, of a generic version of Fragmin, M118, and/or enoxaparin administered by any route of delivery other than injection or certain improved forms of enoxaparin for which approval by the FDA would require the filing of a NDA. If Sandoz does not exercise its negotiation right, or if it does exercise its negotiation right for any of these opportunities, but we and Sandoz do not execute a definitive agreement within a specified time frame, then, for a specified time, we are permitted to enter into a transaction for such opportunity with a third party, provided that, under certain circumstances, the terms which we give to that third party can be no less favorable, taken as a whole, to us than the terms last offered to Sandoz. If we do not enter into a transaction with a

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third party in the specified time frame, then Sandoz may again exercise the right of first negotiation with respect to these opportunities.

        Under this collaboration, Sandoz will make certain payments to us. We will provide, and Sandoz will pay us for, a minimum amount of full-time equivalent scientific, technical and/or management work over the course of the 24-month period that commenced on October 1, 2003. Sandoz is also responsible for funding substantially all of the other ongoing development and commercialization costs and legal expenses incurred with respect to injectable enoxaparin, subject to an agreed-upon limit. To date, Sandoz has paid us approximately $2.0 million for our work and the reimbursement of development costs. In addition, Sandoz will share profits with us or pay royalties to us on net sales of injectable enoxaparin by Sandoz, its affiliates or distributors in the United States. If certain regulatory or commercial milestones are achieved with respect to injectable enoxaparin under certain circumstances, Sandoz may also make certain milestone payments to us, which would reach $55.0 million if all such milestones are achieved. If the development expenses and certain legal expenses, in the aggregate, exceed a specified amount, Sandoz is permitted to offset a portion of the excess against the profit-sharing amounts, the royalties and the commercial milestone payments. Sandoz may also offset a portion of any product liability costs and certain other expenses arising from patent litigation against the profit-sharing amounts, the royalties and the commercial milestone payments.

        The collaboration is governed by a joint steering committee and a joint project team, each consisting of an equal number of Sandoz and Momenta representatives. Most decisions must be made unanimously, with Sandoz collectively having one vote and us having one vote. Sandoz has sole authority to make decisions with respect to any litigation claiming that the manufacture, use or sale of the injectable enoxaparin product infringes any patents listed in the Orange Book for Lovenox. In addition, Sandoz has the sole authority to determine whether or not to launch the injectable enoxaparin product prior to receipt of final legal clearance from any such infringement claims, as well as the price at which it will sell the injectable enoxaparin product. Sandoz is also responsible for the filing of the ANDA.

        We and Sandoz will indemnify each other for losses resulting from the indemnifying party's misrepresentation or breach of its obligations under the agreement. We will indemnify Sandoz if we actually misappropriate the know-how or trade secrets of a third party. Sandoz will indemnify us and our collaborators involved in the enoxaparin program for any losses resulting from any litigation by third parties, including Aventis, claiming that the manufacture, use or sale of injectable enoxaparin infringes any patents listed in the Orange Book for Lovenox, any product liability claims with respect to injectable enoxaparin and any other claims relating to the development and commercialization of injectable enoxaparin. To the extent that any losses result from a third party claim for which we are obligated to indemnify Sandoz, Sandoz will have no obligation to indemnify us. After the expiration or termination of the agreement, these indemnification obligations will continue with respect to claims that arise before or after the termination of the agreement due to activities that occurred before or during the term of the agreement.

        Unless terminated earlier, the agreement will expire upon the last sale of injectable enoxaparin by or on behalf of Sandoz in the United States. Either party may terminate the collaboration relationship for material uncured breaches or certain events of bankruptcy or insolvency by the other. Sandoz may also terminate the agreement if the product or the market lacks commercial viability, if we fail to meet certain development milestones, if new laws or regulations are passed or court decisions rendered that substantially diminish our legal avenues for redress, or, in multiple cases, if certain costs exceed mutually agreed upon limits. If Sandoz terminates the agreement (except due to our uncured breach) or if we terminate the agreement due to an uncured breach by Sandoz, we will be granted an exclusive license under certain intellectual property of Sandoz to develop and commercialize injectable enoxaparin in the United States and our obligation to indemnify Sandoz will survive with respect to claims that arise due to our exclusive development or commercialization of injectable enoxaparin after

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the term of the agreement. In the event of a termination by Sandoz due to the incurrence of costs beyond the agreed upon limits, we must pay certain royalties to Sandoz on our net sales of injectable enoxaparin. If Sandoz terminates the agreement due to our uncured breach, Sandoz retains the exclusive right to develop and commercialize injectable enoxaparin in the United States, and, if the negotiation period with respect to a license outside of the United States is not yet complete, Sandoz shall continue to have the right to negotiate an exclusive license. In addition, Sandoz' profit sharing, royalty and milestone payment obligations survive and Sandoz' obligation to indemnify us will survive with respect to claims that arise due to Sandoz' exclusive development or commercialization of injectable enoxaparin after the term of the agreement. In addition, if Sandoz terminates the agreement due to our uncured breach, Sandoz would retain its rights of first negotiation with respect to certain of our other products.

