UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For The Fiscal Year Ended December 31, 2004

OR

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

For the transition period from to .

Commission File No. 0-19700

AMYLIN PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		33-0266089
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9360 Towne Centre Drive, Suite 110 San Diego, California		92121
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (858) 552-2200

Securities registered pursuant to Section 12(b) of the Act:
NONE

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

Common Stock, $.001 par value
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ý No o

The aggregate market value of the common stock of the registrant, as of June 30, 2004, held by non-affiliates was $1,662,674,724.

The number of shares outstanding of the registrant’s common stock was 104,078,988 as of March 1, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission (the “Commission”) pursuant to Regulation 14A in connection with the 2005 Annual Meeting of Stockholders to be held on May 25, 2005 are incorporated herein by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Commission not later than 120 days after December 31, 2004.

PART I

Item 1. Business

We are a biopharmaceutical company engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes, obesity and cardiovascular disease. Our two first-in-class lead drug candidates exenatide and SYMLIN® (pramlintide acetate) are in late stage development for the treatment of diabetes, have completed Phase 3 clinical trials, and are under regulatory review in the United States. Diabetes is a large and growing market in the United States, affecting over 18 million Americans and growing at three times the rate of population growth.

Exenatide is the first in a new class of compounds known as incretin mimetics. We are developing exenatide, including both twice-daily and sustained-release formulations, with Eli Lilly and Company, or Lilly, to improve glucose control in patients with type 2 diabetes who are not achieving target glucose levels with metformin and/or sulfonylureas, two of the most commonly used oral therapies to treat type 2 diabetes. We submitted a New Drug Application, or NDA, for the twice-daily formulation of exenatide in June 2004, and it is expected that the United States Food and Drug Administration, or FDA, will respond to this filing by April 30, 2005.

SYMLIN is the first in a new class of compounds known as amylinomimetics and is a synthetic version of human amylin, a hormone co-secreted with insulin in normal physiology. We are developing SYMLIN for the treatment of patients with type 1 diabetes and insulin-using patients with type 2 diabetes. In December 2003 we received a second approvable letter for SYMLIN from the FDA. The FDA requested additional clinical data to identify a patient population and method of use for SYMLIN where there is no increased risk of significant hypoglycemia or where there is an added benefit that clearly counterbalances any potential for increases in episodes of hypoglycemia. In September 2004 we submitted a complete response to the FDA’s second approvable letter. Submission of a complete response after receipt of an approvable letter is intended to answer all of the questions that need to be addressed prior to approval. The FDA is expected to respond to this new submission by March 20, 2005.

Our pipeline includes a Phase 2 program for each of the therapeutic areas of diabetes, obesity and cardiovascular disease. In diabetes, we recently initiated a Phase 2 multi-dose trial of exenatide LAR, a sustained-release formulation of exenatide, utilizing a once-a-week dosing regimen. This trial was initiated following the review of data from a Phase 2 single-dose trial, which we completed in early 2005. In obesity, we are developing pramlintide, the same compound contained in SYMLIN, in our AC137 (pramlintide for obesity) program. Following the review of data from a 16-week Phase 2 trial completed in 2004, we are preparing to commence a Phase 2b dose-ranging study of AC137. In cardiovascular disease, we have a Phase 2 program for AC2592 (glucagon-like peptide 1, or GLP-1) for the treatment of congestive heart failure. Additionally, we have two Phase 1 programs and maintain a discovery research program focused on peptide therapeutics. We are actively seeking to in-license additional drug candidates.

Our principal executive offices are located at 9360 Towne Centre Drive, Suite 110, San Diego, CA 92121, and our telephone number is (858) 552-2200. We were incorporated in Delaware in September 1987. We maintain a website at www.amylin.com. The reference to our worldwide web address does not constitute incorporation by reference of the information contained on our website.

Our periodic and current reports that we file with the Securities and Exchange Commission, or SEC, are available free of charge, on our website at www.amylin.com, as soon as reasonably practicable after we have electronically filed them with, or furnished them to, the SEC.

Product Pipeline

The following chart indicates the most advanced stage of development for each of our product candidates.

Drug
Discovery

Preclinical
Development

Clinical
Studies

Regulatory
Review

Commercialization

SYMLIN^®

Exenatide

Exenatide LAR

AC137 (pramlintide for obesity)

AC2592

AC162352

AC3056

Peptide Programs

Diabetes

Diabetes is a major health problem in most developed countries and is the sixth leading cause of death by disease in the United States. It is a progressive disease caused primarily by a deficiency of the hormone insulin, which is secreted by the beta cells of the pancreas, or a failure of the body to properly use available insulin, or both. Diabetes is characterized by poor control of blood sugar, or glucose, concentrations and frequently results in severe long-term complications, such as heart, eye, kidney and peripheral vascular diseases.

It is estimated that over 194 million people worldwide have diabetes. Of that population, it is estimated that approximately 90-95% have type 2 diabetes, also known as adult-onset diabetes and the remainder have type 1 diabetes, also known as juvenile onset diabetes. In the United States alone, in 2002 there were approximately 18.2 million people, or 6.3% of the population, with diabetes, of which approximately 13 million people had been diagnosed. Approximately 1.3 million new cases of diabetes are diagnosed each year. In the United States, 8.7% of all persons over the age of 20 have diabetes.

In people without diabetes, the beta cells of the pancreas produce two hormones, insulin and amylin. Type 1 diabetes destroys beta cells that produce both insulin and amylin, and most often is diagnosed in children and young adults. Replacement of beta cells through islet transplant therapy can, in some cases, temporarily render patients insulin-independent; however, life-long daily insulin therapy is eventually necessary to sustain life for people with type 1 diabetes.

Type 2 diabetes is a complex metabolic disease resulting from the body’s inability to make enough insulin, or to properly use available insulin, or both. Amylin secretion is also impaired in people with type 2 diabetes. Historically, type 2 diabetes occurs later in life. However, primarily as a result of changes in diet and lifestyle, it is now occurring much earlier in life for many people. Diet and exercise therapy, in addition to a number of oral medications that either stimulate insulin production or improve tissue sensitivity to insulin, are currently used to treat type 2 diabetes.

Type 2 diabetes usually begins with insulin resistance, a disorder in which the cells do not use insulin properly. As the disease progresses, the beta cells in the pancreas gradually lose their ability to produce insulin. Because of the progressive nature of the disease, no single therapy is currently effective in controlling the disease over time. As the disease progresses, additional treatments, typically one or more oral medications, are necessary, and these often become ineffective to regulate blood glucose concentrations within accepted guidelines established by the American Diabetes Association. At this stage, the therapy must be supplemented or replaced. Insulin is added to the treatment regimen for many people with type 2 diabetes when oral therapies become ineffective. Over time, the insulin dosage and number of injections are usually increased when desired blood glucose control cannot be achieved. Even with additional insulin injections, however, many people are unable to regulate their blood glucose concentrations within accepted guidelines, or do so at the expense of weight gain and increased risk of low blood glucose concentrations, or hypoglycemia.

For people suffering from diabetes, poor control of blood glucose concentrations has been shown to result in severe long-term complications. For instance, the Center for Disease Control has stated that complications due to diabetes include:

• heart disease and stroke

• high blood pressure

• blindness due to retinopathy, a condition manifested by damage to the retina;

• nephropathy, or kidney disease;

• neuropathy, a condition where there is damage to the nervous system;

• amputations due to peripheral vascular disease; and

• periodontal disease.

Weight control and obesity are also major problems for patients with diabetes, particularly for those people using insulin as part of their treatment regimen. In addition, patients with diabetes frequently have wide fluctuations in blood sugar following meals. These fluctuations in blood sugar can significantly affect a patient’s quality of life. Collectively, these complications and associated metabolic disorders can lead to increased pain, suffering, reduced quality of life and early death.

The most widely accepted measure of long-term blood glucose is glycated hemoglobin, or A1C. A person’s A1C level is a recognized indicator of that individual’s average blood glucose concentrations over a 3 to 4-month period. Lower A1C levels indicate better blood glucose control, on average. A1C levels in people without diabetes are usually less than 6%. The American Diabetes Association’s Clinical Practice Recommendations suggest that people with diabetes should aim for an A1C level that is lower than 7%. Only a minority of people diagnosed with diabetes in the United States are able to achieve the American Diabetes Association’s recommended target A1C level, even with available drug therapies. Additionally, aggressive use of insulin and other available therapies to achieve target glucose control can be associated with an increased risk of hypoglycemia and weight gain. Consequently, there is a need to develop new treatment strategies that improve the overall health profile of patients with diabetes and reduce the risk of complications without increased pain and suffering.

In 1993, a landmark study in patients with type 1 diabetes, called the Diabetes Control and Complications Trial, showed that improved glucose control — as measured by any reduction in an individual’s A1C level — reduced the incidence of long-term complications. In 1998, a similar landmark study in patients with type 2 diabetes, the United Kingdom Prospective Diabetes Study, reported similar conclusions for type 2 diabetes. Unfortunately, both of these studies showed that available therapies cannot mitigate the progressive nature of diabetes and long-term complications are to be expected.

Exenatide

Exenatide, the first of a new class of compounds known as incretin mimetics, is an injectable drug candidate for the treatment of type 2 diabetes. Exenatide is initially being developed to improve glucose control in patients with type 2 diabetes who are not using insulin and are not achieving target A1C levels with diet, exercise, and metformin, a sulfonylurea, or the combination of metformin and a sulfonylurea. Metformin and sulfonylureas are two of the most commonly used oral therapies for the treatment of type 2 diabetes. We are developing exenatide, including both twice-daily and extended release formulations, with Lilly.

Scientific Overview. Exenatide is a potent 39-amino acid peptide that exhibits several anti-diabetic, or glucose lowering, actions. Our clinical trials have shown that exenatide stimulates secretion of insulin in the presence of elevated blood glucose concentrations, but not during periods of low blood glucose concentrations. We also observed in our trials an improvement in beta-cell function as measured by markers such as restoration of first-phase insulin secretion and improvement in proinsulin to insulin ratios. Our clinical trials have also shown that exenatide lowered post-meal glucagon concentrations and slows gastric emptying to modulate the entry of ingested nutrients into the bloodstream. Preclinical data indicate that exenatide reduces food consumption leading to reduced body weight. Most importantly, in patients with type 2 diabetes, exenatide administration lowered both fasting and post-meal blood glucose concentrations, resulting in a marked reduction of A1C levels. In addition to lowering post-meal glucose concentrations, exenatide has also been shown to suppress post-meal elevations in serum triglyceride concentrations in people with type 2 diabetes. Elevations in post-meal triglycerides appear to be an independent risk factor for cardiovascular disease.

Clinical Trials. More than 2,000 patients have been treated with exenatide. We have completed three pivotal Phase 3 clinical trials, which we refer to as our AMIGO trials, as well as numerous Phase 2 and Phase 1 trials. We are conducting an open-label extension study from the pivotal Phase 3 trials and an additional open-label study. We have an ongoing trial studying the effect of exenatide in patients failing to achieve glycemic control with either thiazolidinediones (TZDs) or TZDs and metformin. TZDs are another common oral therapy for type 2 diabetes. We also have an ongoing trial with the National Institute of Heath to assess exenatide’s potential effects in patients with type 1 diabetes. In addition, we have a number of trials planned and ongoing, including studies to support regulatory submissions outside the United States and studies to increase our understanding of exenatide’s potential in the United States and other markets.

In late November 2003, we announced the summary results of our combined pivotal Phase 3 clinical trial data. Our pivitol trials contained approximately 1,400 patients and studied the efficacy of exenatide in subjects who were failing to achieve target glucose levels with either metformin, sulfonylureas, or a combination of metformin and sulfonylureas. All three studies met the primary glucose control endpoint as measured by A1C. The average reduction in A1C across the Phase 3 program in patients completing the studies on the highest dose of exenatide (10 micrograms twice daily) was approximately one percentage point. Additionally, approximately 40% of these patients achieved A1C measurements of 7% or less. On average, subjects in the Phase 3 program on the highest dose of exenatide also showed statistically significant reductions in body weight of approximately 4.4 pounds. The most common adverse event was mild to moderate nausea. Mild to moderate hypoglycemia was observed primarily in combination with a sulfonylurea. The mild to moderate nausea occurred most frequently early in the administration of exenatide, and the incidence decreased over time. Patients discontinuing the trials due to nausea were approximately 3% in the exenatide arms of the AMIGO trials compared to approximately 1% in the placebo arms.

Approximately 80% of the patients that enrolled in the AMIGO trials completed those trials, and of those patients, approximately 90% elected to continue in the open-label extensions of those trials, which we refer to as the OLE trials. In the OLE trials, 393 patients that completed 82 weeks of treatment showed mean reductions in A1C of 1.1%, and approximately 50% had achieved the A1C treatment goal of less than or equal to 7%. On average, subjects in this patient cohort lost an average of 9.6 pounds at 82 weeks of treatment. Anti-exenatide antibodies were present in a portion of the patients, but their occurrence decreased over time. The presence or absence of antibodies has not been found to predict A1C effect or safety.

In July 2004, we announced the results from a six-month clinical trial that compared exenatide and insulin glargine in patients failing to achieve acceptable glycemic control with common oral therapies. Patients in both groups achieved similar degrees of glycemic control in the study. In addition, patients on exenatide lost an average of 5 pounds, compared to those on insulin glargine, who gained an average of 3 pounds. Adverse events related to exenatide were similar to those observed in previous clinical trials. The most common adverse event was mild to moderate nausea, which occurred most frequently early in the study.

