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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2002

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 number 0-22332

INSITE VISION INCORPORATED

Registrant’s telephone number, including area code (510) 865-8800

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 x   No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

     The number of shares of Registrant’s common stock, $0.01 par value, outstanding as of July 31, 2002: 24,958,028.

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QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2002

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						Page
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001					1
		Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2002 and 2001					2
		Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2002 and 2001					3
		Notes to Condensed Consolidated Financial Statements					4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations					5
Item 3.		Quantitative and Qualitative Disclosures About Market Risk					16
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings					16
Item 2.		Changes in Securities and Use of Proceeds					16
Item 3.		Defaults Upon Senior Securities					16
Item 4.		Submission of Matters to a Vote of Security Holders					17
Item 5.		Other Information					17
Item 6.		Exhibits and Reports on Form 8-K
		Exhibits					17
		Reports on Form 8-K					17

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

InSite Vision Incorporated
Condensed Consolidated Balance Sheets

			June 30,				December 31,
(in thousands, except share and per share amounts)			2002				2001
			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	4,579			$	10,095
	Inventory			57				70
	Prepaid expenses and other current assets			133				103
Total current assets				4,769				10,268
Property and equipment, at cost:
	Laboratory and other equipment			1,063				1,056
	Leasehold improvements			73				68
	Furniture & fixtures			3				3
				1,139				1,127
Accumulated depreciation				476				344
				663				783
Total assets			$	5,432			$	11,051
Liabilities and common stockholders’ equity
Current liabilities:
	Accounts payable		$	306			$	344
	Accrued liabilities			351				356
	Accrued compensation and related expense			686				821
Total current liabilities				1,343				1,521
Capital lease obligation, less current portion				27				45
Commitments
Common stockholders’ equity:
	Common stock, $0.01 par value, 60,000,000 shares authorized; 24,958,028 issued and outstanding at June 30, 2002; 24,930,350 issued and outstanding at December 31, 2001			249				249
	Additional paid-in-capital			107,385				107,246
	Notes receivable from stockholder			(231	)			(257	)
	Accumulated deficit			(103,341	)			(97,753	)
Common stockholders’ equity				4,062				9,485
Total liabilities and common stockholders’ equity			$	5,432			$	11,051

See accompanying notes to condensed consolidated financial statements.

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InSite Vision Incorporated
Condensed Consolidated Statements of Operations
(Unaudited)

No cash dividends were declared or paid during the periods.

See accompanying notes to condensed consolidated financial statements.

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InSite Vision Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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InSite Vision Incorporated
Notes to Condensed Consolidated Financial Statements
June 30, 2002

(Unaudited)

Note 1 — Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2002, are not necessarily indicative of the results that may be expected for any future period.

     These financial statements and notes should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2001.

Critical Accounting Policies and Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

     The following are items in our financial statements that require significant estimates and judgments:

     Inventory. Our inventories are stated at the lower of cost or market. The cost of the inventory is based on the first-in first-out method. If the cost of the inventory exceeds the expected market value a provision is recorded for the difference between cost and market. At June 30, 2002, our inventories solely consisted of OcuGene kits.

     Revenue Recognition. We recognize up-front fees over the expected term of the research and development services using the straight-line method. When changes in the expected term of ongoing services are identified, the amortization period for the remaining fees is appropriately modified.

     Revenue related to performance milestones is recognized when the milestone is achieved based on the terms set forth in the related agreements.

     We directly reduce expenses for amounts reimbursed due to cost sharing agreements. We recognize cost sharing payments when persuasive evidence of an arrangement exists, the services have been rendered, the fee is fixed or determinable and collectibility is reasonably assured.

     We receive royalties from licensees based on third-party sales and the royalties are recorded as earned in accordance with contract terms, when third party results are reliably measured and collectibility is reasonably assured.

     Revenue related to the sales of our product, the OcuGene glaucoma genetic test, is recognized when all related services have been rendered and collectibility is reasonably assured.

     Cost of goods. We recognize the cost of inventory shipped and other costs related to the conduct of the OcuGene glaucoma genetic test when they are incurred.

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     Research and Development (R&D) Expenses. R&D expenses include salaries, benefits, facility costs, services provided by outside consultants and contractors, administrative costs and materials for research and development activities. We also fund research at a variety of academic institutions based on agreements that are generally cancelable. We recognize such costs as they are incurred.

Note 2 — Subsequent Event

     In August 2002 we signed a licensing agreement with Bausch & Lomb Incorporated, a New York corporation (“Bausch & Lomb”), to develop our product candidate ISV-403 for the treatment of ocular bacterial infections. The transaction consists of two parts, the ISV-403 Technology License Agreement (the “License Agreement”) and the Preferred Stock Purchase Agreement (the “Stock Purchase Agreement”).

     Licensing Agreement

     Under the terms of the License Agreement, we are responsible for the clinical development of ISV-403 through New Drug Application (NDA) approval from the U.S. Food and Drug Administration (FDA), with Bausch & Lomb responsible for subsequent commercial manufacturing and marketing. Bausch & Lomb will make preferred equity investments in us as product milestones are achieved. The License Agreement grants Bausch & Lomb exclusive royalty bearing rights to ISV-403 in all geographies excluding Japan, and with shared selling rights in Asia.

     Stock Purchase Agreement

     The Stock Purchase Agreement provides for Bausch & Lomb to purchase up to $15 million worth of Series A-1 Preferred Stock. The initial investment, which occurred contemporaneously with the execution of the License Agreement, totaled $2.0 million. Upon the achievement of certain milestones, Bausch & Lomb will invest up to an additional $13.0 million in various closings from time to time. The Series A-1 Preferred Stock does not contain voting rights, except as otherwise provided by the Delaware General Corporation Law and each share is entitled to a six percent (6%) per annum cumulative dividend.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the financial statements and notes thereto included in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2001.

Overview

     In addition to the historical information contained herein, the discussion in this Quarterly Report of Form 10-Q may contain certain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements whenever they appear in this document. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below and under the heading “Risk Factors,” as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this report.

