RISK FACTORS

         Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. The occurrence of any of the following adverse developments described in the following risk factors could harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to the Development, Regulatory Approval and Commercialization of Our Product Candidates

         We are largely dependent on the regulatory approval of our most advanced product candidates, especially AN2690, and we cannot be certain that these product candidates will receive regulatory approval.

        We have invested a significant portion of our efforts and financial resources in the development of our most advanced product candidates, especially AN2690, which is currently in clinical trials for the treatment of onychomycosis. Our ability to generate revenue related to product sales, which we do not expect will occur for at least the next several years, if ever, will depend on the successful development and regulatory approval of our product candidates. We entered into a license, development and commercialization agreement with Schering-Plough in February 2007, pursuant to which Schering-Plough is responsible for Phase 3 clinical trials, regulatory approval and commercialization of AN2690. If Schering-Plough is not able to obtain regulatory approval for AN2690 or the milestones set forth in the agreement are not achieved or if Schering-Plough terminates our agreement, we may not be able to commercialize AN2690. In addition, our clinical development programs for our other product candidates may not lead to regulatory approval from the FDA and similar foreign regulatory agencies and we may therefore fail to commercialize those product candidates. Any failure to obtain regulatory approvals would have a material and adverse effect on our business.

        We currently have no approved products for sale and we cannot guarantee that we will ever have marketable products. The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States until we receive approval of a new drug application, or NDA, from the FDA. We have not submitted an NDA for any of our product candidates. Obtaining approval of an NDA is a lengthy, expensive and uncertain process.

         Delays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.

        Delays in the commencement, enrollment and completion of clinical trials could increase our product development costs and hinder our ability to commence marketing our product candidates. We do not know whether Schering-Plough will commence Phase 3 clinical trials for AN2690 as planned or whether these trials will be completed on schedule, if at all. In particular, the timing of commencement of Phase 3 clinical trials for AN2690 is subject to satisfactory completion of certain non-clinical testing of the product candidate. The outcome of such testing could delay commencement of the Phase 3 clinical trials beyond the end of 2008. In addition, we do not know whether planned clinical trials for our other most advanced product candidates will begin on time or will be completed on schedule or at all. The commencement and completion of clinical trials requires us, Schering-Plough, GSK or our potential future partners to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs for the same indication as our product candidates. Clinical trial sites may also be required to withdraw from a clinical trial as a result of changing standards of care or may otherwise become ineligible

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to participate in our clinical trials. The commencement, enrollment and completion of clinical trials can be delayed for a variety of other reasons, including delays related to:

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inability to reach agreements on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;



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regulatory objections to commencing a clinical trial;



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inability to obtain institutional review board, or IRB, approval to conduct a clinical trial at prospective sites;



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difficulty recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indication as our product candidates; and



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inability to retain patients in clinical trials due to the treatment protocol, personal issues, side effects from the therapy or lack of efficacy, particularly for those patients receiving a placebo.

        In addition, a clinical trial may be suspended or terminated by us, our partners, the FDA or other regulatory authorities due to a number of factors, including:

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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;



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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;



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unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks; or



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lack of adequate funding to continue the clinical trial due to unforeseen costs resulting from enrollment delays, requirements to conduct additional trials and studies, increased expenses associated with the services of our CROs and other third parties or other reasons.

        If we or our partners are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, we may be delayed in obtaining, or may not be able to obtain, marketing approval for these product candidates. In addition, our partners may suspend or terminate their development and commercialization efforts, including clinical trials for our product candidates, at any time.

        Changes in regulatory requirements and guidance may occur and we or our partners may need to amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us or our partners to resubmit our clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. If we or our partners experience delays in the completion of, or if we or our partners terminate, our clinical trials, the commercial prospects for our product candidates will be harmed, and our ability to generate revenue from sales of our products will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

         Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we, Schering-Plough, GSK or our potential future partners advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

        Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and we or our partners may decide, or regulators may require us, to conduct

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additional clinical or non-clinical testing. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of a product candidate. If the results of ongoing or future clinical trials of AN2690 do not demonstrate expected safety or efficacy, including over a longer treatment period, the prospects for commercialization of AN2690 would be adversely affected. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in Phase 3 clinical trials, even after seeing promising results in earlier clinical trials.