Regulatory Status. We filed an NDA in June 2004 for the twice-daily formulation of exenatide and the FDA is expected to respond to the NDA by April 30, 2005. Lilly is responsible for regulatory submissions outside the United States.

Target Market. The initial focus for exenatide is patients with type 2 diabetes who are not using insulin and are not achieving target A1C levels with diet, exercise, and metformin, a sulfonylurea or both metformin and a sulfonylurea. The current therapeutic steps available to this patient population are additional oral medications, the addition of insulin to the oral agent regimen, or insulin therapy alone. These approaches are not always successful and are often associated with inconvenience and side effects, particularly weight gain. We estimate this population of people with diabetes who were using oral medications as of 2001 was 11.9 million in the United States, France, Germany, Italy, Japan, Spain and the United Kingdom, which comprise the seven largest pharmaceutical markets worldwide. An estimated 7.4 million people with diabetes in the United States were using oral medications as of 2002. We estimate that approximately 80% of the people with diabetes in the United States that are using oral medications are using either metformin, a sulfonylurea, or both. In addition, we estimate that more than 60% of those patients change their oral therapy at least once a year. We currently plan to market exenatide in an injectable pen/cartridge delivery system, subject to our receiving the necessary regulatory approvals. Exenatide requires refrigeration and subject to our receiving regulatory approval, will be administered utilizing a fixed dose, which will require no daily dose adjustment.

SYMLIN^® (pramlintide acetate)

SYMLIN is an injectable drug candidate intended for the treatment of insulin-using patients with type 2 diabetes and patients with type 1 diabetes. Other than insulin and insulin analogues, SYMLIN is the first potential treatment addressing glucose control for patients with type 1 diabetes that has completed Phase 3 clinical trials since the discovery of insulin. SYMLIN is intended to improve blood glucose control in people treated with insulin alone, or insulin plus one or more oral medications, without causing an increase in body weight.

Scientific Overview. SYMLIN contains pramlintide, which is a synthetic analog of the human hormone amylin. It is the first member of a new class of therapeutic medications known as amylinomimetic agents, or amylin receptor agonists. Amylinomimetic agents mimic the actions of the hormone amylin and have demonstrated activity in blood glucose regulation. Amylin is produced by and secreted from the beta cells in the pancreas, the same cells that make and secrete insulin. Amylin complements the actions of insulin, and these two hormones work together with another pancreatic hormone, glucagon, to help maintain normal glucose concentrations. Along with insulin, amylin concentrations normally increase and glucagon levels decrease after meals.

In people with type 1 diabetes, insulin and amylin concentrations are extremely low or undetectable and do not increase after meals, and conversely, glucagon levels tend to rise after meals. In people with type 2 diabetes whose disease has progressed to the point where they need insulin therapy, the normal post-meal increase in insulin and amylin concentrations does not occur and glucagon levels also are inappropriately elevated in the post-meal period. These hormonal abnormalities contribute to the elevated glucose concentrations seen following meals. Replacement of insulin alone, the current therapy, cannot replace amylin’s actions, nor can insulin normalize post-meal glucagon concentrations.

Clinical Trials. More than 5,500 patients have been treated with SYMLIN, representing more than 3,600 patient years of exposure. We have completed six Phase 3 clinical trials with various doses of SYMLIN as well as numerous Phase 2 and Phase 1 trials. Additionally, we completed long-term open-label safety trials and open-label extensions of the Phase 3 clinical trials to assess long-term effects of SYMLIN. Our Phase 3 trials have shown a statistically significant reduction in

A1C levels for both type 1 and insulin-using type 2 patients. Data from our short-term clinical trials involving both type 1 and insulin-using type 2 patients with diabetes showed that SYMLIN, as an adjunct to insulin:

• slowed the rate of gastric emptying;

• prevented the abnormal rise in glucagon after meals; and

• reduced the range of after-meal variations in blood glucose levels.

Collectively, across all of our long-term Phase 3 clinical trials, patients with type 1 diabetes and type 2 diabetes receiving the recommended dosage of SYMLIN in addition to their existing diabetes therapy achieved an average additional reduction in A1C of 0.3% and 0.4%, respectively, at the end of 26 weeks, compared to patients using insulin with placebo. In these studies, patients with type 2 diabetes who were treated with SYMLIN lost an average of 3.3 pounds during the trial period, while patients with type 2 diabetes in the control group gained an average of 0.7 pounds. Trial participants with type 1 diabetes who received the recommended dosage of SYMLIN lost an average of 2.4 pounds at the end of 26 weeks, while those patients receiving insulin and placebo gained an average of 1.5 pounds.

In our long-term clinical trials of 26 or 52 weeks, the addition of SYMLIN did not adversely affect patients’ lipids or blood pressure. The most commonly occurring side effects in our SYMLIN trials have been nausea, anorexia and vomiting, which were generally mild to moderate in intensity, were dose related, occurred early in treatment and generally dissipated over time. Increased rates of severe hypoglycemia were also observed, primarily in type 1 patients at the initiation of therapy.

We currently have an open-label Phase 3 extension study of a dose titration trial we began in 2002 and a Phase 3 open-label clinical study evaluating the use of SYMLIN in type 1 and type 2 patients in a standard endocrine/diabetes specialist practice setting.

Regulatory Status. In December 2000, we submitted an NDA for SYMLIN to the FDA. We received a letter from the FDA in October 2001 stating that SYMLIN was approvable for marketing in the United States, as an adjunctive therapy with insulin, for the treatment of type 1 and insulin-using type 2 diabetes patients, subject to satisfactory results from additional clinical trials. After consultation with the FDA, we conducted a seven-month dose titration study and four smaller trials to clarify suggested prescribing information. In June 2003, we submitted an amendment to our SYMLIN NDA. In December 2003, we received a second approvable letter from the FDA stating that SYMLIN is approvable for marketing in the United States as an adjunctive therapy with insulin, subject to providing the FDA additional clinical data. The FDA requested additional clinical data to identify a patient population and method of use for SYMLIN where there is no increased risk of significant hypoglycemia or where there is an added benefit that clearly counterbalances any potential for increases in episodes of hypoglycemia. In September 2004 we submitted a complete response to the FDA’s second approvable letter. Submission of a complete response after receipt of an approvable letter is intended to answer all of the questions that need to be addressed prior to approval. The FDA is expected to respond to this new submission by March 20, 2005.

Our complete response identified a patient population and method of use for SYMLIN which we believe would be appropriate. The proposed patient population would include those patients:

• who have healthcare providers skilled in the use of insulin;

• who understand and can execute appropriate insulin adjustments;

• are willing to do regular glucose monitoring; and

• have received, along with their healthcare provider, appropriate education.

The proposed method of use to introduce SYMLIN includes:

• the proactive reduction in short-acting insulin;

• SYMLIN dose-escalation, self-regulated in response to the occurrence of nausea; and

• the early withdrawal or discontinuation of patients who experienced severe or persistent nausea or who find the SYMLIN treatment regimen burdensome.

The complete response document included data from approximately 486 patients whose data the FDA had not previously reviewed. In addition, it provided a comprehensive review of the ongoing open-label trials. Our analysis of the data from these trials indicate that a revised dosing regimen could result in reduced rates of severe hypoglycemia, especially during the initiation of SYMLIN therapy. The open-label trials also demonstrated efficacy similar to that seen in the pivotal studies. The complete response document included a proposed risk management program consisting of patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-marketing observational study, and ongoing safety and reporting mechanisms.

Target Market. The primary patient population focus for SYMLIN is people with diabetes who use insulin and meet the criteria outlined above. This target population currently has limited therapeutic options. Patients with type 2 diabetes who have progressed to insulin therapy have typically exhausted other therapeutic options for improved blood glucose control due to advanced beta-cell dysfunction. Patients with type 1 diabetes generally have complete beta-cell deficiency and must use insulin to sustain life or undergo islet transplant therapy, which, in some cases, can temporarily render them insulin-independent.

We estimate that approximately 4.5 million people in the United States use insulin, based on published and proprietary estimates. Within this population group, we estimate that approximately one million people, have type 1 diabetes, and the remaining 3.5 million have type 2 diabetes. We estimate that approximately 75% of the individuals on insulin are not meeting their treatment goals. SYMLIN is an injectable product and we plan to market it initially in a syringe/vial form and eventually, in a disposible pen/cartridge system similar to those currently marketed with newer insulin preparations.

Commercialization Operations

We have established a commercial team to focus on the development and execution of our commercialization strategies. Our commercialization infrastructure includes the following internal functions:

• sales and sales operations

• marketing

• managed care and payor reimbursement

• training

• medical affairs and medical education

• customer service and call center

• regulatory affairs

• pharmacovigilance and post-marketing surveillance

• manufacturing and distribution logistics

• quality assurance

Members of this team have extensive industry experience from a wide range of large and small companies and have substantial experience in the field of diabetes, as well as in launching and marketing pharmaceutical products. To date, their activities have been focused on developing the plans for commercializing exenatide and SYMLIN and on preparations for the expansion of our organization that will be required to perform sales and marketing activities if any of our drug candidates are approved.

Our exenatide commercialization plan is designed to enable us to prepare for its launch in the United States, pending FDA approval. We believe the target market for exenatide patients is concentrated. We plan to increase our existing field force to approximately 350-400 field personnel to support our U.S. sales and medical education effort, which includes our sales force and medical affairs and managed care field personnel. Lilly will co-promote exenatide utilizing one of its sales forces. In addition, we have a managed care team that is equipped to target patients covered by managed care organizations. We have a medical education program in place to reach a substantial number of physicians. Finally, our customer service and call center is in place. Lilly will be primarily responsible for commercialization efforts outside the United States.

Our SYMLIN commercialization plan is designed to leverage the infrastructure we have in place for our exenatide commercialization plan. Our planned launch activities for SYMLIN, if approved, will focus on a limited group of endocrinologists and other selected physicians who frequently prescribe insulin.

In early 2003, we established a sales force of approximately 50 people and necessary support staff to enable us to co-promote Humatrope, Lilly’s recombinant human growth hormone product, in the United States. We marketed Humatrope primarily to endocrinologists, the primary target prescribers of SYMLIN, through March 2004. In April 2004, we began to

co-promote Reliant Pharmaceuticals, Inc.’s cardiovascular products that address cholesterol management and hypertension to these endocrinologists. If SYMLIN and exenatide are both approved, we have the right to terminate our arrangement with Reliant.

Phase 2 Programs

In addition to our late stage development programs in exenatide and SYMLIN, we have a Phase 2 program in each of the therapeutic areas of diabetes, obesity, and cardiovascular disease. These diseases are interrelated, as obesity is a major risk factor in both diabetes and cardiovascular disease. In addition, persons with diabetes are more likely to develop cardiovascular disease than persons without diabetes.

Exenatide LAR

The combination of potency and the glucose dependent mechanism of action inherent in exenatide makes it well suited to development of a sustained-release formulation. In May 2000, we signed an agreement with Alkermes, Inc. for the development, manufacture and commercialization of an injectable sustained-release formulation of exenatide, which we refer to as exenatide LAR. The goal of the work under this agreement is to develop a formulation that might allow once-a-week to once-a-month administration of exenatide for the treatment of type 2 diabetes. This program is being jointly managed by Amylin, Lilly, and Alkermes. The parties are continuing to engage in manufacturing scale-up activities.

In the first quarter of 2005, we initiated a Phase 2 multi-dose study of exenatide LAR in patients with type 2 diabetes using a once-a-week dosing regimen. The multi-dose study is a placebo-controlled, multi-center study of up to 45 subjects with type 2 diabetes failing to achieve adequate glucose control using diet and exercise with or without metformin. The primary objectives of the study include safety and tolerability, and the pharmacokinetics of weekly administered exenatide LAR. Secondary objectives will include effects on A1C, fasting blood glucose and body weight. We made the decision to commence this multi-dose study based on results of our Phase 2 single-dose study of exenatide LAR in patients with type 2 diabetes using a once-a-week dosing regimen.

The Phase 2 single-dose study included approximately 60 subjects with type 2 diabetes who were failing to achieve adequate glucose control using diet and exercise with or without metformin. Subjects were randomized to receive a single subcutaneous injection of exenatide LAR at one of four doses or placebo, and were observed for 90 days. Dosing and follow-up observation of the final exenatide LAR dosage group were completed in early 2005. Data from the ongoing Phase 2 single-dose study have demonstrated sustained-release of exenatide with no dose-limiting side effects. The injection was well-tolerated.

Obesity

Obesity is a condition that significantly raises the risk of illness, disability or death from serious medical conditions including hypertension, type 2 diabetes, cardiovascular disease, stroke and certain cancers. It is a major health problem in all developed countries. In the United States, obesity-related medical costs exceed $125 billion a year. It is estimated that approximately 130 million adults in the United States are considered overweight, and approximately 60 million adults in the United States are obese. Of these adults, approximately 9 million are severely obese. Obesity is estimated to cause approximately 365,000 deaths yearly, which makes it the second-leading cause of preventable deaths.

Obesity is characterized by excess body fat and occurs when more calories are consumed than burned. Genetic, metabolic, psychological, and environmental factors can all contribute to obesity. Obesity is measured by Body Mass Index, or BMI, a mathematical formula using a person’s height and weight. A person with a BMI between 25 and 29.9 is considered overweight. A person with a BMI of 30 or more is considered obese, and a person with a BMI of 40 or more is considered severely obese. Current treatments for obesity include dietary therapy, physical activity, drug therapy and surgery.