Massachusetts Institute of Technology

        In December 2001, we entered into a patent license agreement with the Massachusetts Institute of Technology, or M.I.T., pertaining to the characterization and synthesis of sugars for the purpose of researching, developing and commercializing products (other than sequencing machines) and processes under the licensed patents. This agreement was subsequently amended and restated in early November 2002 and further amended in 2003 and 2004. We entered into an additional patent license agreement with M.I.T. in late October 2002 which gave us the right to develop and commercialize sequencing machines. These two agreements grant us various exclusive and nonexclusive worldwide licenses, with the right to grant sublicenses, under certain patents and patent applications relating to (i) methods and technologies for characterizing sugars, (ii) certain heparins, heparinases and other enzymes, and (iii) synthesis methods.

        Subject to typical retained rights of M.I.T. and the United States government, we are granted: various exclusive and nonexclusive rights to certain methods and technologies, heparinases and other enzymes for the purpose of characterizing sugars, manufacturing products, and selling or leasing sequencing machines; exclusive rights to certain novel heparins and heparinases, including M118, for use as therapeutics; and nonexclusive rights to certain methods and technologies for the synthesis of sugars for use as therapeutics.

        We have a first option to expand our exclusive licenses by adding rights to those patentable inventions which are made by certain M.I.T investigators by December 31, 2004 and which are dominated by claims of certain of the patents or applications under which we are exclusively licensed, provided that we pay a fee to M.I.T.

        We must meet certain diligence requirements in order to maintain our licenses under the two agreements. Under the agreements, we must expend at least $0.25 million during 2004 and at least $1.0 to $1.2 million per year commencing with 2005 towards the research, development and commercialization of products and processes covered by the agreements. In addition, we are obligated to make first commercial sales and meet certain minimum sales thresholds of products or processes including, under the amended and restated agreement, a first commercial sale of a product or process no later than June 2013 and minimal sales of products thereafter, ranging from $0.5 million to $5.0 million annually. M.I.T. may convert the exclusive licenses granted to us under the amended and restated license agreement to non-exclusive licenses, as its sole remedy, if we fail to meet our diligence obligations. Under the license agreement covering sequencing machines, M.I.T. has the right to treat our failure to fulfill our diligence obligations as a material breach of the license agreement.

        In exchange for the licenses granted in the two agreements, we paid M.I.T. license issue fees and we pay annual license maintenance fees. To date, we have paid M.I.T. approximately $0.3 million in license issue fees and annual license maintenance fees pursuant to these agreements. Starting in 2005, we are required to pay annual license maintenance fees pursuant to these agreements ranging, in the aggregate, from $82,500 to $157,500. In addition, in exchange for the licenses granted under the

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amended and restated license agreement, M.I.T. was issued 293,136 shares of our common stock valued at $0.3 million and certain employees of M.I.T. who are inventors of the licensed patents and patent applications were issued an aggregate of 81,852 shares of our common stock valued at $0.1 million. We are also required to pay M.I.T. royalties on products and services covered by the licenses and sold by us or our affiliates or sublicensees, a percentage of certain other income received by us from corporate partners and sublicensees, and certain patent prosecution and maintenance costs.

        We are obligated to indemnify M.I.T. and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements, unless the losses result from the indemnified parties' gross negligence or willful misconduct.

        Each agreement expires upon the expiration or abandonment of all issued patents and filed patent applications licensed to us by M.I.T. under such agreement. The issued patents include 10 United States patents that expire between 2012 and 2020, and a number of foreign patents that expire between 2012 and 2013. We expect that additional patents will issue from filed patent applications. Any such patent will have a term of 20 years from the filing date of the underlying application. M.I.T. may terminate either or both agreements immediately if we cease to carry on our business, if any nonpayment by us is not cured within 60 days of written notice or if we commit a material breach that is not cured within 90 days of written notice. We may terminate either or both agreements for any reason upon six months notice to M.I.T., and, under one agreement, we can separately terminate the license under a certain subset of patent rights upon three months notice.