        Pending discussions with the FDA and the outcome of certain non-clinical testing of AN2690, we currently anticipate that Schering-Plough will initiate Phase 3 clinical trials for AN2690 by the end of 2008. The data collected from our previous clinical trials is not adequate to support regulatory approval of AN2690 or any of our other product candidates. Despite the results reported in earlier clinical trials for our product candidates, we do not know whether any Phase 2, Phase 3 or other clinical trials we or our partners may conduct will demonstrate adequate efficacy and safety to obtain regulatory approval to market our product candidates. In particular, changes in study protocols from Phase 2 clinical trials to Phase 3 clinical trials, such as an expected increase in the period of treatment for AN2690 or differences in study populations, could result in side effects or changes in efficacy that were not seen in earlier trials, as well as a higher rate of drop-out among clinical trial participants.

        Furthermore, additional safety studies are required for AN2690 and our other product candidates prior to submission of an NDA. If AN2690 or our other product candidates are found unsafe, they will not be commercialized and our business would be harmed.

         Our product candidates may have undesirable side effects which may delay or prevent marketing approval or, if approval is received, require them to be taken off the market or otherwise limit their sales.

        A small number of patients who received AN2690 treatment experienced skin irritation around their toenails during clinical trials of AN2690 for onychomycosis. These side effects were reversible and did not interrupt or delay our clinical trials. However, the results of future clinical trials may show that our product candidates may cause more severe skin irritation or other undesirable side effects, which could interrupt, delay or halt clinical trials, resulting in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities. If any of our product candidates receives marketing approval and we or others later identify undesirable side effects caused by such products:

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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;



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we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;



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we may have limitations on how we promote our drugs;



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sales of our products may decrease significantly;



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regulatory authorities may require us to take our approved drug off the market;



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we may be subject to litigation or product liability claims; and



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our reputation may suffer.

        Any of these events could prevent us, Schering-Plough, GSK or our potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our product candidates.

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         Increased scrutiny of clinical trials by regulatory agencies may delay or prevent marketing approval of our product candidates.

        In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Government Accounting Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical trials. Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that may result in substantial additional expense and a delay or failure in obtaining approval or result in approval for a more limited indication than originally sought. Failure to adequately demonstrate the efficacy and safety of AN2690 or any of our other product candidates would prevent regulatory approval and, ultimately, the commercialization of that product candidate.

         All of our products in development require regulatory review and approval prior to commercialization. Any delay in the regulatory review or approval of any of our products in development will harm our business.

        All of our products in development require regulatory review and approval prior to commercialization. Any delays in the regulatory review or approval of our products in development would delay market launch, increase our cash requirements, increase the volatility of our stock price and result in additional operating losses.

        The process of obtaining FDA and other required regulatory approvals, including foreign approvals, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We, Schering-Plough, GSK or our potential future partners may be unable to submit any NDA in the United States or any marketing approval application or other foreign applications for any of our products. If we or our partners submit any NDA, including any amended NDA or supplemental NDA, to the FDA seeking marketing approval for any of our product candidates, the FDA must decide whether to either accept or reject the submission for filing. We cannot be certain that any of these submissions will be accepted for filing and reviewed by the FDA, or that the marketing approval application submissions to any other regulatory authorities will be accepted for filing and review by those authorities. We cannot be certain that we or our partners will be able to respond to any regulatory requests during the review period in a timely manner without delaying potential regulatory action. We also cannot be certain that any of our products will receive favorable recommendation from any FDA advisory committee or foreign regulatory bodies or be approved for marketing by the FDA or foreign regulatory authorities. In addition, delays in approvals or rejections of marketing applications may be based upon many factors, including regulatory requests for additional analyses, reports, data and studies, regulatory questions regarding data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or other products.