AC137 (pramlintide for obesity)

We are developing AC137 as a drug candidate for the potential treatment of obesity. The active ingredient in AC137 is pramlintide acetate, the same as in SYMLIN. Pramlintide acetate has been studied extensively in people with diabetes and has demonstrated the effect of lowering body weight.

In December 2004, we reported the results from a Phase 2 study in obese patients evaluating the safety and tolerability of AC137. In the study, obese subjects were able to tolerate higher doses of pramlintide than those previously

studied, and achieved clinically and statistically significant weight loss. Approximately 90% of subjects receiving pramlintide were able to progress to the highest dose of 240 micrograms three times a day, a dose two times that typically studied in our diabetes program. Consistent with previous observations, the most common side effect observed with pramlintide compared to placebo was mild, transient nausea. No severe hypoglycemia was observed in this study. Symptoms suggestive of mild hypoglycemia were observed in a small number of patients in both pramlintide and placebo groups.

This blinded, placebo-controlled study included 204 obese subjects, 160 without diabetes and 44 with type 2 diabetes that were not treated with insulin. After a 1-week placebo lead-in period, study participants received pramlintide or placebo three times a day before meals and were asked to maintain their usual diet and exercise routines. During a 4-week dose-escalation period, subjects increased study medication to their highest tolerated dose, or a maximum of 240 micrograms three times a day. Following this dose-escalation period, subjects continued with their maintenance dose for 12 weeks. Pramlintide treated subjects completing the 16-week active treatment period experienced progressive weight loss with an approximate 3.6% (3.5 kg) average reduction in body weight compared to placebo (p<0.0001). Thirty-one percent of pramlintide recipients completing active treatment achieved a 5% or greater weight loss compared to 2% of placebo recipients (p<0.0001). In addition, patients in the pramlintide arm decreased their waist circumference by an average of 3.4 centimeters compared to patients in the placebo arm.

We plan to file an Investigational New Drug application, or IND, for AC137 in obesity and initiate a Phase 2b dose-ranging study in 2005.

Cardiovascular Disease

Congestive heart failure, or CHF, occurs when the heart cannot adequately pump oxygenated blood throughout the body, resulting in impaired kidney function and an accumulation of fluid in the lungs and other body tissues. Many diseases or medical conditions contribute to CHF, including ischemic heart disease, high blood pressure and diabetes. CHF carries risks of morbidity and mortality above and beyond those of the underlying diseases. More than 5 million persons in the United States are affected with CHF, and it is the most frequent cause of hospitalization for persons 65 and older.

AC2592 (GLP-1)

In January 2003, we completed the acquisition from Restoragen, Inc. of rights to a Phase 2 program utilizing continuous infusion of GLP-1, or AC2592, for the treatment of CHF in patients ineligible for transplant. GLP-1 is a naturally occurring hormone produced in the gut in response to food intake. In connection with this transaction, we also acquired various GLP-1 related patents. We paid Restoragen approximately $3.3 million at closing and in January 2004, paid an additional $700,000 upon receiving satisfactory results from a Phase 2 clinical trial. Restoragen may also receive future contingent milestone payments and royalties on product sales.

In July 2003, we reported on an open-label Phase 2 study involving 14 patients with New York Heart Association (NYHA) Class III or IV congestive heart failure, all of whom received GLP-1. The patients were followed for 12 weeks and monitored on a number of parameters. Outcome measures included peak oxygen consumption, left ventricular ejection fraction, quality-of-life assessment, and B-type natriuretic peptide, or BNP (an indicator of heart dysfunction). Patients received infusion of GLP-1 at an introductory dose for the first week, a higher-level infusion of GLP-1 for weeks 2 through 5, the maximum infusion dose for weeks 6 through 9, and no medication from weeks 10 through 12. Patients showed general improvement in a composite score designed to quantify quality-of-life and cardiac function while receiving study medication. The composite score returned to baseline when medication was discontinued. The severity of heart failure, as indicated by NYHA class, also improved during GLP-1 administration. The most common adverse event reported was mild to moderate nausea.

We filed an IND for AC2592 and initiated a Phase 2 multi-dose clinical study of AC2592 in the fourth quarter of 2004. This multi-dose study of approximately 180 patients is a placebo-controlled, multi-center trial to evaluate the efficacy, safety and tolerability of AC2592 in subjects with NYHA Class III or IV congestive heart failure. The primary endpoint is peak oxygen consumption and the secondary endpoints are related to quality-of-life and cardiac function, including left ventricular ejection fraction and BNP.

Phase 1 Programs

We also have two Phase 1 programs in obesity and cardiovascular disease and a discovery research program focused on peptide therapeutics.

AC162352 (PYY 3-36)

We are developing AC162352 (PYY 3-36) as a drug candidate for the potential treatment of obesity. Independent researchers have reported a reduction in food intake in humans using PYY 3-36. In 2003, we conducted preclinical studies on AC162352. We completed a Phase 1 study in 2004, and are currently reviewing our strategic options and will incorporate the data from this study into future decisions.

AC3056

We are currently evaluating AC3056, a compound we in-licensed from Aventis Pharma in 1997, in an on-going Phase 1 program in which we have completed three studies. AC3056 is designed for the treatment of atherosclerosis-related cardiovascular disease. In animal studies, AC3056: 1) reduced serum low density lipoproteins, known as LDLs, but not serum high density lipoproteins, referred to as HDLs; 2) inhibited lipoprotein oxidation; and 3) inhibited the expression of cell adhesion molecules in vascular cells. We are evaluating our strategic opportunities for this drug candidate.

Research and Development Activities

The metabolic components of diabetes, obesity and cardiovascular disease are linked in many ways that may allow us to leverage our more than a decade of expertise to develop new drug candidates to treat these conditions. We currently have approximately 345 full-time employees dedicated to our research and development activities, including approximately 100 employees with Ph.D. or M.D. degrees, eight of whom are diabetologists.

Our scientists are primarily focused on investigating the biological actions and potential utilities of new peptide hormone candidates. We are also using our resources to optimize pharmaceutical properties of peptide drugs to develop new peptide hormone analogs. Our scientists are also involved in the ongoing evaluation of in-licensing opportunities.

In the years ended December 31, 2004, 2003 and 2002, we incurred research and development expense of $119.6 million, $149.4 million, and $94.5 million, respectively.

Lilly Collaboration

In September 2002, we entered into a collaboration agreement with Lilly for the global development and commercialization of exenatide, including both twice-daily and sustained-release formulations, such as exenatide LAR. Under the terms of the agreement, Lilly made initial payments to us totaling $110 million, of which $30 million was for the purchase of approximately 1.6 million shares of our common stock. In addition to these up-front payments, Lilly agreed to make future milestone payments of up to $85 million upon the achievement of certain development milestones, including milestones relating to both twice-daily and sustained-release formulations of exenatide. To date, Lilly has paid $40 million in development milestones related to the twice-daily formulation of exenatide. Under the agreement, a substantial amount of these future development milestone payments related to sustained-release formulations of exenatide could be converted into our common stock, at Lilly’s option, if the filing of the NDA with the FDA for the sustained-release formulation of exenatide is delayed beyond December 31, 2007. Lilly has agreed to make additional future milestone payments of up to $130 million contingent upon the commercial launch of exenatide in selected territories throughout the world, including both twice-daily and sustained-release formulations. Our collaboration agreement may be terminated by Lilly at any time on sixty days notice.

We share U.S. development and commercialization costs with Lilly equally. Development costs outside of the United States will be shared 80% by Lilly and 20% by us, and Lilly is responsible for all commercialization costs outside of the United States.

In addition, following successful completion of the three pivotal Phase 3 trials for exenatide and contingent upon certain other events, Lilly agreed to make available to us up to a $110 million loan facility to fund a portion of our development and commercialization costs for exenatide. We expect that approximately $70 million of this facility will be available to us if exenatide is approved. The loan will be secured by certain of our patents and other collateral and would become convertible into our common stock if amounts remain outstanding for more than two years.

Each company will receive 50% of the operating profits from the sale of the product in the United States. Operating profits elsewhere will be shared at 80% to Lilly and 20% to us. We will record all U.S. product revenues and Lilly will record all other product revenues.

Under our co-promotion arrangement with Lilly, the parties have agreed to use approximately equal efforts to co-promote exenatide and sustained-release formulations of exenatide within the United States. Lilly will be primarily responsible for commercialization efforts outside the United States.

Patents, Proprietary Rights, and Licenses

We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements that may be important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our rights to proprietary information and technology. We review third-party patents and patent applications, both to shape our own patent strategy and to identify useful licensing opportunities.

We own or hold exclusive rights to more than 46 issued U.S. patents and more than 63 pending U.S. applications. We have more than 13 pending and more than 10 issued U.S. patents that we believe are relevant to the development and commercialization of pramlintide, including uses for diabetes and obesity. We have more than 24 pending and issued U.S. patents that we believe are relevant to the development and commercialization of exenatide. We have also filed foreign counterparts of many of these issued patents and applications. Included within our pramlinitide patent portfolio are issued patents for:

• pramlintide and other amylin agonist analogues invented by our researchers;

• the amylin molecule;

• amylin agonist pharmaceutical compositions, including compositions containing pramlintide and compositions containing amylin;

• methods for treating diabetes using any amylin agonist;

• methods for synthesis of amylin and amylin analogues; and

• methods for preparing products that include an amylin agonist in composition for parenteral administration.

With respect to exenatide, we have patents and patent applications pending which include claims directed to exendins, exendin analogs, agonists and their uses to:

• modulate gastric emptying;

• inhibit glucagon secretion;

• stimulate insulin release;

• reduce serum lipids; and

• generate insulin-producing cells from non-insulin producing cells.

We do not have a composition of matter patent for the exenatide molecule. We have patent applications pending for the twice-daily and sustained-release formulations of exenatide.

With respect to our other drug candidates, we have patents and patent applications pending, or have licensed patents and patent applications, relevant to the development and commercialization of such products. With regard to our development of AC3056, we received a letter from a third party informing us of the availability of three U.S. patents for licensure. We do not believe that these patents are material to our AC3056 development plans.

Generally, our policy is to file foreign counterpart applications in countries with significant pharmaceutical markets.

Manufacturing

We have entered into agreements with Bachem California and Mallinckrodt, Inc. for the long-term supply of bulk exenatide. We have long-term agreements with CP Pharmaceuticals Ltd., a subsidiary of Wockhardt Ltd., and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc., for the dosage form of exenatide in cartridges. We have an agreement with Lilly to supply pens for delivery of exenatide in cartridges. We work with three contract suppliers, Bachem, UCB S.A., and Mallinckrodt, who have the capabilities for the commercial manufacture of bulk pramlintide acetate, the active ingredient contained in SYMLIN. Two of these suppliers have entered into long-term agreements with us. We have a long-term contract with Baxter for the dosage form of SYMLIN in vials, which is the dosage form we intend to use upon launch if SYMLIN is approved. Baxter will need to be approved by the FDA to manufacture SYMLIN, a process which could take up to 6 months after approval of SYMLIN. While we believe we have sufficient vial inventory of SYMLIN to launch and supply our needs until we have obtained FDA approval of Baxter, if there are delays in obtaining Baxter’s approval, we may not have sufficient inventory to satisfy potential demand for SYMLIN. We have an agreement with CP Pharmaceuticals for the dosage form of SYMLIN in cartridges and are working with a manufacturer, Ypsomed AG, for the manufacture of pens for delivery of SYMLIN in cartridges.

We have selected manufacturers that we believe comply with current good manufacturing practices and other regulatory standards. We have established a quality control and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that exenatide and pramlintide acetate are manufactured in accordance with current good manufacturing practices and other domestic and foreign regulations.

Although some materials for our drug candidates are currently available from only one qualified source, we will attempt to acquire a substantial inventory of such materials, establish alternative sources and/or negotiate long-term supply arrangements. We believe we will not have any material supply issues; however, we cannot be certain that we will be able to obtain long-term supplies of those materials on acceptable terms.

Under our agreement with Alkermes, Alkermes is responsible for manufacturing exenatide LAR. The parties are continuing to engage in manufacturing scale-up activities. We have no long-term agreements for our other drug candidates and we obtain them from third-party contract manufacturers.

Government Regulation

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of pharmaceutical products. All of our potential products, including SYMLIN and exenatide, will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-market approval requirements by the FDA and regulatory authorities in foreign countries. Various federal and state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such products.

The activities required before a pharmaceutical agent may be marketed in the United States begin with preclinical testing. Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and activity of the product and its formulations. The results of these studies must be submitted to the FDA as part of an Investigational New Drug Application, or IND, which must be reviewed by the FDA before a proposed clinical trial can begin. Typically, clinical trials involve a three-phase process. In Phase 1, clinical trials are conducted with a small number of healthy volunteers to determine the early safety and tolerability profile and the pattern of drug distribution and metabolism. In Phase 2, clinical trials are conducted with groups of patients afflicted with a specified disease in order to determine preliminary efficacy, dosing regimens and expanded evidence of safety. In Phase 3, large-scale, multi-center, adequate and well-controlled comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and others. The results of the preclinical testing and clinical trials for a pharmaceutical product are then submitted to the FDA in the form of a New Drug Application, or NDA, for approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not satisfy its regulatory approval criteria.