        We have granted Sandoz a sublicense under the amended and restated license agreement to certain of the patents and patent applications licensed to us. If M.I.T. converts our exclusive licenses under this agreement to non-exclusive due to our failure to meet diligence obligations, or if M.I.T. terminates this agreement, M.I.T. will honor the exclusive nature of the sublicense we granted to Sandoz so long as Sandoz continues to fulfill its obligations to us under the collaboration and license agreement we entered into with Sandoz and, if our agreement with M.I.T. is terminated, Sandoz agrees to assume our rights and obligations to M.I.T.

The Regents of the University of California through the Ernest Orlando Lawrence Berkeley National Laboratory

        In November 2002, we entered into an agreement with The Regents of the University of California through the Ernest Orlando Lawrence Berkeley National Laboratory, or Lawrence Berkeley National Lab, under which we exclusively licensed certain patents and patent applications covering the metabolic synthesis of sugars and glycoconjugates. Subject to typical retained rights of Lawrence Berkeley National Lab and the United States government, we were initially granted an exclusive license, with the right to grant sublicenses, for the synthesis, production or modification of sugars and glycoconjugates in or on biological molecules for purposes of researching, developing and commercializing products, services and processes for all human therapeutic applications, excluding the sale of research reagents. After November 20, 2004, we may retain the license under this broad field if we pay a fee and have met certain diligence obligations. These obligations include hiring a vice president of research and development and having established an internal or collaborative program (in which we are expected to earn at least $0.5 million) for the clinical development of a product candidate. If we do not pay the fee and fulfill the diligence obligations, the field narrows to three therapeutic applications that we select from an agreed upon list, each to be more thoroughly defined through negotiation with Lawrence Berkeley National Lab. Upon our request, but subject to statutory restrictions or obligations to research sponsors, Lawrence Berkeley National Lab must disclose certain information that is necessary or useful for our use of the licensed patent rights and we have a non-exclusive, royalty-free right to use such information.

        Lawrence Berkeley National Lab has an obligation to notify us of certain future inventions that are available for licensing by Lawrence Berkeley National Lab prior to entering into negotiations with

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others. However, Lawrence Berkeley National Lab is not required to license those inventions to us, or even to negotiate with us.

        In return for these license rights, we paid Lawrence Berkeley National Lab a license issue fee of $40,000. We are also required to pay Lawrence Berkeley National Lab earned royalties on products, services and processes covered by the license and sold by us or our affiliates or sublicensees, a percentage of certain other income received by us from our sublicensees, and patent prosecution and maintenance costs. To the extent that earned royalties in any given year do not meet certain threshold amounts, we are required to make annual minimum royalty payments to Lawrence Berkeley National Lab, ranging from $10,000 to $60,000, in order to maintain the license.

        In order to maintain our license, we must expend at least $0.5 million during 2004 and at least $1.0 million per year commencing with 2005 towards the research, development and commercialization of products covered by the agreement. If we fail to do so, Lawrence Berkeley National Lab may renegotiate the milestones, terminate the agreement or convert the exclusive license to a non-exclusive license.

        We are obligated to indemnify Lawrence Berkeley National Lab, the United States government and related parties from claims arising from our or our sublicensees' exercise of rights under the agreement, unless the claims result from the indemnified parties' gross negligence or willful misconduct.

        The agreement expires upon the later of the expiration, abandonment or final adjudication of invalidity of the licensed patents. The licensed patents consist of two United States patents that expire in 2017 and one United States patent application. Any patent issuing from such application will have a term of 20 years from the date such application was filed. Our license to use the know-how acquired from Lawrence Berkeley National Lab is paid-up and perpetual following the expiration, but not an earlier termination, of the agreement. Either party may terminate the agreement for the other's material breach with a 90 day cure period, although Lawrence Berkeley National Lab may terminate if we do not cure payment breaches within 30 days. We may terminate the agreement for any reason upon 180 days notice. Upon termination of the agreement, we are required to assign each sublicense to Lawrence Berkeley National Lab and Lawrence Berkeley National Lab is required to assume it unless the sublicensee is then in breach or the sublicense conflicts with Lawrence Berkeley National Lab's obligations to state or federal governments.

Manufacturing

        We do not own facilities for manufacturing any products. Although we intend to rely on contract manufacturers, we have personnel with manufacturing experience to oversee the production of M-Enoxaparin, M-Dalteparin, M118 and future products that we may develop.