     We are an ophthalmic product development company focused on developing genetically based tools, for the diagnosis, prognosis and management of glaucoma, as well as ophthalmic pharmaceutical products based on our proprietary DuraSite® eyedrop-based drug delivery technology. Our retinal programs include both a therapeutic agent and a retinal drug delivery technology.

     We are focusing our commercial efforts and research and development on the following:

	•		continued launch of our OcuGene™ glaucoma genetic test based on our ISV-900 technology;
	•		expanding our ISV-900 technology for the diagnosis, prognosis and management of glaucoma;
	•		ISV-205, a DuraSite formulation for the treatment of glaucoma;
	•		ISV-401, a DuraSite formulation of a novel antibiotic not currently used in ophthalmology;
	•		ISV-403, a DuraSite formulation of a fourth generation fluoroquinolone;
	•		ISV-014, a retinal drug delivery device; and
	•		treatments for diabetic retinopathy and macular degeneration.

     Glaucoma Genetics. Our glaucoma genetics program, which is being carried out in collaboration with academic researchers, is focused on discovering genes that are associated with glaucoma, and the mutations on these genes that cause the disease. This genetic information then may be applied to develop new glaucoma diagnostic, prognostic and management tools. The first of these new tools, OcuGene, is still in the launch phase and was first introduced to the medical community at the end of 2001.

     A clinical study published in the September 2001 issue of Clinical Genetics, showed a correlation between the presence of the TIGR promoter region mutation in individuals with primary open-angle glaucoma, or POAG, and the likelihood of that individual developing a more aggressive form of glaucoma including more visual field damage. Published studies have also shown the correlation of the coding region mutations detected by our OcuGene glaucoma genetic test and a high probability of developing glaucoma.

     To date, our academic collaborators have identified genes associated with POAG (the most prevalent form of the disease in adults), normal tension glaucoma, juvenile glaucoma and primary congenital glaucoma, or PCG. Our academic collaborators for our glaucoma genetics program are with: the University of California, San Francisco, or UCSF; the University of Connecticut Health Center, or UCHC; Institute National de la Sante et de la Recherche Medicale, or INSERM, the French equivalent of the U.S. National Institutes of Health; Okayama University in Japan; and other institutions in North America and Europe. This research, other than what has been incorporated into our OcuGene glaucoma genetic test, still must be converted into commercial products.

     In December 2001, we entered into an agreement under which we obtained certain exclusive rights for the Optineuron, or OPTN, gene and associated mutations with UCHC. In early tests, this gene has been linked to POAG, and the normal-tension glaucoma subset. We are in the process of conducting additional research on the

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Optineuron gene and mutations and we believe we may be able to introduce a test incorporating this gene early in 2003.

     DuraSite-Based Product and Candidates. Our DuraSite delivery system is a patented eyedrop formulation comprising a cross-linked carboxyl-containing polymer that incorporates the drug to be delivered to the eye. The formulation is instilled in the cul-de-sac of the eye as a small volume eyedrop and remains in the eye for up to several hours during which time the active drug ingredient is gradually released. This increased residence time is designed to permit lower concentrations of a drug to be administered over a longer period of time, thereby minimizing the inconvenience of frequent dosing and reducing potential related adverse side effects. Eyedrops delivered in the DuraSite system contrast to conventional eyedrops, which typically only last a few minutes in the eye and, thus, require delivery of a highly concentrated burst of drug and frequent administration to sustain therapeutic levels. DuraSite can be customized to deliver a variety of compounds with a broad range of molecular weights and other properties.

     The development of the ISV-205 product candidate, containing diclofenac, is another result of our glaucoma genetics research. This DuraSite formulation contains a drug that has been shown in cell and organ culture systems to inhibit the production of a protein that appears to cause glaucoma.

     A Phase II clinical study was successfully completed in 1999 to evaluate the efficacy of two concentrations of diclofenac. Analysis of the data from this study indicates that ISV-205 was safe and associated with a 75% reduction in the number of subjects with clinically significant IOP elevation following steroid use.

     A second Phase II clinical study was conducted in 233 subjects with ocular hypertension. Genetic information was collected on the subjects using our ISV-900 technology and the subjects were dosed twice daily for six months with ISV-205. Our ISV-900 technology detected the TIGR mt-1 or mt-11 mutations in approximately 70% of the ocular hypertensive subjects participating in the study. In patients with the TIGR mutations, 0.1% formulation of ISV-205 was statistically significantly more effective than placebo in lowering intraocular pressure (IOP) (p=0.008). These effects were not seen to the same extent in patients without the TIGR mutations. ISV-205 was similar to placebo in ocular safety and comfort in all patients. We are planning further clinical studies before filing for product approval with the U.S. Food and Drug Administration, or FDA, and there is no guarantee that similar clinical results will be achieved.

     ISV-401 is a DuraSite formulation of an antibiotic that has not previously been used in ophthalmology. ISV-401 contains an antibiotic that is effective for gram-negative and gram-positive bacteria and may enable reduced dosing frequency. ISV-401 may be effective for a broad-spectrum of bacteria and may enable physicians the ability to use it to treat a variety of ophthalmic diseases.

     In September 2001, we conducted a Phase I clinical trial that indicated the formulation was safe and well tolerated. In December 2001, we initiated a Phase II clinical trial using a 1.0% formulation of ISV-401, compared to a placebo, to treat bacterial conjunctivitis. In July 2002, both the enrollment and dosing portions of this clinical trial were completed. We are planning further clinical studies that we anticipate beginning in late 2002 after the data from the Phase II trial is analyzed and has been presented to the FDA.

     ISV-403 is a formulation of a fluoroquinolone in the DuraSite system. Fluoroquinolones are effective against gram-positive and gram-negative bacteria including pseudomonas, and are often used as prophylaxis during ophthalmic surgery. Based on preclinical testing, we have determined this is a fourth-generation fluoroquinolone, which has expanded bacterial sensitivities and may be effective against the bacteria that have developed resistance to prior generation fluoroquinolones and other antibiotics. In addition, based on preclinical studies we believe the ISV-403 formulation may provide for reduced dosing frequency compared to other formulations currently on the market.