Among the conditions for NDA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to current good manufacturing practices. In complying with these practices, manufacturers must continue to expend time, money and effort in the area of production and quality control and quality assurance to ensure full technical compliance. Manufacturing facilities are subject to periodic inspections by the FDA to ensure compliance.

We are also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research.

The activities required before a pharmaceutical agent may be marketed in the European Union are dictated by the International Conference on Harmonization and are generally similar to those established in the United States. Approval of new drugs across the European Union relies on either the mutual recognition process or the centralized approval process of the European Medicines Evaluation Agency, or EMEA. Under the centralized procedure, the marketing application is referred for review to two review teams, each representing one of the member countries. Each reviewer then forwards an early assessment to the Committee for Proprietary Medicinal Products, or CPMP, for discussion and preparation of an initial consolidated assessment report, including a list of questions requesting clarification as well as additional information. This step initiates a series of dialogues, meetings and other communications among the CPMP, the two review teams and the applicant, leading in turn to clarification, education and refinement of the original assessment reports. Ultimately, a decision is reached to either grant marketing approval or deny the application if it is determined that the application does not satisfy the regulatory approval criteria. An alternative regulatory procedure in Europe to the centralized procedure for some drugs is the mutual recognition process. Under the mutual recognition process, an application is filed in one country for review. If the drug is approved in that country, it may only be marketed initially in that country. However, under the mutual recognition process, other European countries may individually recognize the approval and allow the drug to then be marketed in such countries.

The clinical testing, manufacture and sale of pharmaceutical products outside of the United States and the European Union are subject to regulatory approvals by other jurisdictions which may be more or less rigorous than those required by the United States or the European Union.

Competition

Biotechnology and pharmaceutical companies are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our products. A number of our largest competitors, including Astra Zeneca, Bristol-Myers Squibb Company, sanofi-aventis, GlaxoSmithKline, Eli Lilly and Company, Merck & Co., Novartis AG, Novo Nordisk, Pfizer and Takeda Pharmaceuticals, are pursuing the development of or are marketing pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity, cardiovascular disease, and other metabolic disorders will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products. These companies may develop and introduce products and processes competitive with or superior to ours. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology and products noncompetitive or obsolete. For example, all of our drug candidates are injectable, and may have to compete with therapies that do not require injection. We cannot be certain that we will be able to compete successfully.

We believe that SYMLIN is the only non-insulin-based drug candidate in late-stage clinical development for improving blood glucose control in people with type 1 diabetes. Further, insulin and oral medications are often insufficient for many people with type 2 diabetes to achieve satisfactory glucose and weight control. Exenatide or SYMLIN may be complementary to, or competitive with, these other medications. Although competitive activity in the diabetes market is intense, most recent activity has resulted in additional treatment options for people with type 2 diabetes who are responsive to oral medications.

If approved for marketing, exenatide or SYMLIN may compete with established therapies for market share. In addition, many companies are pursuing the development of novel pharmaceuticals that target diabetes. These companies may develop and introduce products competitive with or superior to exenatide or SYMLIN. Such competitive or potentially competitive products include:

• sulfonylureas;

• metformin;

• insulin;

• glinides;

• PPARS

• alpha-glucosidase inhibitors; and

• thiazolidinediones (TZDs)

There is substantial competition in the discovery and development of treatments for obesity, as well as emerging prescription and over-the-counter treatments for this condition. Current treatments for obesity include dietary therapy, physical activity, drug therapy and surgery. Hoffmann-LaRoche and Abbott Laboratories already market oral medicines for the treatment of obesity. Regeneron Pharmaceuticals, Inc. and sanofi-aventis have late stage clinical programs ongoing, and a number of other pharmaceutical companies are developing new potential therapeutics.

Current therapies for congestive heart failure in patients include angiotensin converting enzyme inhibitors, angiotensin receptor blockers, beta blockers, aldosterone antagonists and Nesiritide (B-type natiuretic peptide). Other therapies include the use of various devices or the periodic infusion of inotropic agents. Endothelin receptor antagonist and other therapies and devices are under investigation for the treatment of heart failure. None of these aforementioned agents or therapies are directed at correcting the cardiac metabolic abnormalities associated with congestive heart failure.

Employees

As of December 31, 2004, we had approximately 600 full-time employees. A significant number of our management and professional employees have had experience with pharmaceutical, biotechnology or medical product companies. We believe that we have been highly successful in attracting skilled and experienced personnel. None of our employees is covered by collective bargaining agreements and we consider relations with our employees to be good.

Directors and Officers

The names of our directors and officers and certain information about them as of March 1, 2005 are set forth below:

Name	Age	Position
Ginger L. Graham (4)	49	President, Chief Executive Officer and Director
Joseph C. Cook, Jr. (4)	63	Chairman of the Board
Vaughn D. Bryson (1) (3)	66	Director
Howard E. Greene, Jr.(2) (4)	62	Director
Terrance H. Gregg (1) (3)	56	Director
Jay S. Skyler, M.D.	58	Director
Joseph P. Sullivan (2) (4)	62	Director
Thomas R. Testman (2)	68	Director
James N. Wilson (1) (3)	61	Director
Daniel M. Bradbury	43	Chief Operating Officer
Alain D. Baron, M.D.	51	Senior Vice President, Research
Martin R. Brown	58	Senior Vice President, Human Resources and Corporate Services
Joann L. Data, M.D., Ph.D.	60	Senior Vice President, Regulatory Affairs and Quality Assurance
Dwayne M. Elwood	57	Senior Vice President, Marketing
Orville G. Kolterman, M.D.	57	Senior Vice President, Clinical Affairs
Craig A. Eberhard	45	Vice President, Sales
Mark G. Foletta	44	Vice President, Finance and Chief Financial Officer
Michael R. Hanley, Ph.D.	53	Vice President, Discovery Research
Joni Harvey	50	Vice President, Technical Operations
Richard A. Hiles, Ph.D.	61	Vice President, Nonclinical Drug Safety/Bioanalytical
David Maggs, M.D.	44	Vice President, Medical Affairs
Lisa E. Porter, M.D.	41	Vice President, Clinical Development
Lloyd A. Rowland	48	Vice President, Legal, General Counsel and Secretary
Gregg Stetsko, Ph.D.	48	Vice President, Operations
Andrew A. Young, M.D., Ph.D.	52	Vice President and Senior Research Fellow

(1) Member of the Compensation and Human Resources Committee.

(2) Member of the Audit Committee.

(3) Member of the Nominating and Governance Committee.

(4) Member of the Finance Committee.

Ms. Graham has been our President and Chief Executive Officer since September 2003. Ms. Graham has served as a director since November 1995 and currently serves on the Finance Committee. She previously served on the Audit Committee and the Nominating and Governance Committee. From February 2000 until June 2003, Ms. Graham held various positions with Guidant Corporation, most recently as Advisor to the President. Previously she served Guidant as Group Chairman, Office of the President with responsibility for global geographically based operations and as President of the Vascular Intervention Group and Vice President, Guidant. In 1993, Ms. Graham was named President and CEO of Advanced Cardiovascular Systems (ACS). Prior to joining ACS, she held various positions with Eli Lilly and Company from 1979 to 1992 including sales, marketing and strategic planning positions. She serves on the board of directors of the Pharmaceutical Research and Manufacturers of America and the California Healthcare Institute, as well as the Harvard Business School Health Advisory Board, the Advisory Board for the Kellogg Center for Executive Women and the University of California, and the San Diego Health Sciences Advisory Board. Ms. Graham received an M.B.A. from Harvard University.

Mr. Cook has been our Chairman of the Board since March 1998. He currently serves on our Finance Committee. He served as our Chief Executive Officer from March 1998 until September 2003. From 1994 to 1998, Mr. Cook served as a director and a consultant to us. Mr. Cook is a founder and serves as Chairman of the Board of Microbia, Inc., a privately held biotechnology company. He also serves as a director of Corcept Therapeutics Incorporated. Mr. Cook is also a founder of Mountain Group Capital, LLC, Clinical Products, Inc., Cambrian Associates, LLC, and Mountain Ventures, Inc. Mr. Cook also serves on the boards of the American Diabetes Research Foundation, the Advisory Board of the College of Engineering, University of Tennessee and the Board of Trustees for Louisville Presbyterian Theological Seminary. Mr. Cook retired as a Group Vice President of Eli Lilly & Company in 1993 after more than 28 years of service. Mr. Cook received a B.S. in Engineering from the University of Tennessee.

Mr. Bryson has served as a director since July 1999 and serves as the chair of our Nominating and Governance Committee and on the Compensation and Human Resources Committee. Mr. Bryson was a thirty-two year employee of Eli Lilly & Company and retired as its President and Chief Executive Officer in 1993. He was Executive Vice President from 1986 until 1991, and served as a member of Eli Lilly’s board of directors from 1984 until his retirement in 1993. Mr. Bryson was Vice Chairman of Vector Securities International from April 1994 to 1996. Mr. Bryson is President of Clinical Products, Inc., which develops and markets medical foods for people with diabetes and obesity. He serves on the board of directors of AtheroGenics, Inc., Chiron Corporation and ICOS Corporation. Mr. Bryson received a B.S. in Pharmacy from the University of North Carolina and completed the Sloan Program at the Stanford University Graduate School of Business.

Mr. Greene is our co-founder and has served as a director since our inception in 1987. Mr. Greene serves on the Audit Committee and the Finance Committee. Mr. Greene is an entrepreneur who has participated in the founding and/or management of eleven medical technology companies over two decades, including three companies for which he served as chief executive officer. From 1987 to 1996, Mr. Greene served as our Chief Executive Officer. From 1986 until 1993, Mr. Greene was a founding general partner of Biovest Partners, a seed venture capital firm. He was Chief Executive Officer of Hybritech from 1979 until its acquisition by Eli Lilly & Company in 1986, and he was co-inventor of Hybritech’s patented monoclonal antibody assay technology. Prior to joining Hybritech, he was an executive with the medical diagnostics division of Baxter Healthcare Corporation from 1974 to 1979 and a consultant with McKinsey & Company from 1967 to 1974. He is Chairman of the Board of Epimmune, Inc. and a director of Biosite Incorporated. Mr. Greene received an M.B.A. from Harvard University.

Mr. Gregg has served as a director since October 2001 and serves on the Compensation and Human Resources Committee and the Nominating and Governance Committee. Mr. Gregg is associated with Galen-Partners, a venture capital firm, as a Special Ventures Partner. Until September 2004, Mr. Gregg served as a senior advisor to the diabetes business of Medtronic, Inc., a medical technology company. He had served in this capacity since he retired in 2002 as Vice President of Medtronic and as President of Medtronic MiniMed, positions he had held since 2001. Mr. Gregg previously served as President and Chief Operating Officer of Minimed Inc. from 1996 until its acquisition by Medtronic in 2001. Mr. Gregg joined Minimed as Vice President of Regulatory Affairs and Clinical Research in 1994 and in 1995 was promoted to Executive Vice President, Operations. Prior to joining Minimed, Mr. Gregg spent the preceding nine years as Vice President of Governmental Affairs for Ioptex Research, the ophthalmic surgical products subsidiary of Smith & Nephew, PLC. Prior to joining Ioptex Research, Mr. Gregg was responsible for Regulatory Affairs, Clinical Research and Quality Assurance for divisions of Allergan, Inc. Mr. Gregg serves on the board of directors of Vasogen, Inc. and LMS Medical Systems, Ltd. Mr. Gregg is also an Ambassador to the President of the University of Southern California, and formerly served as the Chairman of the American Diabetes Association Research Foundation Board. Mr. Gregg received a B.S. in Zoology from Colorado State University.

Dr. Skyler has served as a director since August 1999 and previously served on the Nominating and Governance Committee. He is Professor of Medicine, Pediatrics and Psychology, in the Division of Endocrinology Diabetes and Metabolism; Associate Director for Academic Programs at the Diabetes Research Institute; and Director of the General Clinical Research Center; all at the University of Miami in Florida, where he has been employed since 1976. He is also Study Chairman for the National Institute of Diabetes & Digestive & Kidney Diseases of the Type 1 Diabetes TrialNet clinical trial network, and serves on the board of directors of Dexcom, Inc. Dr. Skyler has served as President of the American Diabetes Association and as Vice President of the International Diabetes Federation. Dr. Skyler serves on the editorial board of several diabetes and general medicine journals. He received his B.S. from Pennsylvania State University, his M.D. from Jefferson Medical College, and completed postdoctoral studies at Duke University Medical Center.

Mr. Sullivan has served as a director since September 2003 and serves on the Audit Committee and the Finance Committee. Mr. Sullivan is currently Chairman of the Board of Advisors of RAND Health and Vice Chairman of the Board of the UCLA Medical Center. From 2000 to 2003, Mr. Sullivan served as Chairman, Chief Executive Officer and a director of Protocare, Inc. From 1993 to 1999, he served as Chairman, Chief Executive Officer and a director of American Health Properties, Inc. For the previous twenty years, Mr. Sullivan was an investment banker with Goldman Sachs. Mr. Sullivan also currently serves on the board of directors of SCCI, Inc. (a private long-term acute care hospital company), Covenant Care, Inc. (a private nursing home company), and Health Care Property Investors, Inc. (a real estate investment trust). Mr. Sullivan received his M.B.A. from Harvard University and his J.D. from the University of Minnesota Law School.

