Infectious diseases are caused by pathogens present in the environment, such as viruses, bacteria and fungi, which enter the body through the skin or mucous membranes and overwhelm its natural defenses. Some infections affect the entire body, while others may be localized in one organ or system within the body. The severity of infectious diseases varies depending on the nature of the infectious agent, as well as the degree to which the body’s immune system can fight the infection. According to World Health Organization reports, infectious diseases, including HIV infection, chronic hepatitis C and drug-resistant bacterial infections, represent a significant cause of morbidity and mortality worldwide.

The market for anti-infective drugs can be divided into three main categories: antivirals, antibacterials (often referred to as antibiotics) and antifungals. Based on industry analyst reports and available market data, it is estimated that in 2004, there were approximately $6.6 billion in worldwide sales of drugs to treat HIV infection, $2 billion in worldwide sales of antivirals for the treatment of chronic hepatitis C and $24 billion in worldwide sales of antibacterials.

Elvucitabine, an antiviral the Company is developing for the treatment of HIV infection, is its most advanced clinical-stage drug candidate. The Company is currently evaluating elvucitabine in phase II clinical trials to further explore its safety and efficacy in HIV-infected patients. Elvucitabine is a member of the NRTI class of compounds, the predominant class of drugs used in the current standard of care for HIV therapy. Elvucitabine has demonstrated potent antiviral activity against HIV, including HIV strains that are resistant to frequently prescribed NRTIs, as well as a half-life significantly longer than that of currently approved NRTIs.

The Company’s second clinical-stage drug candidate, ACH-806 is currently being evaluated in a phase I clinical trial for the treatment of chronic hepatitis C. In preclinical studies, ACH-806 demonstrated potent inhibition of the replication of HCV, the virus that causes hepatitis C. The Company believes ACH-806 offers several potential advantages compared to currently available treatments, including greater potency, a novel mechanism of action, lack of cross resistance and the potential for oral administration. The Company believes ACH-806 could be used in combination with the current standard of care, or with other therapies in development, to significantly improve treatment outcomes.

The Company’s most advanced preclinical candidate is ACH-702, which it is developing for the treatment of serious hospital-based bacterial infections. In several preclinical studies, ACH-702 has exhibited potent antibacterial activity against a large number of medically relevant bacteria, including methicillin resistant staphylococcus aureus strains, highly prevalent hospital-based infections. Preclinical studies to date have also suggested that the compound has a bacteria-killing mechanism of action and may be administrated in both intravenous and oral formulations. The Company expects to submit an IND for ACH-702 to the FDA during the second half of 2006.

Research and development expenses were $13.2 million, $14.8 million, and $18.1 million for the years ended December 31, 2003, 2004 and 2005, respectively.

General and administrative expenses were $3.3 million, $3.2 million and $3.1 million for the years ended December 31, 2003, 2004 and 2005, respectively.

Interest income was $178,000, $84,000 and $224,000 for the years ended December 31, 2003, 2004 and 2005, respectively.