     The first product utilizing our DuraSite technology, AquaSite® dry eye treatment, was launched as an over-the-counter, or OTC, medication in 1992 by CIBA Vision Ophthalmics, or CIBA Vision, to which we have licensed certain co-exclusive rights. In 2000, Global Damon Pharm launched AquaSite in Korea, based on a licensing agreement signed in 1999. In 1999, we also licensed AquaSite to SSP Co., Ltd., or SSP, for sale in Japan. (See “—Collaborative and Licensing Agreements” in our Annual Report on Form 10-K for the year ended December

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31, 2001 for additional information on the agreements.) In connection with our DuraSite development efforts, we have licensed marketing rights to certain DuraSite-based product candidates to CIBA Vision and Bausch & Lomb Incorporated, or B&L.

     Retinal Delivery Device. ISV-014 is a device designed to provide controlled, non-surgical delivery of ophthalmic drugs to the retina and surrounding tissues. We are continuing to enhance the device and are collaborating with various academic researchers to perform in vivo experiments delivering products with a variety of molecular sizes to retinal tissues. The combination of this device technology with polymer-based drug platforms may permit long-term delivery of therapeutic agents to treat several retinal diseases that currently cannot be effectively treated.

     Business Strategy. Our business strategy is to license promising product candidates and technologies from academic institutions and other companies, to conduct preclinical and clinical testing, if necessary, and to partner with pharmaceutical companies to complete clinical development and regulatory filings as needed and to manufacture and market our products. We also have internally developed DuraSite-based product candidates using either non-proprietary drugs or compounds developed by others for non-ophthalmic indications. As with in-licensed product candidates, we either have or plan to partner with pharmaceutical companies to complete clinical development and commercialization of our own product candidates.

     Since our inception through the end of 2001, we had not received any revenues from the sale of our products, although we have received a small amount of royalties from the sale of products using our licensed technology. However, at the end of 2001, we commercially launched our OcuGene glaucoma genetic test and in the beginning of 2002 we began to receive a small amount of revenues from the sale of this test. With the exception of 1999, we have been unprofitable since our inception due to continuing research and development efforts, including preclinical studies, clinical trials and manufacturing of our product candidates. We have financed our research and development activities and operations primarily through private and public placement of our equity securities and, to a lesser extent, from collaborative agreements.

     As of June 30, 2002, our accumulated deficit was approximately $103.3 million. There can be no assurance that we will ever achieve or be able to maintain either significant revenues from product sales or profitable operations.

Results of Operations

     We earned revenues in the second quarter of 2002 and 2001 of $8,000 and $1,000, respectively, and $17,000 and $3,000 for the six months ended June 30, 2002 and June 30, 2001, respectively, from sales of OcuGene by our limited initial contract sales force and AquaSite® by CIBA Vision and Kukje Pharma Ind. Co., Ltd., our AquaSite manufacturing partner in Korea. We recognize revenue when all services have been performed and collectibility is reasonably assured. Accordingly, revenue for the sales of OcuGene may be recognized in a later period than the associated recognition of costs of the services provided, especially during the initial launch of the product.

     Cost of goods sold of $14,000 in the second quarter of 2002, and $31,000 for the six months ended June 30, 2002, reflects the cost of OcuGene tests performed as well as the cost of sample collection kits distributed for use. As the product was launched at the end of 2001, this is the first full six-month period that such expenses were incurred.

     Research and development expenses were $1.7 million from $1.9 million for the second quarter of 2002 compared to the second quarter of 2001. This decrease reflects a lower level of preclinical external testing incurred in 2001 prior to the filing of the IND for ISV-401, decrease in temporary personnel and consultants some of whom where replaced by employees, and a decrease in patent costs for certain programs we are no longer pursuing. Additionally, certain accrued employee related expenses were adjusted in the second quarter of 2002 and resulted in lower expenses compared to the second quarter of 2001.

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     Research and development expenses increased to $3.8 million from $3.6 million for the first six months of 2002 compared to the first six months of 2001. This 6% increase mainly reflects the license of the Optineuron gene from UCHC and the related cost of new patent filings and financial support of the research, international patent filings related to our antibiotic drug candidates, and costs related to the on-going ISV-401 clinical study.

     In the first six months of 2002, cost reimbursement decreased to $66,000 from $529,000 in the first six months of 2001. This reflects the termination in May 2001 of our ISV-205 licensing agreement, entered into in January 1999 with Pharmacia, that provided for reimbursement of the on-going development costs for the program in 2001. The cost reimbursement in 2002 reflected work completed on the preliminary formulation of a compound for the potential treatment of retinal diseases, which is being funded by a potential corporate partner.

     Selling, general and administrative expenses increased to $992,000 during the second quarter of 2002 from $833,000 during the second quarter of 2001, and to $1.9 million from $1.7 million for the six months ended June 30, 2002 and June 30, 2001, respectively. Expenses increased mainly due to the higher level of sales and marketing activities, such as advertising and our limited initial contract sales force related to the on-going launch of OcuGene.

     Net interest and other income was $15,000 and $167,000 in the second quarter of 2002 and 2001, respectively, and $43,000 and $400,000 for the six months ended June 30, 2002 and June 30, 2001, respectively. This decrease is due to lower average cash balances and lower interest rates. Interest earned in the future will be dependent on our funding cycles and prevailing interest rates.