Mr. Testman has served as a director since December 2002 and serves as the chair of our Audit Committee. Mr. Testman is a former managing partner of Ernst & Young, LLP where, during his tenure from 1962 to 1992, he served as managing partner of both Health Care Services and Management Consulting Services for the West Coast and national practices. He also served as an area managing partner for the audit and tax practice. Mr. Testman currently serves on the board of directors of Endocare, Inc. He formerly served as Chairman of the Board of Specialty Laboratories, Inc. and on the board of directors of three other publicly held companies. He also serves on the board of four privately held health-care companies. He received an M.B.A. from Trinity University and is a certified public accountant (retired).

Mr. Wilson has served as a director since March 2002 and serves as the chair of our Compensation and Human Resources Committee and on the Nominating and Governance Committee. He is a director and Chairman of the Board of both Corcept Therapeutics Incorporated and NuGEN, Inc. From 1996 to 2001, Mr. Wilson was Chairman of the Board of Amira Medical, Inc. From 1990 to 1994, Mr. Wilson served as President and Chief Operating Officer of Syntex Corporation. Prior to 1990, he served in various senior management positions, including Chief Executive Officer for Neurex Corporation and LifeScan, Inc. Mr. Wilson serves on the board of directors of the American Diabetes Association Research Foundation, the Palo Alto Medical Foundation, A Stepping Stone Foundation (pre-school education) and the Insight Prison Project (rehabilitation for San Quentin inmates). Mr. Wilson received his B.A. and his M.B.A. from the University of Arizona.

Mr. Bradbury, one of our executive officers, has served as our Chief Operating Officer since June 2003, and previously served as Executive Vice President since June 2000. He previously served as Senior Vice President, Corporate Development from April 1998 to June 2000 and as Vice President of Marketing from June 1995 to April 1998. From July 1994 to May 1995, Mr. Bradbury, a native of the United Kingdom, served as Director of Marketing for Amylin Europe Limited. Prior to joining us, Mr. Bradbury was employed by SmithKline Beecham Pharmaceuticals from September 1984 to July 1994, where he held a number of positions, most recently as Associate Director, Anti-Infectives in the Worldwide Strategic Product Development Division. He is a director of Illumina, Inc. and Peninsula Pharmaceuticals, Inc. Mr. Bradbury is a member of the Royal Pharmaceutical Society of Great Britain and serves on the Advisory Council of the Keck Graduate Institute and the University of California-San Diego Leadership Council. He received a Bachelor of Pharmacy from Nottingham University and a Diploma in Management Studies from Harrow and Ealing Colleges of Higher Education.

Dr. Baron, one of our executive officers, has served as our Senior Vice President, Clinical Research since June 2002. He previously served as Vice President, Clinical Research since December 1999. Dr. Baron has been clinical Professor of Medicine at the University of California, San Diego, and Clinical VA Staff Physician at the VA Medical Center, San Diego, since 2001. From 1989 to 2000, Dr. Baron worked for the Indiana University School of Medicine, where he served as Professor of Medicine and Director, Division of Endocrinology and Metabolism. Earlier, Dr. Baron held academic and clinical positions in the Division of Endocrinology and Metabolism at the University of California, San Diego, and the Veterans Administration Medical Center in San Diego. He is the recipient of several prestigious awards for his research in diabetes and vascular disease, including the 1996 Outstanding Clinical Investigator Award from the American Federation for Medical Research, several awards from the American Diabetes Association, and is a current National Institutes of Health MERIT award recipient. He earned his M.D. from the Medical College of Georgia, Augusta, and completed postdoctoral

studies at the University of California, San Diego.

Mr. Brown, one of our executive officers, has served as Senior Vice President, Human Resources and Corporate Services since September 2004. He previously served as Senior Vice President, Operations since March 2000 and as Vice President, Operations from October 1998 to March 2000, and as Senior Director, Information Technology from May 1994 to October 1998. Prior to joining us, Mr. Brown was Director, Information Systems, Europe, for Eli Lilly from 1989 to 1993. From 1988 to 1989, Mr. Brown was Director, Information Systems for the Medical Devices and Diagnostics Division of Eli Lilly; he served as Director, Information Systems of IVAC Corporation, one of the seven companies in that division, from 1983 to 1988. Mr. Brown received a B.S. in Commerce and Engineering and an M.B.A. in Operations Research from Drexel University.

Dr. Data, one of our executive officers, has served as Senior Vice President, Regulatory Affairs and Quality Assurance since August 1999. From 1996 to 1999, Dr. Data served as an officer of CoCensys, most recently as Executive Vice President, Product Development and Regulatory Affairs. From 1990 to 1996, Dr. Data held several positions at The Upjohn Company, most recently as Corporate Vice President for Pharmaceutical Regulatory Affairs and Project Management. Previously, she held a number of positions at Hoffmann-La Roche, including Vice President of Clinical Research and Development. Dr. Data is a director of Stressgen Biotechnology Company. She earned her M.D. from Washington University School of Medicine and her Ph.D. in Pharmacology from Vanderbilt University.

Mr. Elwood, one of our executive officers, has served as Senior Vice President, Marketing since January 2003. Prior to joining us, Mr. Elwood served as a consultant to various pharmaceutical companies and other companies regarding pharmaceutical industry matters from November 2001 to January 2003. He served as Chief Commercial Officer at Corixa Corporation from December 2000, when Corixa acquired Coulter Pharmaceuticals, Inc., to November 2001. Mr. Elwood served in various positions at Coulter from 1997 until its acquisition by Corixa, including as Chief Commercial Officer beginning in January 1999, and Senior Vice President, Marketing and Sales beginning in July 1997. Earlier, Mr. Elwood served as Executive Director, New Product Development from 1990 to 1995, and Vice President, New Product Development from January 1995 to 1997 for Ortho-McNeil Pharmaceutical, a division of Johnson & Johnson. From 1983 to 1990, Mr. Elwood served in various positions at Bristol-Myers Squibb Company. He received his B.S. in Business Administration, with a special emphasis in Marketing and Accounting, from California State University.

Dr. Kolterman, one of our executive officers, has served as Senior Vice President, Clinical Affairs since February 1997. Dr. Kolterman previously served as Vice President, Medical Affairs from July 1993 to February 1997 and Director, Medical Affairs from May 1992 to July 1993. From 1983 to May 1992, he was Program Director of the General Clinical Research Center and Medical Director of the Diabetes Center, at the University of California, San Diego Medical Center. Since 1989, he has been Adjunct Professor of Medicine at UCSD. From 1978 to 1983, he was Assistant Professor of Medicine in the Endocrinology and Metabolism Division at the University of Colorado School of Medicine, Denver. He was a member of the Diabetes Control and Complications Trial Study Group and presently serves as a member of the Epidemiology of Diabetes Intervention and Complications Study. He is also a past-president of the California Affiliate of the American Diabetes Association. Dr. Kolterman earned his M.D. from Stanford University School of Medicine.

Mr. Eberhard, one of our executive officers, has served as Vice President, Sales since May 2003. Prior to joining us, Mr. Eberhard was Regional Vice President, Sales, at Pharmacia Corporation, for which he had worked for 21 years. During his career with Pharmacia Corporation and its related pre-merger companies, he held positions in sales, sales management, corporate training, sales operations, and managed care before assuming the Vice President, Sales position. Mr. Eberhard received his B.S. in Biology from the California Lutheran University.

Mr. Foletta, one of our executive officers, has served as Vice President, Finance and Chief Financial Officer since March 2000. Mr. Foletta previously served as a Principal of Triton Group Management, Inc. from 1997 to 2000. From 1986 to 1997, Mr. Foletta held a number of management positions with Intermark, Inc. and Triton Group Ltd., the most recent of which was Senior Vice President, Chief Financial Officer and Corporate Secretary. From 1982 to 1986, Mr. Foletta was with Ernst & Young, most recently serving as an Audit Manager. Mr. Foletta earned his B.A. in Business Economics from the University of California, Santa Barbara. Mr. Foletta is a certified public accountant.

Dr. Hanley has served as Vice President, Discovery Research since October 2003. He has been a member of our Scientific Advisory Board since 1992, and previously served as a senior scientific advisor for us. Prior to joining us, Dr. Hanley held faculty positions at Imperial College, London, the Medical Research Council Laboratories, Cambridge, and the University of California at Davis, where he was Professor of Biological Chemistry. Dr. Hanley has served on advisory or review panels for the National Institutes of Health, the Medical Research Council and Wellcome Trust of Great Britain, and for the governments of Australia, Singapore, New Zealand, Hong Kong, Denmark and Japan. From 1997 to 2003, Dr. Hanley

was a senior consultant for healthcare investors in the venture capital and banking communities and for biotechnology companies such as Cell Therapeutics, Zymogenetics, Elan Pharmaceuticals, and Chiron Corporation. Dr. Hanley has also set-up and directed research programs in privately-held start-ups, such as Chemocentryx, PsychoGenics, and most recently Harvard-based Resolvyx Pharmaceuticals. He received his B.S. in Biochemistry and his Ph.D. in Molecular Biology from the University of California, Berkeley.

Dr. Hiles has served as Vice President, Nonclinical Drug Safety/Bioanalytical, since March 2005. He has served in various positions since joining Amylin in 1998, most recently as Executive Director, Nonclinical Drug Safety/Bioanalytical since 2002 and as Senior Director, Preclinical Development from 2000 to 2002. Dr. Hiles previously served as Director, Pharmacokinetics and Metabolism at Calvert Preclinical Services from 1994 to 1997. He held various positions in preclinical and clinical development at Fujisawa Pharmaceuticals, Covance Laboratories, the Springborn Institute for Bioresearch and the Proctor & Gamble Company. Dr. Hiles received his B.S. in chemistry from Clemson University, his Ph.D. in biochemistry from Michigan State University, and completed post-doctoral studies at the University of Minnesota.

Ms. Harvey has served as Vice President, Technical Operations since September 2004, and previously served as Vice President, Quality Assurance since July 2003. Ms. Harvey previously served in various positions at Alliance Pharmaceutical Corp. from November 2000 to June 2003, including most recently as Vice President, Operations. Prior to joining Alliance, she was with Oliver Wight Americas, serving as a consultant to various pharmaceutical and electronic component companies. Ms. Harvey was with Molecular Biosystems, Inc. from 1988 to 2000, where she held various management positions, including most recently Vice President, Operations. In addition, she held both manufacturing and quality management positions at Baxter Hyland Division between 1980 and 1988. Ms. Harvey received her B.S. in Microbiology from California State University Long Beach.

Dr. Porter has served as Vice President, Clinical Development since September 2004. Prior to joining us, Dr. Porter served in various positions with GlaxoSmithKline Pharmaceuticals and its predecessor, SmithKline Beecham Pharmaceuticals, since 1999, most recently as Group Director, Metabolism Therapeutic Area, Clinical Development and Medical Affairs North America. Dr. Porter previously served as Associate Medical Director, Endo-Oncology, Zeneca Pharmaceuticals from 1997 to 1999. She received her B.S. from College of William and Mary, her M.D. from Duke University School of Medicine and completed a fellowship in Endocrinology and Metabolism at Brigham & Women’s Hospital.

Dr. Maggs has served as our Vice President, Medical Affairs since March 2005. He previously served as our Executive Director, Medical Affairs, and he joined us in October 2000 as our Senior Director, Medical Affairs. Previously, Dr. Maggs served as Director, Medical Research, Diabetes and Metabolism for Parke-Davis Co. Prior to that he was an Assistant Clinical Professor at Yale School of Medicine from 1997 to 1999 and completed fellowships at the University of Nottingham and at Yale School of Medicine. Dr. Maggs completed his original medical training at and received his M.B.B.S. and M.R.C.P. degrees from Guys Hospital, University of London and the Royal College of Physicians in London.

Mr. Rowland, one of our executive officers, has served as our Vice President, Legal, General Counsel and Secretary since September 2001. Prior to joining us, Mr. Rowland served in various positions at Alliance Pharmaceutical Corp., including as Vice President beginning in May 1999, Secretary beginning in May 1998 and General Counsel and Assistant Secretary beginning in 1993. Earlier, Mr. Rowland served as Vice President and Senior Counsel, Finance and Securities, at Imperial Savings Association for four years. For the previous eight years, he was engaged in the private practice of corporate law with the San Diego, California law firm of Gray, Cary, Ames & Fry, and the Houston, Texas law firm of Bracewell & Patterson. He received a J.D. from Emory University.

Dr. Stetsko, one of our executive officers, was appointed Vice President, Operations in September 2004. Dr Stetsko previously served as Vice President, Product Development since July 2002, and as Executive Director of Preclinical and Product Development from September 2000 to July 2002. Prior to joining us, from September 1999 to September 2000 he was an independent consultant providing regulatory, quality assurance and product development support to biotech companies. From November 1994 to September 1999, Dr. Stetsko was responsible for product development at Ligand Pharmaceuticals, most recently as the Senior Director of Pharmaceutical and Analytical Development. From February 1987 to October 1994, he held a number of management positions at Sterling Winthrop, most recently Associate Director of Pharmaceutical Sciences. Prior to employment at Sterling Winthrop, from June 1983 to January 1987, Dr. Stetsko was a senior research scientist at Sandoz, Ltd. He received his B.S. in Pharmacy from the University of Rhode Island and his Ph.D. in Industrial and Physical Pharmacy from Purdue University.

RISK FACTORS RELATED TO OUR BUSINESS

Except for the historical information contained or incorporated by reference, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this report. You should consider carefully the following risk factors, together with all of the other information included or incorporated in this annual report on Form 10-K. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

We have a history of operating losses, anticipate future losses, may not generate revenues from product sales and may never become profitable.

