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THE MEDICINES COMPANY ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2003 TABLE OF CONTENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE MEDICINES COMPANY

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-31191

THE MEDICINES COMPANY
(Exact name of registrant as specified in its charter)

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

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value of voting Common Stock held by non-affiliates of the registrant was approximately $681,078,238 based on the last reported sale price of the Common Stock on the Nasdaq National Market on June 30, 2003.

        Number of shares of the registrant's class of Common Stock outstanding as of February 25, 2004: 47,535,395.

THE MEDICINES COMPANY

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2003

TABLE OF CONTENTS

PART I

Item 1. Business

Overview

        We are a pharmaceutical company that specializes in acute care hospital products. We acquire, develop and commercialize pharmaceutical products in late stages of their development. Our first acute care hospital product, Angiomax® (bivalirudin), is a direct thrombin inhibitor used as an anticoagulant in patients undergoing coronary angioplasty. We are currently developing two additional late development stage pharmaceutical products as potential acute care hospital products. The first of these, Clevelox™ (clevidipine), is an intravenous drug intended for the short-term control of blood pressure in patients undergoing cardiac surgery. The second potential product, cangrelor, is an anticoagulant that prevents platelet clotting factors from activating, which we believe has potential uses in coronary angioplasty and cardiac surgery. We focus our commercial sales and marketing resources on the U.S. hospital market, and our revenues to date have been generated almost entirely from sales of Angiomax in the United States. Our total net revenues were $14.2 million in 2001, $38.3 million in 2002 and $85.6 million in 2003.

        Our core strategy is to develop and commercialize products that we believe will help hospitals alleviate the growing pressure to treat patients more efficiently, including the need to improve the effectiveness and safety of treatment while minimizing cost. Cost of treatment in hospitals is predominantly driven by length of patient stay, while length of stay is often driven by the occurrence of treatment complications. Products that are effective, safe and predictable, or that require shorter periods of treatment or are easier to use than current products, may reduce the length of hospital stay and lower total costs. We believe that products with these attributes positively impact the care of patients and are attractive to hospital management, physicians, pharmacists and other care staff. We believe that the products we are developing will address these needs.

        As a result of our experience commercializing Angiomax, we have developed in-depth know-how related to the practice of acute hospital care and gained valuable insights into procurement processes, usage patterns, caregiver preferences and the evaluation of products by our hospital customers. Our current and potential hospital customers are technically proficient in specialized areas of acute patient care and demand a high level of technical service for the products they use. They practice in such areas of the hospital as the cardiac catheterization laboratory, where coronary angioplasties are performed, the emergency department, and the operating room. We believe we can successfully address acute care hospital markets without a large sales force and without an internal manufacturing infrastructure.

        The United States Food and Drug Administration, or FDA, approved Angiomax for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing coronary angioplasty in December 2000, and we began selling the product in the United States in January 2001. We believe that Angiomax has the potential to replace heparin, the anticoagulant that historically has been used in the United Stated in the treatment of arterial thrombosis, a condition involving the formation of blood clots in arteries. We believe that in each of the three years we have sold Angiomax, we have gained market share versus heparin in coronary angioplasty. We are evaluating Angiomax for additional uses in open vascular surgery such as coronary artery bypass graft, or CABG, surgery, in medical conditions that require urgent treatment such as unstable angina, in patients with heparin allergy, in children and in peripheral angioplasty.

        For Clevelox, we and a contract manufacturer have completed manufacturing development work to produce a sufficient supply of the product for clinical development and, potentially, commercial supply. We commenced a Phase 3 clinical program for Clevelox in 2003, and we believe that we currently have the capability to have Clevelox manufactured and packaged on a commercial scale appropriate for launch of the drug. For cangrelor, which we acquired in December 2003, we have initiated technology transfer activities that should enable our contract manufacturer to produce a sufficient supply of the product for Phase 3 clinical trials.

        In markets outside of the United States, we intend to market Angiomax and, eventually, our other products, through distribution agreements. In order to market our products in the European Union and many other foreign jurisdictions, we or our third-party distributors must obtain separate regulatory approvals. Third-party distributors are currently selling Angiomax in Canada, Israel and New Zealand. In August 2003, we filed a market authorization application for approval to sell Angiomax in the European Union. The application is currently under review.