     We incurred net losses applicable to common stockholders of $2.6 million and $2.3 million during the second quarter of 2002 and 2001, respectively, and $5.6 million and $4.3 million for the six months ended June 30, 2002 and June 30, 2001, respectively. The increase for the second quarter of 2002 compared to the second quarter of 2001 was due primarily to our sales and marketing activities to support the on-going launch of OcuGene and the decrease in interest income. The increase for the six-month period was primarily related to licensing of the Optineuron gene and the related patent activities, the patent and clinical costs related to our antibiotic programs including ISV-401, the decrease in reimbursement of research expenses by Pharmacia, our increased selling, general and administrative expenses to support OcuGene, and the decrease in interest income. We may incur substantial additional losses over the next several years. These losses are expected to fluctuate from period to period based primarily on the level of our product development and clinical activities, the commercial acceptance of our OcuGene product and any other products we may launch in the future, our ability to enter into collaborations for our products and the level of third-party reimbursement and milestone payments received by us, if any.

Liquidity and Capital Resources

     Through 1995, we financed our operations primarily through private placements of preferred stock, totaling approximately $32 million, and an October 1993 public offering of Common Stock, which resulted in net proceeds of approximately $30 million. After 1995, we financed our operations primarily through a January 1996 private placement of Common Stock and warrants resulting in net proceeds of approximately $4.7 million and an April 1996 public offering which raised net proceeds of approximately $8.1 million. In accordance with a July 1996 agreement with B&L, we received a total of $2.0 million from the sale of Common Stock in August 1996 and 1997. In September 1997, we completed a $7.0 million private placement of 7,000 shares of Series A Redeemable Convertible Preferred Stock resulting in net proceeds of approximately $6.5 million. In January 1999, we entered into a transaction with Pharmacia from which we received a total of $3.5 million from the sale of Common Stock in January 1999 and September 1999. In November 1999, we entered into another transaction with Pharmacia from which we received a $5.0 million licensing fee and, in January 2000, received $2.0 million from the sale of Common Stock. In April 2000, we received $0.6 million from the issuance of Common Stock from the exercise of warrants issued as part of the 1995 private placement. In May 2000, we completed a private placement of Common Stock and warrants from which we received net proceeds of approximately $13.0 million. During 2000, 2001, and 2002, we also received $243,000, $71,000 and $28,000, respectively, from the issuance of Common Stock upon the exercise of stock options and sales of Common Stock through our Employee Stock Purchase Plan.

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     At June 30, 2002, we had cash and cash equivalents totaling $4.6 million compared to $10.1 million as of December 31, 2001. It is our policy to invest these funds in highly liquid securities, such as interest bearing money market funds, Treasury and federal agency notes and corporate debt.

     Net cash used in operating activities of $5.5 million for the six months ended June 30, 2002 related primarily to research and development expenditures for our antibiotic programs and recently licensed glaucoma genetic technology, decreased cost reimbursements, and the expenses incurred related to the on-going launch of OcuGene.

     We purchased $18,000 of laboratory and other equipment and leasehold improvements in the first six months of 2002 compared with $205,000 in the first six months of 2001. We also made $18,000 of payments on capital leases for certain laboratory equipment in the first six months of 2002 compared to $4,000 in the first six months of 2001.

     We received $28,000 and $47,000 in the first six months of 2002 and 2001, respectively, from the issuance of Common Stock from the exercise of stock options by employees and through the employee stock purchase program.

     Our future capital expenditures and requirements will depend on numerous factors, including the progress of our research and development programs and preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, our ability to successfully commercialize OcuGene and any other products that we may launch in the future, our ability to establish collaborative arrangements, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in our existing collaborative and licensing relationships, acquisition of new businesses, products and technologies, the completion of commercialization activities and arrangements, and the purchase of additional property and equipment.

     We anticipate no material capital expenditures to be incurred for environmental compliance in fiscal year 2002. Based on our good environmental compliance record to date, and our current compliance with applicable environmental laws and regulations, environmental compliance is not expected to have a material adverse effect on our operations.

     We believe that our cash and cash equivalents will be sufficient to meet our operating expenses and cash requirements beyond the end of 2002. We will require substantial additional funds prior to reaching sustained profitability and we may seek private or public equity investments, future collaborative agreements, and possibly research funding to meet such needs. Even if we do not have an immediate need for additional cash, we may seek access to the private or public equity markets if and when we believe conditions are favorable. There is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, or at all.

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RISK FACTORS

It Is Difficult to Evaluate Our Business Because We Are in an Early Stage of Development and Our Technology Is Untested

     We are in an early stage of developing our business. We have only received an insignificant amount of royalties from the sale of one of our products, an over-the-counter dry eye treatment and in the beginning of 2002 we began to receive a small amount of revenues from the sale of our OcuGene glaucoma genetic test. Before regulatory authorities grant us marketing approval for additional products, we need to conduct significant additional research and development and preclinical and clinical testing. All of our products are subject to risks that are inherent to products based upon new technologies. These risks include the risks that our products:

	•		are found to be unsafe or ineffective;
	•		fail to receive necessary marketing clearance from regulatory authorities;
	•		even if safe and effective, are too difficult or expensive to manufacture or market;
	•		are unmarketable due to the proprietary rights of third parties; or
	•		are not able to compete with superior, equivalent or more cost-effective products offered by competitors.

Therefore, our research and development activities may not result in any commercially viable products.

We Will Require Significant Additional Funding and We May Have Difficulty Raising Additional Funding

     We will require substantial additional funding to develop and conduct testing on our potential products. We will also require additional funding to support our sales and marketing efforts for our OcuGene glaucoma genetic test and if we decide to independently manufacture or market any of our other products. Our future capital requirements depend upon many factors, including:

	•		the cost of maintaining or expanding a marketing organization for OcuGene and the related promotional activities;
	•		the progress of our research and development programs;
	•		our ability to establish additional corporate partnerships to develop, manufacture and market our potential products;
	•		the progress of preclinical and clinical testing;
	•		changes in, or termination of, our existing collaboration or licensing arrangements;
	•		whether we manufacture and market any of our other products ourselves;
	•		the time and cost involved in obtaining regulatory approvals;
	•		the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
	•		competing technological and market developments; and
	•		the purchase of additional capital equipment.