We have experienced significant operating losses since our inception in 1987, including losses of approximately $157.2 million in 2004, $122.8 million in 2003 and $109.8 million in 2002. As of December 31, 2004, we had an accumulated deficit of approximately $797.5 million. The extent of our future losses and the timing of potential profitability are highly uncertain, and we may never achieve profitable operations. We have been engaged in discovering and developing drugs since inception, which has required, and will continue to require, significant research and development expenditures. We have derived substantially all of our revenues to date from development funding, fees and milestone payments under collaborative agreements and from interest income. To date, we have not received any revenues from product sales. Even if we succeed in commercializing exenatide, SYMLIN, or another drug candidate, we expect to incur substantial operating losses for at least the next few years, and we expect that our losses may increase as we expand our commercial function and our research and development activities. These losses, among other things, have had and will have an adverse effect on our stockholders’ equity and working capital. To achieve profitable operations, we, alone or with others, must successfully develop, manufacture, obtain required regulatory approvals and market our drug candidates. If we become profitable, we may not remain profitable.

We will require future capital and are uncertain of the availability or terms of additional funding, and if additional capital is not available or not available on acceptable terms, we may have to reduce the size of our operations.

We must continue to find sources of capital in order to complete the development and commercialization of our drug candidates. Our future capital requirements will depend on many factors, including:

• progress with our preclinical studies and clinical trials;

• the continuation of our collaboration with Lilly for the development and commercialization of exenatide and sustained-release formulations of exenatide, including exenatide LAR;

• our ability to meet milestone objectives under our collaboration with Lilly;

• our access to loan amounts under our collaboration with Lilly;

• scientific progress in our other research programs and the magnitude of these programs;

• the time and costs involved in obtaining regulatory approvals for the marketing of any of our drug candidates;

• the costs of manufacturing any of our drug candidates;

• the costs of marketing and selling our drug candidates, subject to obtaining regulatory approval;

• our ability, and the ability of any partner, to effectively market, sell and distribute exenatide, SYMLIN or our other drug candidates, subject to obtaining regulatory approval;

• our ability to establish one or more marketing, distribution or other commercialization arrangements for SYMLIN or our other drug candidates;

• the cost of any potential licenses or acquisitions;

• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patents or defending ourselves against competing technological and market developments; and

• the potential need to repay existing indebtedness.

You should be aware that:

• we may not be able to obtain additional financial resources in the necessary time frame or on terms favorable to us, if at all;

• any available additional financing may not be adequate; and

• we may be required to use a portion of future financing to repay existing indebtedness to our current or future creditors.

If adequate funds are not available, we may have to delay, scale back or eliminate one or more of our development programs, or obtain funds by entering into more arrangements with collaborative partners or others that may require us to relinquish rights to certain of our drug candidates or technologies that we would not otherwise relinquish.

Contingent on certain events, Lilly will allow us to borrow up to $110 million under a loan agreement in order to fund a portion of our development and commercialization costs for exenatide. We expect that approximately $70 million of this facility will be available to us if exenatide is approved. If we incur any debt under the Lilly loan agreement, it will be secured debt and will become due beginning upon the earlier of June 30, 2007, or the first anniversary of the date when a product developed under our collaboration with Lilly is first launched.

In the event we are unable to obtain additional financing on acceptable terms, we may not have the financial resources to continue research and development of exenatide, SYMLIN, exenatide LAR, AC137, AC2592 or any of our other drug candidates and we could be forced to curtail or cease our operations.

We are substantially dependent on our collaboration with Lilly for the development and commercialization of exenatide and exenatide LAR.

We have entered into collaborative arrangements with Lilly, who currently markets diabetes therapies and is developing additional diabetes drug candidates, to develop and commercialize exenatide and sustained-release formulations of exenatide, including exenatide LAR. We entered into this collaboration in order to:

• fund some of our research and development activities;

• assist us in seeking and obtaining regulatory approvals; and

• assist us in the successful commercialization of exenatide and exenatide LAR.

In general, we cannot control the amount and timing of resources that Lilly may devote to our collaboration. If Lilly fails to assist in the development and commercialization of exenatide and exenatide LAR, or if Lilly’s efforts are not effective, our business may be negatively affected. We are primarily relying on Lilly to obtain regulatory approvals outside the United States for exenatide and exenatide LAR. Our collaboration with Lilly may not continue or result in commercialized drugs. Lilly can terminate our collaboration at any time upon 60 days notice. If Lilly ceased funding and/or developing exenatide or sustained-release formulations of exenatide, we would have to seek additional sources for funding and may have to delay, reduce or eliminate one or more of our development programs for these compounds.

We may be unable to obtain regulatory clearance to market our drug candidates in the United States or foreign countries on a timely basis, or at all.

Our drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization. The process of obtaining FDA and other regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays. Regulatory authorities may refuse to approve an application for approval of a drug

candidate if it believes that applicable regulatory criteria are not satisfied. Regulatory authorities may also require additional testing for safety and efficacy. Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution, which could limit our revenues. Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval.

The data collected from our clinical trials may not be sufficient to support approval of exenatide, SYMLIN or any of our other drug candidates by the FDA or any foreign regulatory authorities. We submitted an NDA for the twice-daily formulation of exenatide in June 2004. In October 2001, the FDA indicated that SYMLIN was approvable for both type 1 and insulin-using type 2 diabetes; however, the FDA also requested additional clinical trials focusing on the safety of SYMLIN when used by patients with type 1 diabetes and a few small studies to clarify suggested prescribing information. In May 2003, we completed the additional clinical trials requested by the FDA and, in June 2003, submitted an amendment to our NDA for SYMLIN. In December 2003, we received a second approvable letter from the FDA requesting additional clinical data to identify a patient population and method of use for SYMLIN where there is no increased risk of significant hypoglycemia or where there is an added benefit that clearly counterbalances any potential for increases in episodes of hypoglycemia. In September 2004 we submitted a complete response document to the FDA’s second approvable letter. Submission of a complete response document after receipt of an approvable letter is intended to answer all of the questions that need to be addressed prior to approval. Although we believe that the data contained in our complete response provide the necessary information requested by the FDA, we cannot guarantee that it will or that we will ever be able to provide the FDA with the necessary data.

Although we expect to receive a response from the FDA with respect to exenatide and SYMLIN in April 2005 and March 2005, respectively, we cannot guarantee that the FDA will respond by those dates, or that, if they respond, they will approve either application. Biotechnology stock prices have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval. If the FDA’s response is delayed or not favorable for either exenatide or SYMLIN, our stock price could decline significantly.

Moreover, manufacturing facilities operated by the third-party manufacturers with whom we may contract to manufacture exenatide, SYMLIN, and our other drug candidates may not pass an FDA or other regulatory authority preapproval inspection. Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from marketing these drug candidates.

Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for these drug candidates, the FDA and foreign regulatory authorities may not ultimately approve exenatide, SYMLIN, or our other drug candidates for commercial sale in any jurisdiction. If these drug candidates do not meet applicable regulatory requirements for approval, we may not have the financial resources to continue research and development of any of our drug candidates and we may not be able to generate revenues from the commercial sale of any of our drug candidates.

Delays in the conduct or completion of our clinical trials, the analysis of the data from our clinical trials, or our manufacturing scale-up activities may result in delays in our planned filings for regulatory approvals, and may adversely affect our ability to enter into new collaborative arrangements.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical studies that will cause us or regulatory authorities to delay or suspend our ongoing clinical studies, delay or suspend planned clinical studies, or delay the analysis of data from our completed or ongoing clinical studies. We also cannot predict whether we will encounter delays or an inability to create manufacturing processes for drug candidates that allow us to produce drug product in large enough quantities to be economical, otherwise known as manufacturing scale-up. If the results of our ongoing or planned clinical studies for our drug candidates are not available when we expect or if we encounter any delay in the analysis of data from our clinical studies or if we encounter delays in our ability to scale-up our manufacturing processes:

• we may be unable to complete our Phase 2 programs for exenatide LAR, AC2592 or AC137;

• we may have to delay our planned filings for regulatory approval of our drug candidates;

• some of our potential milestone payments under our collaboration with Lilly may become convertible into shares of our common stock;

• we may not have the financial resources to continue research and development of any of our drug candidates; and

• we may not be able to enter into additional collaborative arrangements relating to any drug candidate subject to delay in clinical studies or delay in regulatory filings.

In addition, Lilly may terminate our collaboration for the development and commercialization of exenatide and sustained-release formulations of exenatide at any time on 60 days’ notice. Moreover, if the FDA does not accept for filing a new drug application for a sustained-release formulation of exenatide by December 31, 2007, Lilly will have the right to convert a portion of future milestone payments that we may receive under our collaboration into shares of our common stock at a conversion price equal to the fair market value of our common stock at the time of any such conversion.

Any of the following could delay the completion of our ongoing and planned clinical studies:

• ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

• delays in enrolling volunteers;

• lower than anticipated retention rate of volunteers in a clinical trial;

• negative results of clinical studies;

• insufficient supply or deficient quality of drug candidate materials or other materials necessary for the performance of clinical trials;

• our inability to reach agreement with Lilly regarding the scope, design, conduct or costs of clinical trials with respect to exenatide or sustained-release formulations of exenatide; or

• serious side effects experienced by study participants relating to a drug candidate.

Even if we obtain initial regulatory approval for a drug candidate, if we encounter safety issues with any drugs we market or fail to comply with extensive continuing regulations enforced by domestic and foreign regulatory authorities, it could cause us to discontinue marketing those drugs, reduce our revenues and harm our ability to generate future revenues, which would negatively impact our financial position.

Even if we or our business partners are able to obtain regulatory approval for a drug candidate in the United States or other countries, the approval will be subject to continual review, and we cannot assure you that newly discovered or developed safety issues will not arise following any regulatory approval. Any safety issues could cause us to suspend or cease marketing of any of our approved drug candidates, possibly subject us to substantial liabilities, and adversely affect our ability to generate revenues and our financial condition.

Moreover, if we obtain marketing approval for a drug candidate in the United States, the marketing of the product will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including adverse event reporting requirements and the FDA’s general prohibition against promoting products for unapproved uses. The manufacturing facilities for our drug candidates are also subject to continual review and periodic inspection and approval of manufacturing modifications. Manufacturing facilities that manufacture drug products for the U.S. market are subject to biennial inspections by the FDA and must comply with the FDA’s current Good Manufacturing Practices (cGMP) regulations. The FDA stringently applies regulatory standards for manufacturing. In complying with these regulations, manufacturers must spend funds, time and effort in the areas of production, record keeping, personnel and quality control to ensure full technical compliance. Failure to comply with any of these post-approval requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions, any unanticipated changes in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved drug candidates, could adversely affect our ability to market products and generate revenues and thus adversely affect our ability to continue our business.

The manufacturers of our product candidates also are subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal. In the future, our manufacturers may incur significant costs to comply with those laws and regulations, which could increase our manufacturing costs and reduce our ability to operate profitably.

We have not previously sold, marketed or distributed any of our products and may not be able to successfully commercialize exenatide, SYMLIN, or other drug candidates.

We have not previously sold, marketed or distributed any of our products. As our drug candidates progress toward commercialization, we will need to continue to develop our sales and marketing abilities with respect to those candidates. In 2004, we began to co-promote Reliant Pharmaceuticals, Inc.’s cardiovascular products that address cholesterol management and

hypertension to a target group of endocrinologists in the United States. We have begun the process of expanding our internal commercialization functions to prepare for the commercialization of exenatide. To market exenatide and SYMLIN, if approved, we will need a significantly larger internal sales and marketing function. We may be unable to successfully hire and retain key sales and marketing personnel that we need to effectively manage and carry out the commercialization of exenatide, SYMLIN, and our other drug candidates. Even if we manage to hire and retain necessary personnel, we may be unable to implement our sales, marketing and distribution strategies effectively or profitably. In addition, in the event that exenatide, SYMLIN, or another of our drug candidates are not approved for marketing by the FDA, we will have incurred significant expenses for the buildup of a commercialization function that we may not be able to recover.

Our ability to enter into and maintain third-party relationships is important to our successful development and commercialization of exenatide, SYMLIN, and our other drug candidates and our potential profitability.

To market any of our products in the United States or elsewhere, we must develop internally or obtain access to sales and marketing forces with technical expertise and with supporting distribution capability in the relevant geographic territory. With respect to sales, marketing and distribution outside the United States, we will be substantially dependent on Lilly for activities relating to exenatide and sustained-release formulations of exenatide, including exenatide LAR. We believe that we will likely need to enter into marketing and distribution arrangements with third parties for, or find a corporate partner who can provide support for, the commercialization of SYMLIN or our other drug candidates outside the United States. We may also enter into arrangements with third parties for the commercialization of SYMLIN or any of our other drug candidates within the United States. With respect to exenatide and exenatide LAR, we intend to co-promote those drug candidates with Lilly within the United States. If Lilly ceased commercializing exenatide or exenatide LAR for any reason, we would likely need to either enter into a marketing and distribution arrangement with a third party for those products or significantly increase our internal sales and commercialization infrastructure.

We may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates. If we are not able to enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our drug candidates as we deem necessary, we may not be able to successfully perform these marketing or distribution activities. Moreover, any new marketer or distributor or corporate partner for our drug candidates, including Lilly, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payors.