Product Acquisition and Development Strategy

        We intend to continue building our acute care franchise of hospital products by selectively acquiring and developing late-stage product candidates or products approved for marketing. We believe that products may be acquired from larger pharmaceutical companies in the process of refining their own product portfolios and from smaller companies seeking specialist development or commercial collaborations.

        In evaluating product acquisition candidates, we will continue to seek products that have the potential to alleviate the growing pressures on U.S. hospitals to treat patients more efficiently. We look for an anticipated time from acquisition to commercialization of four years or less and existing clinical data which provides reasonable evidence of safety and efficacy, together with the potential to reduce a patient's hospital stay. In addition, we may acquire approved products that can be marketed in hospitals by our commercial organization. In making our acquisition decisions, our approach is to:

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understand the market opportunity and potential cost savings for initially-targeted uses of the drug based on our knowledge of the acute care hospital markets and input from healthcare practitioners;



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assess the investment and development programs that will be necessary to achieve a marketable product profile in these initial uses;



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attempt to structure the design of our development programs to obtain critical information relating to the clinical and economic performance of the product early in the development process, so that we can make or adjust key development decisions; and



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assess the fit with our acute care franchise to enable commercial overlap and minimize the need for expansion of our commercial organization.

        We believe that Angiomax, Clevelox and cangrelor each fit the profile set forth above. For each of these products, we structured the license agreements to include an upfront payment, milestone payments upon marketing and regulatory achievements and royalties on eventual product sales. We acquired Angiomax from Biogen, Inc., a predecessor of Biogen Idec, Inc., a biotechnology company. We acquired both Clevelox and cangrelor from AstraZeneca AB, a large pharmaceutical company.

Angiomax

Overview

        Our first product acquisition was Angiomax, which we exclusively licensed from Biogen in 1997. Since acquiring Angiomax, we have invested in manufacturing, clinical and regulatory development. In December 2000, we received marketing approval from the FDA for Angiomax for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing coronary balloon angioplasty. We began selling Angiomax in the United States in January 2001. In May 2003, we received FDA approval for an improved process for manufacturing Angiomax, known as the Chemilog process, which has increased the efficiency of manufacturing the Angiomax active product ingredient.

        We believe that Angiomax, as a direct thrombin inhibitor, has the potential to become a broadly applied intravenous anticoagulant in the treatment of coronary and other arterial thrombosis. Arterial

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thrombosis is associated with life-threatening conditions such as ischemic heart disease, peripheral vascular disease and stroke, all of which result from decreased blood flow and diminished supply of oxygen to vital organs. We believe that Angiomax can replace heparin, a generic product manufactured from by-products of cow lungs or pig intestines, that has been the anticoagulant used historically in angioplasty procedures, in most major cardiac and vascular surgical procedures and in the treatment of acute coronary syndromes, including heart attack.

        There are three main areas of the hospital where heparin is used for acute treatment of arterial thrombosis: the cardiac catheterization laboratory, where angioplasties are performed; the emergency department, where patients with acute coronary syndromes, including chest pain and heart attacks, are initially treated; and the operating room, where CABG surgery is performed.

        We are concentrating our commercial efforts on replacing heparin in the cardiac catheterization laboratory, where the procedure for which Angiomax is approved are performed. We have conducted several clinical trials in angioplasty to evaluate the use of Angiomax compared to heparin in this setting. In these trials, Angiomax use has resulted in fewer ischemic complications and fewer bleeding events, including a reduction in the need for blood transfusion. In addition, Angiomax demonstrated in these trials that its therapeutic effect is more predictable than heparin, which enables simplified dosing.

        We are currently conducting Phase 3 clinical trials of Angiomax in the emergency department and the operating room, as we are pursuing regulatory approval to market Angiomax for acute coronary syndromes and for CABG surgery. We are also evaluating Angiomax in clinical trials for use in patients with heparin allergy, in children and in peripheral angioplasty.