     We may seek additional funding through public or private equity or debt financing, collaborative or other arrangements, and from other sources. We may not be able to secure additional funding from these sources, and any funding may not be on terms acceptable to us. In addition, our board of directors has the authority to determine the price and terms of any sale of common stock and the rights, preferences and privileges of any preferred stock or debt or other security that is convertible into or exercisable for the common stock. The terms of any securities issued to

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future investors may be superior to the rights of our common stockholders, could result in substantial dilution and could adversely affect the market price for our common stock.

     Our stockholders may suffer substantial dilution if we raise additional funds by issuing equity securities. However, if we cannot raise additional funding, we may be required to delay, scale back or eliminate one or more of our research, discovery, development or marketing programs, or scale back or cease operations altogether. In addition, the failure to raise additional funding may force us to enter into agreements with third parties on terms which are disadvantageous to us, which may, among other things, require us to relinquish rights to our technologies, products or potential products.

We Have a History of Operating Losses and We Expect to Continue to Have Losses in the Future

     We have incurred significant operating losses since our inception in 1986 and have pursued numerous drug development candidates that did not prove to have commercial potential. As of June 30, 2002, our accumulated deficit was approximately $103.3 million. We expect to incur net losses for the foreseeable future or until we are able to achieve significant royalties or other revenues from sales of our products. In addition, we recognize revenue when all services have been performed and collectibility is reasonably assured, accordingly, revenue for the sales of OcuGene may be recognized in a later period than the associated recognition of costs of the services provided, especially during the initial launch of the product.

     Attaining significant revenue or profitability depends upon our ability, alone or with third parties, to successfully develop our potential products, conduct clinical trials, obtain required regulatory approvals and successfully manufacture and market our products. We may not ever achieve or be able to maintain significant revenue or profitability.

We Rely on Third Parties to Develop, Market and Sell Our Products, We May Not Be Able to Continue or Enter into Third Party Arrangements, and these Third Parties’ Efforts May Not Be Successful

     Following the termination of our ISV-900 agreement with Pharmacia in December 2000, we began to develop a marketing organization focused on the launch of our OcuGene glaucoma genetic test. We do not plan on establishing a dedicated sales force or a marketing organization for our other product candidates and primarily use external marketing and sales resources even for OcuGene. We also rely on third parties for clinical testing or product development. In addition, in May 2001, Pharmacia terminated the licensing agreement, we had entered into in January 1999, that granted Pharmacia an exclusive worldwide license for ISV-205 for the treatment of glaucoma. We now must enter into another third party collaboration agreement for the development, marketing and sale of our ISV-205 product or develop, market and sell the product ourselves. There can be no assurance that we will be successful in finding a new corporate partner for our ISV-205 program or that any collaboration will be successful, either of which could significantly harm our business. In addition, we have no experience in marketing and selling products and we cannot assure you that we would be successful in marketing ISV-205 ourselves. If we are to successfully develop and commercialize our product candidates, including ISV-205, we will be required to enter into arrangements with one or more third parties that will:

	•		provide for Phase II and/or Phase III clinical testing;
	•		obtain or assist us in other activities associated with obtaining regulatory approvals for our product candidates; and
	•		market and sell our products, if they are approved.

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     We are marketing and selling our OcuGene glaucoma genetic test mainly using external marketing and sales resources that include:

	•		marketing consultants;
	•		a network of key ophthalmic clinicians; and
	•		other resources with ophthalmic expertise.

     We may not be able to enter into arrangements with third parties with ophthalmic or diagnostic industry experience on acceptable terms or at all. If we are not successful in concluding such arrangements on acceptable terms, we may be required to establish our own sales force and significantly expand our marketing organization, despite the fact that we have no experience in sales, marketing or distribution. Even if we do enter into collaborative relationships, as we have recently experienced with Pharmacia, these relationships can be terminated forcing us to seek alternatives. We may not be able to build a marketing staff or sales force and our sales and marketing efforts may not be cost-effective or successful.

     In addition, we currently contract with a third party to assemble the sample collection kits used in our OcuGene glaucoma genetic test. If our assembler should encounter significant delays or we have difficulty maintaining our existing relationship, or in establishing a new one, our sales of this product could be adversely affected.

     Our strategy for research, development and commercialization of our products requires us to enter into various arrangements with corporate and academic collaborators, licensors, licensees and others. Furthermore, we are dependent on the diligent efforts and subsequent success of these outside parties in performing their responsibilities.

     Because of our reliance on third parties for the development, marketing and sale of our products, any revenues that we receive will be dependent on the efforts of these third parties, such as our corporate collaborators. These partners may terminate their relationships with us and may not diligently or successfully market our products. In addition, marketing consultants and contract sales organizations, such as those deployed by us currently or in the future for OcuGene, may market products that compete with our products and we must rely on their efforts and ability to effectively market and sell our products. We may not be able to conclude arrangements with other companies to support the commercialization of our products on acceptable terms. In addition, our collaborators may take the position that they are free to compete using our technology without compensating or entering into agreements with us. Furthermore, our collaborators may pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases or disorders targeted by these collaborative programs.

Our Business Depends Upon Our Proprietary Rights, and We May Not Be Able to Adequately Protect, Enforce or Secure Our Intellectual Property Rights

     Our success will depend in large part on our ability to obtain patents, protect trade secrets, obtain and maintain rights to technology developed by others, and operate without infringing upon the proprietary rights of others. A substantial number of patents in the field of ophthalmology and genetics have been issued to pharmaceutical, biotechnology and biopharmaceutical companies. Moreover, competitors may have filed patent applications, may have been issued patents or may obtain additional patents and proprietary rights relating to products or processes competitive with ours. Our patent applications may not be approved. We may not be able to develop additional proprietary products that are patentable. Even if we receive patent issuances, those issued patents may not be able to provide us with adequate protection for our inventions or may be challenged by others. Furthermore, the patents of others may impair our ability to commercialize our products. The patent positions of firms in the pharmaceutical and genetic industries generally are highly uncertain, involve complex legal and factual

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questions, and have recently been the subject of much litigation. Neither the United States Patent and Trademark Office nor the courts has developed, formulated, or presented a consistent policy regarding the breadth of claims allowed or the degree of protection afforded under pharmaceutical and genetic patents. Despite our efforts to protect our proprietary rights, others may independently develop similar products, duplicate any of our products or design around any of our patents. In addition, third parties from which we have licensed or otherwise obtained technology may attempt to terminate or scale back our rights.