The requirements governing product licensing, pricing and reimbursement vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after product licensing approval is granted. As a result, we may obtain regulatory approval for a product in a particular country, but then be subject to price regulations that reduce our revenues from the sale of the product. Also, in some foreign markets, pricing of prescription pharmaceuticals is subject to continuing governmental control even after initial marketing approval. If we succeed in bringing exenatide, SYMLIN, or any other drug candidate to the market, we cannot be certain that the products will be considered cost effective and that reimbursement will be available or will be sufficient to allow us to sell the products on a competitive basis.

The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means, including efforts to increase the amount of patient co-pay obligations, may limit our commercial opportunity. For example, in some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement similar government control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the rate of adoption and pricing of pharmaceutical products. Cost control initiatives could decrease the price that any of our collaborators or we would receive for any products in the future. Further, cost control initiatives could adversely affect our collaborators’ ability to commercialize our products, our ability to realize revenues from this commercialization, and our ability to fund the development of future drug candidates.

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

• governmental and health administration authorities;

• private health insurers; and

• other third-party payors.

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

We have a significant amount of indebtedness. We may not be able to make payments on our indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our operations.

We have substantial indebtedness outstanding and have the potential borrowing capacity under our collaboration with Lilly of up to $110 million. In June and July 2003, we issued $175 million of 2.25% convertible senior notes due 2008. In April 2004, we issued $200 million of 2.50% convertible senior notes due 2011. Our ability to make payments on our debt, including the notes, will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. During each of the last five years, our operating cash flows were negative and insufficient to cover our fixed charges. We may need to use our cash to pay principal and interest on our debt, thereby reducing the funds available to fund our research and development programs, strategic initiatives and working capital requirements. Our ability to generate sufficient operating cash flow to service our indebtedness, including the notes, and fund our operating requirements will depend on our ability, alone or with others, to successfully develop, manufacture, obtain required regulatory approvals for and market our drug candidates, as well as other factors, including general economic, financial, competitive, legislative and regulatory conditions, some of which are beyond our control. Our debt service obligations increase our vulnerabilities to competitive pressures, because many of our competitors are less leveraged than we are. If we are unable to generate sufficient operating cash flow to service our indebtedness and fund our operating requirements, we may be forced to reduce our development programs, sell assets or seek additional debt or equity financing, which may not be available to us on satisfactory terms or at all. Our level of indebtedness may make us more vulnerable to economic or industry downturns. If we incur new indebtedness, the risks relating to our business and our ability to service our indebtedness will intensify.

We may be required to redeem our convertible senior notes upon a designated event.

Holders of our 2.25% convertible senior notes due 2008 and our 2.50% convertible senior notes due 2011 may require us to redeem all or any portion of their notes upon the occurrence of certain designated events which generally involve a change in control of our company. We may not have sufficient cash funds to redeem the notes upon a designated event. We may elect, subject to certain conditions, to pay the redemption price in our common stock or a combination of cash and our common stock. We may be unable to satisfy the requisite conditions to enable us to pay some or all of the redemption price in our common stock. In addition, although there are currently no restrictions on our ability to pay the redemption price under our existing debt agreements, future debt agreements may prohibit us from repaying the redemption price in either cash or common stock. If we are prohibited from redeeming the notes, we could seek consent from our lenders to redeem the notes. If we are unable to obtain their consent, we could attempt to refinance the notes. If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the notes. If we were unable to redeem the notes upon a designated event, it would result in an event of default under the indentures governing the notes. An event of default under the indentures could result in a further event of default under our other then-existing debt. In addition, the occurrence of a designated event may be an event of default under our other debt.

We do not manufacture our own drug candidates and may not be able to obtain adequate supplies, which could cause delays or reduce profit margins.

The manufacturing of sufficient quantities of new drug candidates is a time-consuming and complex process. We have no manufacturing capabilities. In order to continue to develop our drug candidates, apply for regulatory approvals and ultimately commercialize additional products, we need to contract or otherwise arrange for the necessary manufacturing.

There are a limited number of manufacturers that operate under the FDA’s cGMP regulations capable of manufacturing for us. If we are not able to arrange for third-party manufacturing on commercially reasonable terms, we may not be able to complete development of our drug candidates or market them on a timely basis, if at all.

Reliance on third-party manufacturers entails risks to our ability to commercialize our products or conduct clinical trials and include the risks of reliance on the third-party for regulatory compliance and quality assurance, third-party refusal to supply on a long-term basis, the possibility of breach of the manufacturing agreement by the third-party and the possibility of termination or non-renewal of the agreement by the third-party, based on its business priorities, at a time that is costly or inconvenient for us. If any of these risks occur, our product supply will be interrupted resulting in lost or delayed revenues and delayed clinical trials.

If any of our existing or future manufacturers cease to manufacture or are otherwise unable to deliver exenatide, SYMLIN, exenatide LAR or our other drug candidates, in either bulk or dosage form, or other product components, including pens for the delivery of these products, we may need to engage additional manufacturers. The cost and time to establish manufacturing facilities would be substantial. As a result, using a new manufacturer could disrupt our ability to supply our products and/or reduce our profit margins. Any delay or disruption in the manufacturing of bulk product, the dosage form of our products or other product components, including pens for delivery of our products, could harm our ability to generate product sales, harm our reputation and require us to raise additional funds.

We have entered into agreements with Bachem California and Mallinckrodt, Inc. for the long term supply of bulk exenatide. We have long-term agreements with CP Pharmaceuticals Ltd., a subsidiary of Wockhardt Ltd., and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc., for the dosage form of exenatide in cartridges. We have an agreement with Lilly to supply pens for delivery of exenatide in cartridges. We work with three contract suppliers, Bachem, UCB S.A., and Mallinckrodt, who have the capabilities for the commercial manufacture of bulk pramlintide acetate, the active ingredient contained in SYMLIN. Two of these suppliers have entered into long-term agreements with us. We have a long-term contract with Baxter for the dosage form of SYMLIN in vials, which is the dosage form we intend to use upon launch if SYMLIN is approved. If SYMLIN is approved by the FDA, Baxter will need to be approved by the FDA to manufacture SYMLIN. We believe we have sufficient dosage form inventory of SYMLIN to launch and supply our needs until we have obtained FDA approval of Baxter as a manufacturer of SYMLIN, a process which is expected to take up to six months after approval of SYMLIN. We have a long-term agreement with CP Pharmaceuticals for the dosage form of SYMLIN in cartridges and are working with a manufacturer, Ypsomed AG, for the manufacture of pens for delivery of SYMLIN in cartridges. These manufacturers may not be able to make the transition to commercial production. While we believe we have sufficient vial inventory of SYMLIN to launch and supply our needs until we have obtained FDA approval of Baxter, if there are delays in obtaining Baxter’s approval, we may not have sufficient inventory to satisfy potential demand for SYMLIN, in which case we may have to curtail our SYMLIN sales efforts. While we believe that business relations between us and our manufacturers are generally good, we cannot predict whether any of the manufacturers that we may use will meet our requirements for quality, quantity or timeliness for the manufacture of bulk exenatide or pramlintide acetate, dosage form of exenatide or SYMLIN, or pens. Therefore, we may not be able to obtain supplies of products with acceptable quality, on acceptable terms or in sufficient quantities, if at all. Our dependence on third parties for the manufacture of products may also reduce our gross profit margins and our ability to develop and deliver products in a timely manner.

Our other research and development programs may not result in additional drug candidates, which could limit our ability to generate revenue.

Our research and development programs for drug candidates other than exenatide and SYMLIN are at an early stage. Any additional drug candidates will require significant research, development, preclinical and clinical testing, manufacturing scale-up activities, regulatory approval and/or commitments of resources before commercialization. We cannot predict whether our research will lead to the discovery of any additional drug candidates that could generate revenues for us.

If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able to prevent others from using our intellectual property.

We own or hold exclusive rights to more than 46 issued U.S. patents and more than 63 pending U.S. patent applications. Of these issued patents and pending patent applications, we have more than 10 issued U.S. patents and more than 13 pending U.S. patent applications that we believe are relevant to the development and commercialization of pramlintide and more than 24 pending and issued U.S. patent applications that we believe are relevant to the development and commercialization of exenatide or exenatide LAR. We also own or hold exclusive rights to various foreign patent applications that correspond to issued U.S. patents or pending U.S. patent applications. We do not hold issued composition-of-matter patents covering exenatide or exenatide LAR.

Our success will depend in part on our ability to obtain patent protection for our drug candidates and technologies both in the United States and other countries. We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Alternatively, a third party may successfully circumvent our patents. Our rights under

any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes. In addition, because patent applications in the United States are maintained in secrecy for eighteen months after the filing of the applications, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be sure that the inventors of subject matter covered by our patents and patent applications were the first to invent or the first to file patent applications for these inventions. In the event that a third party has also filed a patent on a similar invention, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position. Furthermore, we may not have identified all U.S. and foreign patents that pose a risk of infringement.

Litigation regarding patents and other proprietary rights may be expensive, cause delays in bringing products to market and harm our ability to operate.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these patents are still developing. As a result, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Third parties may challenge or infringe upon existing or future patents. In the event that a third party challenges a patent, a court may invalidate the patent or determine that the patent is not enforceable. Proceedings involving our patents or patent applications or those of others could result in adverse decisions about:

• the patentability of our inventions and products relating to our drug candidates; and/or

• the enforceability, validity or scope of protection offered by our patents relating to our drug candidates.

The manufacture, use or sale of any of our drug candidates may infringe on the patent rights of others. If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to successfully defend an infringement action or have infringing patents declared invalid, we may:

• incur substantial monetary damages;

• encounter significant delays in bringing our drug candidates to market; and/or

• be precluded from participating in the manufacture, use or sale of our drug candidates or methods of treatment requiring licenses.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Competition in the biotechnology and pharmaceutical industries may result in competing products, superior marketing of other products and lower revenues or profits for us.

There are many companies that are seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders. Our competitors include multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb Company, sanofi-aventis, Lilly, GlaxoSmithKline, Merck & Co., Novartis, Novo Nordisk, Pfizer and Takeda Pharmaceuticals, are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity, cardiovascular disease and other metabolic disorders will increase. Many of our competitors have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market products. In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for products more rapidly than we do, which would provide these competitors with an advantage for the marketing of products with similar potential uses. Furthermore, if we

are permitted to commence commercial sales of products, we may also be competing with respect to manufacturing and product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization.

Our initial target patient population for exenatide is people with diabetes who have failed one or more oral therapies. Our target population for SYMLIN is people with diabetes whose therapy includes multiple insulin injections daily. Other products are currently in development or exist in the market that may compete directly with the products that we are seeking to develop and market. Various products are available to treat type 2 diabetes, including:

• sulfonylureas;

• metformin;

• insulin;

• glinides;

• PPARS;

• alpha-glucosidase inhibitors; and

• thiazolidinediones (TZDs).

In addition, several companies are developing various approaches to improve treatments for type 1 and type 2 diabetes. We cannot predict whether our drug candidates, even if successfully tested and developed, will have sufficient advantages over existing products to cause health care professionals to adopt them over other products or that our drug candidates will offer an economically feasible alternative to existing products.

We may not be able to keep up with the rapid technological change in the biotechnology and pharmaceutical industries, which could make our products obsolete and reduce our revenues.

Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Any products that we develop may become obsolete before we recover expenses incurred in developing those products, which may require that we raise additional funds to continue our operations.

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Ginger L. Graham, our President and Chief Executive Officer, and the other principal members of our executive and scientific teams. The loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives. Recruiting and retaining qualified sales, marketing, scientific and other personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition between numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific personnel from universities and research institutions. We do not maintain “key person” insurance on any of our employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Our business has a substantial risk of product liability claims, and insurance may be expensive or unavailable.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. Product liability claims could result in the imposition of substantial liability on us, a recall of products, or a change in the indications for which they may be used. We currently have limited product liability insurance, including clinical trial insurance, and will seek additional coverage prior to marketing any of our drug candidates. We cannot assure you that our insurance will provide adequate coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may not be able to maintain current amounts of insurance coverage, obtain additional insurance or obtain insurance at a reasonable cost or in sufficient amounts to protect against losses that could have a material adverse effect on us.

Our activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.

Our research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

In the future, we may become subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business.

Upon approval, if any, by the FDA for any of our product candidates, we will become subject to various health care “fraud and abuse” laws, such as the federal false claims act, the federal anti-kickback statute and other state and federal laws and regulations. Pharmaceutical companies have faced lawsuits and investigations pertaining to violations of these laws and regulations. We cannot guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future lawsuits or investigations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

We have implemented anti-takeover provisions that could discourage or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and as a result our management may become entrenched and hard to replace.

Provisions in our amended and restated certificate of incorporation and bylaws, as amended, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions include:

• allowing our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

• allowing our board of directors to issue, without stockholder approval, up to 5.5 million shares of preferred stock with terms set by the board of directors;

• limiting the ability of holders of our outstanding common stock to call a special meeting of our stockholders; and

• preventing stockholders from taking actions by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders.

Each of these provisions, as well as selected provisions of Delaware law, could discourage potential takeover attempts, could adversely affect the trading price of our securities and could cause our management to become entrenched and hard to replace. In addition to provisions in our charter documents and under Delaware law, an acquisition of our company could be made more difficult by our employee benefits plans and our employee change in control plan, under which, in connection with a change in control, stock options held by our employees may become vested and our executive officers may receive severance benefits. We also have implemented a stockholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire us on a hostile basis.

Our executive officers, directors and major stockholders control approximately 27.7% of our common stock.