Scientific Background

        Clotting.    Normally, blood loss at the site of an injury is limited by the formation of blood clots, in a process called coagulation. A blood clot is a collection of cross-linked strands of the protein fibrin, which is made as a result of coagulation and forms a mesh around activated platelets and red blood cells. Blood clots are formed through precisely regulated interactions among the blood vessel wall, plasma clotting factors (including thrombin and fibrinogen) and platelets. Current literature suggests that the clotting process is a series of overlapping phases in which groups of clotting factors are intertwined with platelets, red blood cells and endothelial cells that line the blood vessels. In general, clotting serves a life-saving function by reducing bleeding; however, unwanted clots in arteries can lead to heart attack, stroke or organ failure.

        The trigger for the clotting process in an artery is typically a tearing or spontaneous rupture of plaque (deposits of cholesterol, fat and dead cells that build up under a protective layer of cells, known as endothelial cells, on a blood vessel wall). Rupturing may occur without an apparent cause or may be the result of, for example, the use of catheters and other devices in connection with an angioplasty procedure. When the plaque ruptures, substances released from cells and plaque that are not normally exposed to the bloodstream come into contact with the bloodstream. This contact triggers the clotting process. In parallel inter-dependent processes, a small amount of the clotting factor thrombin is produced and a thin protective layer of platelets is deposited at the rupture site.

        Thrombin has long been recognized as a key factor in the clotting process. Thrombin, like several other clotting factors, is technically a type of enzyme called a protease. Thrombin not only converts fibrinogen into the fibrin strands that hold a clot together, but it also helps to amplify its own production by activating other clotting factors. Thrombin also provides signals, like a hormone does, to various cell types such as platelets and endothelial cells to initiate responses in coagulation, inflammation and, possibly, other important physiological processes. Thrombin directly activates platelets, by producing effects through means of surface receptors on the platelets called protease-activated receptors, or PARs, that provide binding sites for the effector molecule. PARs carry a hidden

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message that is unmasked by the action of the protease, for example, thrombin. Activation of the PAR then transmits the signal to the platelet, which becomes activated.

        In addition to being a powerful platelet activator through its action on platelets, thrombin can also recruit more platelets to the site of injury. Activated platelets not only help close the rupture, but the activated platelet's membrane becomes a docking site for other clotting factors. The clotting factors can assemble and much more efficiently produce very large amounts of thrombin. The thrombin produces fibrin, strands of protein that interweave and enmesh the platelets into a thrombus, or clot. The clotting factors on the platelets within the clot continue to produce large amounts of thrombin after the clot is formed, causing the clot to continue to grow.

        As a clot blocks the blood vessel, it may then cut off blood supply to the heart muscle, the brain or other organs. A heart attack, also known as a myocardial infarction, or MI, occurs if a clot blocks blood supply to the heart muscle, and the muscle stops working either in part or completely. This may result in irreversible damage to the heart or death.

        During medical procedures such as coronary angioplasty, the blood clotting process must be slowed to avoid unwanted clotting in the coronary artery and the potential growth of clots or the movement of a clot or portions of it downstream in the blood vessels to new sites.

        Anticoagulation Therapy.    Anticoagulation therapy attempts to modify actions of the components in the blood system that activate clot-forming factors leading to blood clots. Anticoagulation therapy is warranted when the risks of clot formation cannot be avoided, or when medical procedures such as angioplasty give rise to an increased risk of clot formation. Anticoagulation therapy has typically involved the use of drugs to inhibit one or more components of the clotting process, thereby reducing the risk of clot formation. Anticoagulation therapy is usually started immediately after a diagnosis of blood clots, or after risk factors for clotting are identified. Because anticoagulation therapy reduces clotting, it also may cause excessive bleeding.

        Current anticoagulation therapy focuses on the principal components of the clotting process: thrombin, platelets and fibrin.

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The actions of thrombin in the clotting process may be inhibited by direct thrombin inhibitors, such as Angiomax, which act directly on thrombin. Because thrombin activates platelets, direct thrombin inhibitors also prevent platelet clumping. The actions of thrombin in the clotting process may also be inhibited by indirect thrombin inhibitors, such as heparin, which act to turn off clotting factors and turn on natural anti-clotting factors such as antithrombin, or AT.