     A number of pharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to our business. Some of these technologies, applications or patents may conflict with our technologies or patent applications. Such conflicts could limit the scope of the patents, if any, we may be able to obtain or result in the denial of our patent applications. In addition, if the United States Patent and Trademark Office or foreign patent agencies have issued or issue patents that cover our activities to other companies, we may not be able to obtain licenses to these patents at all, or at a reasonable cost, or be able to develop or obtain alternative technology. If we do not obtain such licenses, we could encounter delays in or be precluded altogether from introducing products to the market.

     We may need to litigate in order to defend against or assert claims of infringement, to enforce patents issued to us or to protect trade secrets or know-how owned or licensed by us. Litigation could result in substantial cost to and diversion of effort by us, which may harm our business. We have also agreed to indemnify our licensees against infringement claims by third parties related to our technology, which could result in additional litigation costs and liability for us. In addition, our efforts to protect or defend our proprietary rights may not be successful or, even if successful, may result in substantial cost to us.

     We also depend upon unpatented trade secrets to maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Our trade secrets may also be disclosed, and we may not be able to effectively protect our rights to unpatented trade secrets. To the extent that we or our consultants or research collaborators use intellectual property owned by others, disputes also may arise as to the rights in related or resulting know-how and inventions.

We Have No Experience in Commercial Manufacturing and Need to Establish Manufacturing Relationships with Third Parties, and If Contract Manufacturing Is Not Available to Us or Does Not Satisfy Regulatory Requirements, We Will Have to Establish Our Own Regulatory Compliant Manufacturing Capability

     We have no experience manufacturing products for commercial purposes. We have a pilot facility licensed by the State of California to manufacture a number of our products for Phase I and Phase II clinical trials but not for late stage clinical trials or commercial purposes. Any delays or difficulties that we may encounter in establishing and maintaining a relationship with qualified manufacturers to produce, package and distribute our finished products may harm our clinical trials, regulatory filings, market introduction and subsequent sales of our products.

     We currently contract with a third party to assemble the sample collection kits used in our OcuGene glaucoma genetic test. If our assembler should encounter significant delays or we have difficulty maintaining our existing relationship, or in establishing a new one, our sales of this product could be adversely affected.

     Contract manufacturers must adhere to Good Manufacturing Practices regulations that are strictly enforced by the FDA on an ongoing basis through the FDA’s facilities inspection program. Contract manufacturing facilities must pass a pre-approval plant inspection before the FDA will approve a new drug application. Some of the material

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manufacturing changes that occur after approval are also subject to FDA review and clearance or approval. The FDA or other regulatory agencies may not approve the process or the facilities by which any of our products may be manufactured. Our dependence on third parties to manufacture our products may harm our ability to develop and deliver products on a timely and competitive basis. Should we be required to manufacture products ourselves, we:

	•		will be required to expend significant amounts of capital to install a manufacturing capability;
	•		will be subject to the regulatory requirements described above;
	•		will be subject to similar risks regarding delays or difficulties encountered in manufacturing any such products; and
	•		will require substantial additional capital.

     Therefore, we may not be able to manufacture any products successfully or in a cost-effective manner.

We Have No Experience in Performing the Analytical Procedures Related to Genetic Testing and Have Established an Exclusive Commercial Agreement with a Third Party to Perform These Procedures For Our OcuGene Glaucoma Genetic Test. If We Are Unable to Maintain this Arrangement, and Are Unable to Establish New Arrangements with Third Parties, We Will Have to Establish Our Own Regulatory Compliant Analytical Process for Genetic Testing.

     We have no experience in the analytical procedures related to genetic testing. We have entered into an agreement with Quest Diagnostics Incorporated under which Quest will exclusively perform OcuGene genetic analytical procedures at a commercial scale in the United States. Accordingly, we are reliant on Quest for all of our OcuGene analytical procedures. If we are unable to maintain this arrangement, we would have to contract with another clinical laboratory or would have to establish our own facilities. We cannot assure you that we will be able to contract with another laboratory to perform these services on a commercially reasonable basis, or at all.

     Clinical laboratories must adhere to Good Laboratory Practice regulations that are strictly enforced by the FDA on an ongoing basis through the FDA’s facilities inspection program. Should we be required to perform the analytical procedures for genetic testing ourselves, we:

	•		will be required to expend significant amounts of capital to install an analytical capability;
	•		will be subject to the regulatory requirements described above; and
	•		will require substantial additional capital.

     We cannot assure you we will be able to successfully enter into another genetic testing arrangement or perform these analytical procedures ourselves on a cost-efficient basis, or at all.

We Rely on a Sole Source for Some of the Raw Materials in Our Products, and the Raw Materials We Need May Not be Available to Us

     We are dependent upon our development partner for the active drug incorporated into our ISV-616 product candidate. ISV-616 is a DuraSite-based formulation of a compound that may inhibit the growth of new blood vessels. This compound may be a treatment for such retinal diseases as diabetic retinopathy or macular degeneration. We have performed limited formulation and pre-clinical testing of ISV-616 in collaboration with the pharmaceutical company that developed the compound. The further development of this product will be dependent upon reaching appropriate agreement with our development partner on future supply of the compound and other development terms.

     In addition, certain of the raw materials we use in formulating our DuraSite drug delivery system, and other components of our product candidates, are available from only one source. Any significant interruption in the supply

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of these raw materials could delay our clinical trials, product development or product sales and could harm our business.