        Data obtained from preclinical studies and clinical trials are subject to different interpretations, which could delay, limit or prevent regulatory review or approval of any of our product candidates. In addition, as a routine part of the evaluation of any potential drug, clinical trials are generally conducted to assess the potential for drug-to-drug interactions that could impact potential product safety. To date, we and our partners have not been requested to perform drug-to-drug interaction studies on our product candidates, but any such request may delay any potential product approval and will increase the expenses associated with clinical programs. Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, policy changes and agency funding, staffing

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and leadership. We do not know whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects.

        In addition, the environment in which our regulatory submissions may be reviewed changes over time. For example, average review times at the FDA for marketing approval applications have fluctuated over the last ten years, and we cannot predict the review time for any of our submissions with any regulatory authorities. In addition, review times can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

         Our use of boron chemistry to develop pharmaceutical product candidates is novel and may not prove successful in producing approved products. Undesirable side effects of any of our product candidates, or of boron-based drugs developed by others, could prevent us from obtaining regulatory approval for our product candidates, extend the time period required to obtain regulatory approval or harm market acceptance of our product candidates, if approved.

        All of our product development activities are centered around compounds containing boron. The use of boron chemistry to develop new drugs is largely unproven. The only FDA-approved boron-based pharmaceutical product, Velcade, is an anticancer chemotherapy agent that has significant adverse side effects. We believe that the adverse side effects associated with Velcade are due to its unique mechanism of action. None of our product candidates or research activities employs the same mechanism of action as Velcade. Nonetheless, if potential patients, regulatory authorities, third-party payors or medical providers associate the adverse side effects of Velcade or other boron-based therapeutics that may be developed with all potential boron-based therapies, the market for our products could be adversely affected.

        Additionally, there can be no assurance that our product candidates will be free of adverse side effects. For example, a small number of our patients who received AN2690 treatment experienced reversible skin irritation around their toe nails during clinical trials of AN2690 for onychomycosis. Also, our preclinical and clinical safety studies to date have focused upon our product candidates for topical treatments and we have not conducted safety studies on potential side effects of systemic therapeutics using boron-based compounds, including those that may be developed pursuant to our collaboration with GSK. If boron-based drug treatments result in significant adverse side effects, they may not be useful as therapeutic agents. If we are unable to develop product candidates that are safe and effective using our boron chemistry platform, our business will be materially and adversely affected.

        Regulatory authorities may also require additional safety testing of boron-based compounds, which could delay the timing of and increase the cost for regulatory approvals of our product candidates. Even if topical treatments using our boron-based compounds do not have adverse side effects, systemic therapeutics might. Additionally, even if our boron-based compounds do not have adverse side effects but boron-based drugs developed by others do, it could affect the willingness of regulatory authorities, third-party payors and medical providers to approve, provide reimbursement for or use our boron-based drugs. If boron-based compounds prove unsuitable as therapeutic agents, our business will be significantly harmed.

         We have limited experience developing systemic therapeutics and may not be able to do so.

        Most of our drug discovery and clinical development efforts to date have focused upon the identification and development of boron-based topical treatments and all of our leading product candidates are topical treatments. Pursuant to our agreement with GSK, we will significantly increase our research and development efforts to identify boron-based compounds for use in systemic therapeutics. We have limited experience in the development and approval process for systemic therapeutics. Accordingly, it may take us longer or we may fail to develop a systemic product candidate, in which case we will not receive additional payments from GSK.

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         If any of our product candidates for which we receive regulatory approval do not achieve broad market acceptance, the revenues that we generate from their sales will be limited.

        The commercial success of AN2690 or our other product candidates will depend upon the acceptance of these products among physicians, patients and the medical community. The degree of market acceptance of AN2690 or any of our other product candidates will depend on a number of factors, including:

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limitations or warnings contained in a product's FDA-approved labeling;



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changes in the standard of care for the targeted indications for any of our product candidates;



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limitations in the approved indications for our product candidates;



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lower demonstrated clinical safety and efficacy compared to other products;



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prevalence and severity of adverse side effects;



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ineffective sales, marketing and distribution support;



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lack of availability of reimbursement from managed care plans and other third-party payors;



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lack of cost-effectiveness;



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timing of market introduction and perceived effectiveness of competitive products;



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availability of alternative therapies at similar or lower cost, including generics and over-the-counter products;



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adverse publicity about our product candidates or favorable publicity about competitive products;



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patients' potential preferences to utilize oral medications over topical medications; and



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potential product liability claims.