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The aggregation of platelets in the clotting process may be inhibited by products called platelet inhibitors, which act on different pathways leading to platelet activation, including specific enzyme pathways like the cyclo-oxygenase and the adenosine diphosphate, or ADP, pathways. Two important approved products that prevent platelet activation are aspirin and a class of platelet inhibitors that can be administered orally and are referred to as thienopyridines, such as clopidogrel. The use of platelet inhibitors that block activation is considered important therapy.



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Other types of platelet inhibitors attempt to block the clumping, or aggregation, of platelets by blocking surface sites, like the glycoprotein IIb/IIIa, or GP IIb/IIIa, receptor, on the platelets that allow them to attach to fibrin and each other. The GP IIb/IIIa inhibitors, although effective at inhibiting platelet aggregation, do not prevent platelet activation. In fact, many studies have found that use of these agents, especially at low levels, is associated with an increase in markers of platelet activation.



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Fibrin may be dissolved after clotting has occurred by products called fibrinolytics.

        Drugs are currently used alone or in combination with other anticoagulant therapies to target one or more components of the clotting process. Because of the interdependence of clotting factors and

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platelets, drugs that target one may have effects on the other. For example, a drug that targets thrombin may have an antiplatelet effect. However, possibly due to the critical, central role of thrombin, while anti-thrombin drugs have been used alone in angioplasty, the use of antiplatelet drugs without thrombin inhibitors generally has not been successful.

Disadvantages of Heparin Therapies

        In the hospital environment, most patients undergoing anticoagulation therapy for the prevention and treatment of arterial and venous thrombosis receive unfractionated heparin or low molecular weight heparin. In the United States, over 12 million hospitalized patients annually receive heparin therapy. Heparin is a standard component of acute anticoagulation therapy because of the central role of thrombin in the clotting process and heparin's rapid anticoagulant effect.

        Heparin's properties as an anticoagulant were discovered in 1916. It is prepared from the intestines of pigs or lungs of cows. Heparin is a complex mixture of animal-derived proteins with variable anticoagulant potencies. The anticoagulant effects of heparin on any given patient are difficult to predict because heparin binds non-specifically to human cells and circulating substances in the blood. For these and other reasons, heparin, as a non-specific, indirect thrombin inhibitor, presents a variety of clinical challenges including:

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Weak effect in clots. Because it is an indirect thrombin inhibitor, heparin is variably effective on thrombin that is bound to clots. In addition, large amounts of thrombin continue to be produced from within the clot after clot formation.



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Activation of platelets. Studies have shown that heparin enhances the clumping of platelets in unstable angina patients. Heparin activates platelets by binding to the GP IIb/IIIa receptor on the platelet surface, and has been shown to decrease the platelet inhibitory effects of GP IIb/IIIa platelet inhibitors.



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Increased risk of bleeding. Patients who receive heparin have a high incidence of bleeding. This is particularly the case with patients who are elderly, female or have low body weight. Recent clinical trials have shown that bleeding risk may also be increased when heparin is used in combination with intravenous platelet inhibitors.



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Unpredictability. A specified dose of heparin provides an unpredictable level of anticoagulation. As a result of this unpredictability, use of heparin requires close monitoring.



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Risk of clinical immune reaction. Heparin may cause the formation of antibodies, which antibodies may be associated with a clinical condition known as heparin-induced thrombocytopenia and thrombosis syndrome, or HIT/HITTS, which is characterized by reduced platelet counts and potentially by widespread, life-threatening blood clots.



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Diminished effect in high-risk patients. Heparin's effect may be reduced in patients who have suffered a prior heart attack and in patients with unstable angina.



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Indirect thrombin inhibition. Heparin can only bind to thrombin by first binding to AT which may be absent or present in insufficient amounts in some patients. AT deficiency can be severe and unpredictable in infants and children.

        Heparin derivatives, including low molecular weight heparins such as enoxapirin, were developed to attempt to diminish some of these disadvantages. Low molecular weight heparins are administered once or twice daily by subcutaneous injection. Although they tend to be more predictable than heparin in their effect, low molecular weight heparins exhibit similar clinical challenges to those of heparin, including a weak effect on thrombin in a clot that has already formed and a comparable risk of bleeding. The effects of low molecular weight heparins are only partially reversible, making their use in surgery or in patients that may be candidates for surgery impractical. Low molecular weight heparins

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also have a longer half-life than unfractionated heparin, meaning it takes the body longer to clear the drug and void its effects. This may adversely affect the ability of hospitals to move patients between acute cardiology departments such as the emergency department and cardiac catheterization laboratory or to discharge patients from the hospital.