Our Products Are Subject to Government Regulations and Approval Which May Delay or Prevent the Marketing of Potential Products and Impose Costly Procedures Upon Our Activities

     The FDA and comparable agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon preclinical and clinical testing, manufacturing and marketing of pharmaceutical products. Lengthy and detailed preclinical and clinical testing, validation of manufacturing and quality control processes, and other costly and time-consuming procedures are required. Satisfaction of these requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. The effect of government regulation may be to delay or to prevent marketing of potential products for a considerable period of time and to impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant approval for any products we develop on a timely basis, or at all. Success in preclinical or early stage clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. If regulatory approval of a product is granted, such approval may impose limitations on the indicated uses for which a product may be marketed. Further, even after we have obtained regulatory approval, later discovery of previously unknown problems with a product may result in restrictions on the product, including withdrawal of the product from the market. Moreover, the FDA has recently reduced previous restrictions on the marketing, sale and prescription of products for indications other than those specifically approved by the FDA. Accordingly, even if we receive FDA approval of a product for certain indicated uses, our competitors, including our collaborators, could market products for such indications even if such products have not been specifically approved for such indications. Delay in obtaining or failure to obtain regulatory approvals would make it difficult or impossible to market our products and would harm our business.

     The FDA’s policies may change and additional government regulations may be promulgated which could prevent or delay regulatory approval of our potential products. Moreover, increased attention to the containment of health care costs in the United States could result in new government regulations that could harm our business. Adverse governmental regulation might arise from future legislative or administrative action, either in the United States or abroad. See “—Uncertainties regarding healthcare reform and third-party reimbursement may impair our ability to raise capital, form collaborations and sell our products.”

We Compete in Highly Competitive Markets and Our Competitors’ Financial, Technical, Marketing, Manufacturing and Human Resources May Surpass or Limit Our Ability to Develop and/or Market Our Products and Technologies

     Our success depends upon developing and maintaining a competitive advantage in the development of products and technologies in our areas of focus. We have many competitors in the United States and abroad, including pharmaceutical, biotechnology and other companies with varying resources and degrees of concentration in the ophthalmic market. Our competitors may have existing products or products under development which may be technically superior to ours or which may be less costly or more acceptable to the market. Competition from these companies is intense and is expected to increase as new products enter the market and new technologies become available. Many of our competitors have substantially greater financial, technical, marketing, manufacturing and human resources than we do. In addition, they may also succeed in developing technologies and products that are more effective, safer, less expensive or otherwise more commercially acceptable than any that we have or will develop. Our competitors may obtain cost advantages, patent protection or other intellectual property rights that would block or limit our ability to develop our potential products. Our competitors may also obtain regulatory approval for commercialization of their products more effectively or rapidly than we will. If we decide to manufacture and market our products by ourselves, we will be competing in areas in which we have limited or no experience such as manufacturing efficiency and marketing capabilities. See “— We have no experience in commercial manufacturing and need to establish manufacturing relationships with third parties, and if contract

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manufacturing is not available to us or does not satisfy regulatory requirements, we will have to establish our own regulatory compliant manufacturing capability.”

We Are Dependent Upon Key Employees and We May Not Be Able to Retain or Attract New Key Employees

     We are highly dependent on Dr. Chandrasekaran and other principal members of our scientific and management staff. The loss of services from these key personnel might significantly delay the achievement of planned development objectives. Furthermore, a critical factor to our success is recruiting and retaining qualified personnel. Competition for skilled individuals in the biotechnology business is highly intense, and we may not be able to continue to attract and retain personnel necessary for the development of our business. The loss of key personnel or the failure to recruit additional personnel or to develop needed expertise could harm our business.

If We Engage in Acquisitions, We Will Incur a Variety of Costs, and the Anticipated Benefits of the Acquisition May Never be Realized

     At some point in the future we may pursue acquisitions of companies, product lines, technologies or businesses that our management believes are complementary or otherwise beneficial to us. Any of these acquisitions could have negative effects on our business. Future acquisitions may result in substantial dilution to our stockholders, the incurrence of additional debt and amortization expenses related to goodwill, research and development and other intangible assets. Any of these results could harm our financial condition. In addition, acquisitions would involve several risks for us, including:

	•		assimilating employees, operations, technologies and products from the acquired companies with our existing employees, operation, technologies and products;
	•		diverting our management’s attention from day-to-day operation of our business;
	•		entering markets in which we have no or limited direct experience; and
	•		potentially losing key employees from the acquired companies.

Our Insurance Coverage May Not Adequately Cover Our Potential Product Liability Exposure

     We are exposed to potential product liability risks inherent in the development, testing, manufacturing, marketing and sale of human therapeutic products. Product liability insurance for the pharmaceutical industry is extremely expensive. Our present product liability insurance coverage may not be adequate. In addition, our existing coverage will not be adequate as we further develop, manufacture and market our products, and adequate insurance coverage against potential claims may not be available in sufficient amounts or at a reasonable cost.

Uncertainties Regarding Healthcare Reform and Third-Party Reimbursement May Impair Our Ability to Raise Capital, Form Collaborations and Sell Our Products

     The continuing efforts of governmental and third party payers to contain or reduce the costs of healthcare through various means may harm our business. For example, in some foreign markets the pricing or profitability of health care products is subject to government control. In the United States, there have been, and we expect there will continue to be, a number of federal and state proposals to implement similar government control. The implementation or even the announcement of any of these legislative or regulatory proposals or reforms could harm our business by impeding our ability to achieve profitability, raise capital or form collaborations.

     In addition, the availability of reimbursement from third party payers determines, in large part, the demand for healthcare products in the United States and elsewhere. Examples of such third party payers are government and private insurance plans. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, and third party payers are increasingly challenging the prices charged for medical products and services. If

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we succeed in bringing one or more products to the market, reimbursement from third party payers may not be available or may not be sufficient to allow us to sell our products on a competitive or profitable basis.