        If our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. If our product candidates fail to achieve market acceptance after regulatory approval, we will not be able to generate significant revenue, if any.

         We have never marketed a drug before, and if we are unable to establish an effective sales force and marketing infrastructure, we may not be able to commercialize our product candidates successfully.

        We plan to market or co-promote our products in certain U.S. specialty markets. We currently do not have any internal sales, distribution and marketing capabilities. The development of a sales and marketing infrastructure for U.S. specialty markets will require substantial resources, will be expensive and time consuming and could negatively impact our commercialization efforts, including delay of any product launch. These costs may be incurred in advance of any approval of our product candidates. In addition, we may not be able to hire a sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that we intend to target. If we are unable to establish our sales force and marketing capability, our operating results may be adversely affected.

         We expect that our existing and future product candidates will face competition and some of our competitors have significantly greater resources than us.

        The pharmaceutical industry is highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies. Most of these companies have greater financial resources, marketing capabilities and experience in obtaining regulatory approvals for product candidates than us.

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There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of products that may target the same markets as our product candidates. We expect any future products we develop to compete on the basis of, among other things, product efficacy, price, extent of adverse side effects experienced and convenience of treatment procedures. One or more of our competitors may develop products based upon the principles underlying our proprietary technologies earlier than us, obtain approvals for such products from the FDA more rapidly than us or develop alternative products or therapies that are safer, more effective or more cost effective than any future products developed by us.

        The commercial opportunity for our product candidates could be significantly harmed if competitors are able to develop alternative formulations that compete with our product candidates. Compared to us, many of our potential competitors have substantially greater:

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development resources, including personnel and technology;



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clinical trial experience;



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regulatory experience;



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intellectual property portfolios;



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expertise in prosecution of intellectual property rights;



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manufacturing and distribution experience; and



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sales and marketing experience.

        As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more widely-used and less costly than ours and may also be more successful than us in manufacturing and marketing their products.

         The dermatology market is competitive, which may adversely affect our ability to commercialize our dermatological product candidates.

        If approved for the treatment of onychomycosis, we anticipate that AN2690 would compete with other marketed nail fungal therapeutics including Lamisil, Sporanox, Penlac and generic versions of those compounds. AN2690 will also compete against over-the-counter products. If approved for the treatment of psoriasis, AN2728 will compete against Tazorac, vitamin D analogues and corticosteroids, as well as over-the-counter therapies. Certain of our other product candidates will, if they receive regulatory approval, compete against branded prescription drugs, generics or over-the-counter products. Even if a generic product or an over-the-counter product is less effective than our product candidates, a less effective generic or over-the-counter product may be more quickly adopted by health insurers and consumers than our competing product candidates based upon cost or convenience. In addition, each of our product candidates may compete against product candidates currently under development by other companies.

         Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If patients seek coverage or sufficient reimbursement for our products and are unable to obtain it, it is less likely that our products will be widely used.

        Successful commercialization of pharmaceutical products usually depends on the availability of adequate coverage and reimbursement from third-party payors. Patients or healthcare providers who purchase drugs generally rely on third-party payors to reimburse all or part of the costs associated with such products. Adequate coverage and reimbursement from governmental payors, such as Medicare and

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Medicaid, and commercial payors, such as HMOs and insurance companies, can be central to new product acceptance.

        Current treatments for onychomycosis are often not reimbursed by third-party payors. We do not know the extent to which AN2690 will be reimbursed. Reimbursement decisions by third-party payors may have an effect on pricing and market acceptance. Our other leading product candidates, such as AN2728 for the treatment of psoriasis, are also subject to uncertain reimbursement decisions by third-party payors. Patients are less likely to use products if they do not receive adequate reimbursement.

        The market for our product candidates may depend on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Industry competition to be included in such formularies results in downward pricing pressures on pharmaceutical companies. Third-party payors may refuse to include a particular branded drug in their formularies when a competing generic product is available.

        All third-party payors, whether governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for medicines exists among all these payors. Therefore, coverage of and reimbursement for drugs can differ significantly