Angiomax Advantages

        Angiomax is a synthetic peptide of 20 amino acids that is a rapid-acting, direct and specific inhibitor of thrombin and is administered by intravenous injection. Angiomax is specific in that it only binds to thrombin and does not bind to or activate any other blood factors or cells.

        Angiomax was engineered based on the biochemical structure of hirudin, a natural 65-amino acid protein anticoagulant. However, the binding of Angiomax to thrombin is "naturally" reversible because thrombin slowly breaks down the Angiomax molecule, releasing it from binding, while hirudin remains intact and tightly bound to thrombin. This natural reversibility is associated with a reduced risk of bleeding.

        Angiomax has numerous pharmacological and clinical advantages over heparin including:

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Effective in clot-bound thrombin. Angiomax, as a direct thrombin inhibitor, is equally effective on thrombin in the clot as well as thrombin circulating in the blood.



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Inhibition of platelets. Angiomax directly inhibits thrombin which also inhibits platelet activation through inhibition of platelet activating receptors, such as the PAR receptors, on the surface of platelets.



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Reduced bleeding risk. As a reversible thrombin inhibitor, Angiomax has consistently shown clinically meaningful reductions in bleeding compared to heparin in percutaneous coronary intervention trials.



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Predictability. As a synthetic peptide, a specified dose of Angiomax results in a predictable level of anticoagulation.



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Effective in high-risk patients. Angiomax has been shown to be effective in patients having suffered prior heart attacks and patients with acute coronary syndromes.



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Reduced incidence of thrombocytopenia. Angiomax has been shown to result in a significant reduction in thrombocytopenia, or lower platelet counts, an immunogenic disorder associated with heparin.

Coronary Angioplasty

        Coronary angioplasty has transformed the management of symptomatic arterial disease in the last 10 years. The procedure is used to restore normal blood flow in arteries that supply blood to the heart. In the year 2002, more than one million coronary angioplasty procedures with or without stenting were performed in the United States. The coronary angioplasty procedure itself increases the risk of coronary clotting, potentially leading to heart attacks also known as a myocardial infarction or MI, CABG surgery, or death.

        Accordingly, anticoagulation therapy is routinely administered to patients undergoing angioplasty to prevent clotting. Heparin has historically been used as an anticoagulant in virtually all patients undergoing angioplasty. In addition, platelet inhibitors such as aspirin, ADP inhibitors or GP IIb/IIIa inhibitors are often administered to augment heparin.

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Clinical Trials in Coronary Angioplasty

        We invest significantly in the development of clinical data on the mode of action and clinical effects of Angiomax in procedures including coronary angioplasty and stenting.

        In almost all of our investigations to date, we have compared Angiomax to heparin, which until relatively recently was the only injectable anticoagulant for use in coronary angioplasty, or combinations of drugs including heparin. Angiomax has been tested against heparin in eight comparative trials and found to reduce significantly the risk of arterial thrombosis and of bleeding. Most of these data formed the basis for FDA approval in late 2000 and of our marketing programs in 2001 and 2002. Our marketing programs in 2003 were based largely on the results of our REPLACE-2 clinical trial, results for which were initially reported in November 2002.

        We conducted the REPLACE-2 clinical trial in 2001 and 2002 to evaluate Angiomax as the foundation anticoagulant for angioplasty within the context of modern therapeutic products and technologies, including coronary stents. The trial, which involved 6,002 patients in 233 clinical sites, was designed to evaluate whether the use of Angiomax with provisional use of GP IIb/IIIa inhibitors provides clinical outcomes relating to rates of ischemic and bleeding events that are superior to heparin alone and the same as, or non-inferior to, the current standard of low-dose weight-adjusted heparin plus GP IIb/IIIa inhibitors. These outcomes were designed to be assessed using formal statistical tests for superiority and non-inferiority.