        In each of our agreements with contract manufacturers, we retain ownership of our intellectual property and generally own and/or are assigned ownership of processes, developments, data, results and other intellectual property generated during the course of the performance of each agreement that primarily relate to our products. Where applicable, we are granted non-exclusive licenses to certain contract manufacturer intellectual property for purposes of exploiting the products that are the subject of the agreement and in a few instances we grant non-exclusive licenses to the contract manufacturers for use outside of our product area. In each contract, we have the right to terminate for convenience. The agreements also contain typical provisions for both parties to terminate for material breach and bankruptcy and insolvency.

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M-Enoxaparin

        In October 2003, we entered into a process development and production agreement with Siegfried (USA), Inc. and Siegfried Ltd. that was subsequently amended in May 2004, under which we provide to Siegfried our existing laboratory-scale processes and analytical methods for the production of M-Enoxaparin. Siegfried's responsibility is to further develop the processes and once we approve of such processes, manufacture the active pharmaceutical ingredient, enoxaparin sodium, for use in stability, preclinical and clinical studies and for other development purposes. During the term of the agreement and for a period of time thereafter, Siegfried commits to work with us on the development and production of M-Enoxaparin on an exclusive basis. To date, we have paid Siegfried $0.2 million for development work under the agreement. We have committed to pay Siegfried up to an additional $2.0 million for development and production work which is expected to be paid through 2005.

        Under the agreement, we retain ownership of our intellectual property we provide to Siegfried and we exclusively own all intellectual property that is developed or made and/or reduced to practice by Siegfried pursuant to the agreement and that pertains to M-Enoxaparin. Further, Siegfried granted us, in order to develop, make, use, sell and import M-Enoxaparin, a non-exclusive, worldwide, irrevocable, sublicensable, royalty-free license to Siegfried's previously existing intellectual property and to intellectual property acquired by Siegfried apart from the agreement. To the extent that any of the intellectual property developed under the agreement has application to products other than heparins, we granted Siegfried, in order to develop, make, use, sell and import products that are not heparins, a non-exclusive, worldwide, irrevocable, non-sublicensable, royalty-free license to such intellectual property.

        Siegfried is obligated to indemnify us for third-party product liability claims which result from the failure of the product to meet certain requirements and/or the negligence or misconduct of Siegfried. We are obligated to indemnify Siegfried for all other third-party product liability claims which result from the production, use or consumption of the product. In connection with the development and production of the product, Siegfried is obligated to indemnify us for any alleged infringement of any patent or other intellectual property right by a third party which results from a breach of certain intellectual property representations and warranties made by Siegfried. In connection with the development and production of the product, we are obligated to indemnify Siegfried for all other alleged infringements of any patent or other intellectual property right by a third party.

        The agreement expires upon the completion of the development and production of the product. Either party may terminate the agreement: for the other's material breach which is not cured within 15 days; if such party reasonably determines that, for valid scientific or technical reasons, the goals of the agreement cannot be achieved within the agreed upon parameters or timelines and a modification is not agreed upon within 30 days; and, to the extent permitted by law, if the other party opens bankruptcy proceedings, goes into receivership, or allows its creditors to place the company in receivership. In addition, if unforeseen circumstances render the development and production materially more costly and we do not agree to an increase in the amount payable to Siegfried, Siegfried has the right to treat such decision as a valid scientific or technical obstacle and terminate the agreement. We may also terminate the agreement for any reason upon 30 days notice.

        We are working with a provider for analytical testing, method transfer, validation and preparation work and for comparability studies for M-Enoxaparin and are negotiating with a contract manufacturer to produce M-Enoxaparin in finished dose form for development and clinical use.

M-Dalteparin

        Should we require process development of M-Dalteparin, we expect the manufacture of M-Dalteparin would require similar process development as M-Enoxaparin; however, we may or may not use the same contract manufacturers selected for M-Enoxaparin.

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M118

        We are working with a provider to perform process development and enzyme production work for a specific heparinase enzyme which is used to produce M118. In addition, we are working with a contract manufacturer with regard to our existing laboratory-scale processes and analytical methods for the production of M118, including the heparinase enzyme used to produce M118.

Sales and Marketing

        We do not currently have any sales and marketing capabilities. In order to commercialize any products that are approved for commercial sale, we must either develop a sales and marketing infrastructure or collaborate with third parties that have sales and marketing experience. We plan to build a small, highly-focused, specialty sales and marketing infrastructure. Given that most of our products address patients who are either hospitalized or recently discharged from the hospital, we intend to focus our sales and marketing capabilities in these areas. In addition, we plan to enter into collaborations with established industry participants in key markets outside North America, including the European Union.