As of December 31, 2004, executive officers, directors and holders of 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 27.7% of our outstanding common stock. As a result, these stockholders are able to influence all matters requiring approval by our stockholders, including the election of directors and the approval of corporate transactions. This concentration of ownership may also delay, deter or prevent a change in control of our company and may make some transactions more difficult or impossible to complete without the support of these stockholders.

Substantial future sales of our common stock by us or our existing stockholders or the conversion of our convertible senior notes to common stock could cause the trading price of our common stock to fall.

Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the trading price of our common stock to drop. Likewise, the issuance of shares of common stock upon conversion of our convertible notes or redemption of our convertible notes upon a designated event, or

upon additional convertible debt or equity financings or other share issuances by us, including shares issued in connection with potential future strategic alliances and the uncertain number of additional shares that we may be required to issue under our agreements with Lilly, could adversely affect the trading price of our common stock. Our convertible notes are currently convertible into a total of up to approximately 11.2 million shares. In addition, the existence of these notes may encourage short selling of our common stock by market participants.

Significant volatility in the market price for our common stock could expose us to continued litigation risk.

The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of these biopharmaceutical and biotechnology companies. Since January 1, 2003, the high and low sales price of our common stock varied significantly, as shown in the following table:

	High		Low
Year ending December 31, 2005
First Quarter (through March 1, 2005)	$	24.95	$	20.05

Year ended December 31, 2004
Fourth Quarter	$	24.01	$	18.80
Third Quarter	23.25		16.48
Second Quarter	26.80		19.69
First Quarter	25.63		18.49

Year ended December 31, 2003
Fourth Quarter	$	30.40	$	21.30
Third Quarter	30.75		20.95
Second Quarter	26.86		15.47
First Quarter	17.95		13.73

Given the uncertainty of our future funding and of regulatory approval of exenatide, SYMLIN and our other drug candidates, we may continue to experience volatility in our stock price for the foreseeable future. In addition, the following factors may significantly affect the market price of our common stock:

• announcements of additional clinical study results;

• announcements of determinations by regulatory authorities with respect to our drug candidates;

• developments in our relationships with current or future collaborative partners;

• our ability to successfully implement our commercialization strategies;

• fluctuations in our operating results;

• developments in our relationships with third-party manufacturers of our products and other parties who provide services to us;

• public concern as to the safety of drugs that we are developing;

• technological innovations or new commercial therapeutic products by us or our competitors;

• developments in patent or other proprietary rights; and

• governmental policy or regulation.

Broad market and industry factors also may materially adversely affect the market price of our common stock, regardless of our actual operating performance. Periods of volatility in the market price of our common stock expose us to securities class-action litigation, and we may continue to be the target of such litigation as a result of market price volatility in the future.

We are exposed to potential risks from recent legislation requiring companies to evaluate internal controls over financial reporting.

The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal controls over financial reporting. Among other things, we must perform systems and processes evaluation and testing. We must also conduct an assessment of our internal controls to allow management to report on, and our independent registered public accounting firm to attest to, our assessment of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. These requirements became effective for the first time for our fiscal year ended December 31, 2004, and neither we nor our independent registered public accounting firm have previously performed an evaluation of our internal controls over financial reporting under these new rules. In connection with our Section 404 compliance efforts, we have incurred or expended, and expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources. We have implemented certain remediation activities resulting from our ongoing assessment of internal controls over financial reporting. Our future assessment, or the future assessments by our independent registered public accounting firm, may reveal material weaknesses in our internal controls. If material weaknesses are identified in the future we would be required to conclude that our internal controls over financial reporting are ineffective and we could be subject to sanctions or investigations by the SEC, the Nasdaq National Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our common stock.

Item 2. Properties

Our primary administrative offices and research laboratories are located in San Diego, California. As of December 31, 2004, we occupied approximately 240,000 square feet of office and laboratory space. Our leases on a majority of these properties expire in 2015. The remaining properties are currently on short term or month-to-month leases. We also maintain small offices in Boulder, Colorado, and Germany.

Item 3. Legal Proceedings

Beginning in August 2001, we were subject to an ongoing class action lawsuit filed by certain shareholders in the United States District Court for the Southern District of California against us, our Chairman and former Chief Executive Officer and one director, alleging violations of the federal securities laws related to declines in our stock price. The complaint alleged securities fraud in connection with various statements and alleged omissions to the public and to the securities markets. On December 30, 2004, the court approved a negotiated settlement dismissing the lawsuit with prejudice. The terms of the settlement include payment by us of $2.1 million, all of which will be paid by our insurer. Any settlement proceeds remaining after full reimbursement to class members and payment of plaintiff legal fees will be donated to the American Diabetes Association.

In October 2002, Roman Glowacki filed a shareholder derivative lawsuit purportedly on behalf of us against our Chairman and former Chief Executive Officer and several other present and former members of the Board of Directors of our company in the California State Superior Court for San Diego County. The derivative complaint alleged that the defendants breached their fiduciary duty, abused corporate control, engaged in mismanagement, wasted corporate assets and committed “constructive fraud” as a result of the federal securities class action lawsuit in the Southern District of California discussed above. The derivative complaint sought attorney fees and the payment of damages to us. On November 2, 2004, the court dismissed the lawsuit with prejudice and approved a negotiated settlement. The terms of the settlement includes the payment of $250,000 to the plaintiff’s attorneys, all of which was paid by our insurer, and an agreement by us to retain some of our existing corporate governance policies and practices.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on The NASDAQ National Market under the symbol “AMLN.” The following table sets forth, for the periods indicated, the reported high and low sales price per share of our common stock on The NASDAQ National Market:

	High		Low
Year Ended December 31, 2004
Fourth Quarter	$	24.01	$	18.80
Third Quarter	23.25		16.48
Second Quarter	26.80		19.69
First Quarter	25.63		18.49

Year Ended December 31, 2003
Fourth Quarter	$	30.40	$	21.30
Third Quarter	30.75		20.95
Second Quarter	26.86		15.47
First Quarter	17.95		13.73

The last reported sale price of our common stock on The NASDAQ National Market on March 1, 2005 was $20.71. As of March 1, 2005, there were approximately 850 shareholders of record of our common stock.

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings for funding growth and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

For information concerning prior stockholder approval of and other matters relating to our equity incentive plans, see “Equity Compensation Plan Information” under Item 12 in this annual report on Form 10-K.

Item 6. Selected Financial Data

Please read the following selected financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included elsewhere in this annual report on Form 10-K.

	Years Ended December 31,
	2004			2003			2002			2001			2000
	(in thousands, except for per share amounts)
Consolidated Statements of Operations Data:
Revenue under collaborative agreements	$	34,268		$	85,652		$	13,395		$	—		$	—
Expenses:
Research and development	119,558			149,431			94,456			49,601			33,807
General and administrative	66,958			56,761			25,334			20,469			10,716
Acquired in-process research and development	—			3,300			—			—			—
	186,516			209,492			119,790			70,070			44,523
Net interest and other income (expense)	(4,909		)	1,032			(3,392		)	(1,902		)	480
Net loss	(157,157		)	(122,808		)	(109,787		)	(71,972		)	(44,043		)

Net loss per share — basic and diluted	$	(1.67	)	$	(1.33	)	$	(1.39	)	$	(1.09	)	$	(0.71	)
Shares used in calculating net loss per share — basic and diluted	94,054			92,396			79,106			65,927			61,644

Consolidated Balance Sheets Data:
Cash, cash equivalents and short-term investments	$	293,756		$	269,776		$	147,358		$	46,574		$	82,899
Working capital	282,421			243,144			92,368			47,188			78,380
Total assets	357,800			311,045			168,545			63,527			90,635
Long-term obligations	403,233			202,425			88,234			58,073			52,103
Accumulated deficit	(797,496		)	(640,339		)	(517,531		)	(407,744		)	(335,772		)
Total stockholders’ equity (deficit)	(87,370		)	63,216			12,298			(3,483		)	31,286

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Amylin Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes, obesity and cardiovascular disease. We currently have two first-in-class lead drug candidates in late stage development for the treatment of diabetes, exenatide and SYMLIN® (pramlintide acetate), that have completed Phase 3 clinical studies and are under regulatory review in the United States.

Exenatide is the first in a new class of compounds known as incretin mimetics. We are developing exenatide, including both twice-daily and sustained-release formulations, with Lilly to improve glucose control in patients with type 2 diabetes who are not achieving target glucose levels with metformin and/or sulfonylureas, two of the most commonly used oral therapies to treat type 2 diabetes, pursuant to a global development and commercialization agreement entered into in 2002. Our agreement with Lilly provides for equal sharing of exenatide operating profits in the United States. Operating profits outside of the United States are split 80% to Lilly and 20% to us. We submitted a New Drug Application, or NDA, to the United States Food and Drug administration, or FDA, for the twice-daily formulation of exenatide in June 2004 and we expect the FDA to respond to this filing by April 30, 2005.

SYMLIN is the first in a new class of compounds called amylinomimetics and is a synthetic version of human amylin, a hormone co-secreted with insulin in normal physiology. We are developing SYMLIN for the treatment of patients with type 1 diabetes and insulin-using patients with type 2 diabetes. In December 2003 we received a second approvable letter for SYMLIN from the FDA. In September 2004 we submitted a complete response to the FDA, which is intended to answer all of the questions that need to be addressed prior to approval. We expect the FDA to respond to this new submission by March 20, 2005.

Our pipeline includes a Phase 2 program for each of the therapeutic areas of diabetes, obesity and cardiovascular disease. Additionally, we have two Phase 1 programs and maintain a discovery research program focused on peptide therapeutics. We are actively seeking to in-license additional drug candidates.

In 2005 we are preparing to expand our organization to support the potential commercial launches of exenatide and SYMLIN, pending regulatory approvals. This planned expansion will require a significant investment in our commercial capabilities, including the addition of approximately 300-350 field personnel, including our sales force, and medical affairs and managed care personnel, and increased medical education activities. In addition, we anticipate expanding our business infrastructure in 2005 to support these activities. We also intend to continue our investment in our research and development programs, as more fully described below under the heading “Research and Development Programs.”

Since our inception in September 1987, we have devoted substantially all of our resources to our research and development programs. All of our revenues to date have been derived from fees and expense reimbursements under our exenatide collaboration agreement with Lilly, previous SYMLIN collaborative agreements and co-promotion agreements with each of Lilly and Reliant Pharmaceuticals, Inc. We currently have no approved products and we have not received any revenues from the sale of any of our drug candidates. We have been unprofitable since inception and expect to incur additional operating losses for at least the next few years. As of December 31, 2004, our accumulated deficit was approximately $797.5 million.

At December 31, 2004, we had approximately $294 million in cash, cash equivalents and short-term investments. In February 2005 we completed a public offering of our common stock, generating net proceeds to us of approximately $190.5 million. We do not expect to generate positive operating cash flows for at least the next few years and accordingly, we will need to raise additional funds from outside sources. Refer to the discussion under the heading “Liquidity and Capital Resources” for further discussion regarding our anticipated future capital requirements.

Research and Development Programs

Currently, our research and development efforts are focused on programs for the treatment of diabetes, obesity and cardiovascular disease in various stages of development as summarized in the following table:

Phase of development	Compound	Proposed Indication
Regulatory review	Exenatide	Type 2 diabetes

	SYMLIN (pramlintide acetate)	Type 1 and insulin-dependent type 2 diabetes

Phase 2	Exenatide LAR	Type 2 diabetes

	AC137 (pramlintide acetate)	Obesity

	AC2592 (GLP-1)	Late-stage congestive heart failure

Phase 1	AC162352 (PYY 3-36)	Obesity

	AC3056	Atherosclerosis

From inception through 1998, we devoted substantially all of our research and development efforts to SYMLIN. Beginning in 1999, our research and development costs started to include costs for our other drug candidates, primarily exenatide and exenatide LAR. As we continue to expand our pipeline, our investment in our other programs will continue to increase.

The drug development process, from discovery through regulatory approval, takes an average of 12 years according to recent industry reports. The process includes several steps defined by the FDA. The process begins with discovery and preclinical evaluation leading up to the submission of an investigational new drug application, or IND to the FDA, which allows for the initiation of the clinical evaluation in humans of a potential drug candidate. Clinical evaluation is typically comprised of three phases of study, Phase 1, Phase 2 and Phase 3. Generally, the majority of a drug candidate’s total development costs are incurred during Phase 3, as these trials are typically the longest and largest trials conducted during the drug development process. Successful completion of Phase 3 clinical testing is followed by the submission of an NDA to the FDA for marketing approval. It is not uncommon for the FDA to request additional data following its review of an NDA, which can significantly increase the drug development timeline and expenses. Following initial regulatory approval for a drug candidate, companies generally initiate additional clinical trials aimed at expanding product labels and market potential.

The timing and costs to complete the successful development of any of our drug candidates are highly uncertain, and therefore difficult to estimate.

Our research and development expenses are comprised of salaries and benefits; costs paid to third-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices; and a portion of our facilities costs. We charge direct internal and external program costs to the respective development programs. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our overall pharmaceutical development capabilities. These consist primarily of facilities costs and other internal-shared resources related to the development and maintenance of systems and processes applicable to all of our programs.

The following table provides information regarding our research and development expenses for our major projects (in millions):

	Year ended December 31,
	2004		2003		2002
Exenatide	$	40.0	$	80.1	$	47.7
SYMLIN	15.8		27.3		17.3
Phase 2 programs	22.1		7.8		—
Early stage programs and research	12.2		12.2		15.7