        REPLACE-2 employed two randomized arms:

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heparin with a GP IIb/IIIa inhibitor, which was either Integrilin or ReoPro; and



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Angiomax with the provisional use of a GP IIb/IIIa inhibitor, which was either Integrilin or ReoPro, if deemed necessary by the physician during the procedure.

        The trial also evaluated the Angiomax regimen against heparin alone using an historical control arm. The heparin historical control arm of the study was calculated using an average of the event rates from the EPISTENT and ESPRIT trials, which were previous angioplasty trials of other companies in which heparin alone was compared to heparin plus a GP IIb/IIIa inhibitor.

        The primary objective of REPLACE-2 was to demonstrate superiority versus heparin and non-inferiority to heparin plus a GP IIb/IIIa inhibitor for the quadruple composite endpoint of death, MI, urgent revascularization or major bleeding. The secondary objectives of REPLACE-2 included superiority versus heparin and non-inferiority to heparin plus a GP IIb/IIIa inhibitor for a triple composite endpoint of death, MI or urgent revascularization.

        Based on 30-day, six-month and 12-month patient follow-up results, Angiomax met all primary and secondary objectives for the study:

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The primary quadruple composite endpoint of death, MI, urgent revascularization or major bleeding was met at 30 days:



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Angiomax was superior to heparin alone.



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Angiomax was non-inferior to heparin plus a GP IIb/IIIa inhibitor.



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The secondary triple composite endpoint of death, MI or urgent revascularization was met at 30 days and six-months:



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Angiomax was superior to heparin alone.



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Angiomax was non-inferior to heparin plus a GP IIb/IIIa inhibitor.

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The final long-term endpoint of death was met at 12-months:



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Mortality benefit seen at 30 days was maintained.



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A numeric mortality advantage in the Angiomax arm widened from the six-month and 12-month long-term findings, although this numeric advantage was not statistically significant.

        Additional findings from the study included:

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The Angiomax treatment group demonstrated a significant decrease in bleeding complications and thrombocytopenia as compared to heparin plus a GP IIb/IIIa inhibitor.



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7.2% of the patients in the Angiomax treatment group received a GP IIb/IIIa inhibitor on a provisional basis.



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97% of patients achieved desired anticoagulation targets with the initial dose of Angiomax versus 88% with heparin plus a GP IIb/IIIa inhibitor, resulting in 12% of the patients with heparin plus a GP IIb/IIIa inhibitor having to receive multiple doses of heparin.



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The average patient duration of infusion was 44 minutes with Angiomax versus 12 to 18 hours for patients treated with heparin plus a GP IIb/IIIa inhibitor.



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A protocol-defined health economic analysis of the 30-day follow-up data, presented at a symposium as part of the 2003 American College of Cardiology conference, demonstrated that the costs associated with treating patients in the Angiomax arm were statistically significantly lower than the costs associated with treating patients in the heparin plus GP IIb/IIIa arm. This reduction in costs included:



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savings of $185 per patient due to fewer bleeding, MI and thrombocytopenia complications in patients in the Angiomax arm of the trial



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savings of $402 per patient due to lower cost of drugs in the Angiomax arm, which had 7.2% combination use of GP IIb/IIIa inhibitors.

        The 30-day findings were published in the Journal of the American Medical Association, or JAMA, in February of 2003. We have submitted the 30-day, six-month and 12-month data for FDA review as part of a supplement to update the product labeling to include the REPLACE-2 data. In addition, we used the REPLACE-2 results as the basis for regulatory updates and submissions in international markets, including Europe and Canada.

Angiomax Commercial Operations in Coronary Angioplasty.

        We are selling Angiomax in the United States with a hospital sales force of 93 sales representatives and managers as of February 17, 2004. Our sales force has been configured to target, as potential hospital customers, those hospitals with cardiac catheterization laboratories in the United States that perform 500 or more coronary angioplasties per year. These hospitals conduct a significant number of the coronary angioplasties in the United States. In addition, we have medical information and medical affairs support personnel, some of whom have scientific qualifications as physicians, nurses or pharmacists. Our development, medical, marketing and sales professionals are qualified and trained to deal with complex scientific, pharmacy and economic questions on a day-to-day basis.