Our Use of Hazardous Materials May Pose Environmental Risks and Liabilities Which May Cause Us to Incur Significant Costs

     Our research, development and manufacturing processes involve the controlled use of small amounts of radioactive and other hazardous materials. We are subject to federal, state and local laws, regulations and policies governing the use, manufacture, storage, handling and disposal of radioactive and other hazardous materials and waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by current laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our resources. Moreover, we may be required to incur significant costs to comply with environmental laws and regulations, especially to the extent that we manufacture our own products.

Management and Principal Stockholders May Be Able to Exert Significant Control On Matters Requiring Approval by Our Stockholders

     As of June 30, 2002, our management and principal stockholders together beneficially owned approximately 25% of our outstanding shares of common stock. As a result, these stockholders, acting together, may be able to effectively control all matters requiring approval by our stockholders, including the election of a majority of our directors and the approval of business combinations.

The Market Prices For Securities of Biopharmaceutical and Biotechnology Companies such as Ours May Be Highly Volatile Due to Reasons that Are Related and Unrelated to the Operating Performance and Progress of Our Company

     The market prices for securities of biopharmaceutical and biotechnology companies, including ours, have been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. In addition, future announcements, such as the results of testing and clinical trials, the status of our relationships with third-party collaborators, technological innovations or new therapeutic products, governmental regulation, developments in patent or other proprietary rights, litigation or public concern as to the safety of products developed by us or others and general market conditions, concerning us, our competitors or other biopharmaceutical companies, may have a significant effect on the market price of our common stock. Further, the standstill we had with Pharmacia in connection with our ISV-900 transaction entered into in November 1999 expired on May 11, 2002. As a result, we will no longer have any control over Pharmacia’s future purchases or sales of our common stock, which could increase the volatility in the market price for our common stock. We have not paid any cash dividends on our common stock, and we do not anticipate paying any dividends in the foreseeable future.

     In addition, on September 11, 2001, terrorist attacks destroyed the World Trade Center in New York City and damaged the Pentagon in Washington, D.C. The impact of these events, as well as any future events occurring in connection with these events, including U.S. military response or additional terrorist acts, on financial markets is not yet fully known but has included, and could continue to include, among other things, increased price and volume volatility and/or economic recession. These events, as well as fluctuations in our operating results and market conditions for biopharmaceutical and biotechnology stocks in general, could have a significant effect on the volatility of the market price for our common stock and on the future price of our common stock.

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We Have Adopted and Are Subject to Anti-Takeover Provisions That Could Delay or Prevent an Acquisition of Our Company

     Provisions of our certificate of incorporation and bylaws may constrain or discourage a third party from acquiring or attempting to acquire control of us. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock. The board of directors has the authority to determine the price, rights, preferences, privileges and restrictions of the remaining unissued shares of preferred stock without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Provisions of Delaware law applicable to us could also delay or make more difficult a merger, tender offer or proxy contest involving us, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless conditions set forth in the Delaware General Corporation Law are met.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The following discusses our exposure to market risk related to changes in interest rates.

     We invest our excess cash in investment grade, interest-bearing securities. At June 30, 2002, we had approximately $4.6 million invested in money market mutual funds. While a hypothetical decrease in market interest rates by 10 percent from the June 30, 2002 levels would cause a decrease in interest income, it would not result in a loss of the principal. Additionally, the decrease in interest income would not be material.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

     None.

Item 2. Changes in Securities and Use of Proceeds.

     None.

Item 3. Defaults Upon Senior Securities.

     None.

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

     On June 3, 2002, we held our Annual Meeting of Stockholders at which the stockholders approved:

(1)

The election of S. Kumar Chandrasekaran, Ph.D., Mitchell H. Friedlaender, M.D., John L. Mattana, Jon S. Saxe and Anders P. Wiklund to the Board of Directors to serve until the next annual meeting or until their successors are elected and qualified. The following directors received the number of votes set opposite their respective names:

(2)		A series of amendments to the Company’s 1994 Stock Option Plan, or the 1994 Plan, including (i) increasing the maximum number of shares of Common Stock issuable to any one person under the 1994 Plan over the term of the 1994 Plan by 400,000 shares so that the limit is increased from 850,000 shares to 1,250,000 shares and (ii) extending the term of the 1994 Plan by an additional 5 years so that the expiration date is extended from July 27, 2003 to July 27, 2008. Such proposal received 5,405,583 votes for the amendment, 3,591,045 votes against the amendment, 32,463 votes abstaining, and 10,625,726 broker non-votes.
(3)		A series of amendments to the Company’s 1994 Employee Stock Purchase Plan, or the Purchase Plan, including (i) increasing by 100,000 the total number of shares of the Company’s Common Stock authorized for issuance under the Plan, (ii) extending the term of the Purchase Plan by an additional 5 years so that the expiration date is extended from December 31, 2003 to December 31, 2008, and (iii) implementing an automatic share increase feature pursuant to which the number of shares available for issuance under the Purchase Plan is automatically increased on the first trading day in January each calendar year, beginning with calendar year 2003 and continuing over the remaining term of the Purchase Plan, as extended, by an amount equal to 0.5% of the total number of shares outstanding on the last trading day in December in the immediately preceding calendar year, but in no event will any such annual increase exceed 125,000 shares. Such proposal received 6,639,017 votes for the amendment, 2,350,611 votes against the amendment, 39,463 votes abstaining, and 10,625,726 broker non-votes.
(4)		The ratification of our appointment of Ernst & Young LLP as our independent certified public accountants for the 2002 fiscal year. Such proposal received 19,514,139 votes for ratification, 101,094 votes against ratification and 39,584 abstentions.

Item 5. Other Information.

     None.

Item 6. Exhibits and Reports on Form 8-K.

a)		None.
b)		None.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INSITE VISION INCORPORATED
Dated: August 14, 2002	by:	/s/  S. Kumar Chandrasekaran, Ph.D.
		S. Kumar Chandrasekaran, Ph.D. Chairman of the Board, Chief Executive Officer and Chief Financial Officer (on behalf of the registrant and as principal financial and accounting officer)

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