        We are focusing our Angiomax marketing efforts on interventional cardiologists and other key clinical decision-makers at these cardiac catheterization laboratories. We use educational programs, preceptorships in leading medical centers, publications, and other targeted techniques in efforts to educate physicians and other healthcare providers regarding the advantages of Angiomax use. We believe our ability to deliver relevant, advanced and reliable educational programs to our customers and

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our concentrated customer base provides us with significant market presence even in the highly competitive sub-segments of the hospital market such as cardiology. We work collaboratively with a number of prominent hospitals and teaching institutions around the United States that share our mission to educate our customers in the appropriate use of our products as part of modern practice and that provide independent guidance to their colleagues.

        We sell Angiomax primarily to a limited number of national medical and pharmaceutical distributors and wholesalers with distribution centers located throughout the United States, including AmerisourceBergen Drug Corporation, McKesson Corporation and Cardinal Health, Inc., each of which accounted for more than 10% of our revenues for the year ended December 31, 2003. These wholesalers and distributors then sell to hospitals. If Angiomax is approved for use in other indications, we intend to market Angiomax for these indications in the United States by supplementing our commercial organization, or by collaborating with other health care companies.

        We market, sell and distribute Angiomax outside of the United States through third-party distributors. In August 2003, we filed a market authorization application for approval to sell Angiomax in the European Union. The application is currently under review. If the application is approved, Nycomed Danmark A/S has exclusive rights for the distribution and promotion of Angiomax in approximately 35 countries, including 12 countries in the European Union. In addition, we expect approvals to market Angiomax in certain South American countries in 2004 or 2005. We have agreements with other third-party distributors, including Grupo Ferrer Internacional, S.A. in certain Latin American countries, for future sales of Angiomax pending regulatory marketing approvals.

Angiomax Potential Applications

        We believe that Angiomax is the leading replacement for heparin in angioplasty and can become the leading replacement for heparin in the treatment of arterial thrombosis. In particular, we are evaluating Angiomax in the operating room for use in open vascular surgery such as CABG surgery and in the emergency department in medical conditions that require urgent treatment such as unstable angina. We are also studying Angiomax in patients with heparin allergy, in children and in peripheral angioplasty.

        Before we can obtain regulatory approvals to market Angiomax for any of these indications, we are required to complete extensive clinical trials to demonstrate safety and efficacy. There are numerous factors that could delay our clinical trials or prevent us from completing our trials successfully. See "Factors That May Affect Future Results—Risks Related to Our Business." If we are able to obtain regulatory approval in these additional indications, we believe that Angiomax could be marketed to customers across a spectrum of hospital-based acute cardiovascular care—in the emergency department, cardiac catheterization laboratory and the operating room.

        We are currently focused on Phase 3 clinical trials of Angiomax in the operating room and in the emergency department.

        Use of Angiomax in the operating room for CABG surgery.    Heparin is used widely as an anticoagulant in major surgical procedures. Many surgery patients, however, develop antibodies to heparin as a result of their exposure to heparin. Heparin antibody positivity is the major marker for the development of HIT/HITTS. Even absent the clinical condition of HIT/HITTS, the presence of heparin antibodies alone has been associated with an increased risk of death or major complications and in length of stay in hospital after CABG surgery. In addition, the effects of heparin are routinely reversed with protamine, the use of which has been associated with an allergic reaction and a subsequent increase in the risk of death or major complications.

        Clinical publications have cited several different rates of CABG surgery patients who are heparin antibody positive, ranging from 25% to 50%. Clinical data indicate that heparin antibody positive

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patients have a significant increase in major complications of CABG surgery, resulting in increased hospital stay or death. Based on hospital reimbursement data, in the United States in 2002 there were approximately 345,000 CABG surgery procedures performed.

        Surgeons conduct CABG surgery either on-pump or off-pump. On-pump CABG surgery is conducted with the use of a cardiac pulmonary bypass machine, a device that pumps the patient's blood while the heart is stopped and the surgery is conducted. For off-pump CABG surgery, physicians slow the heartbeat, stabilize the heart by keeping certain areas immobile with various devices, and therefore do not use a bypass machine.

        We have completed a 100 patient Phase 2/3 trial of Angiomax comparing Angiomax to heparin in patients undergoing off-pump CABG surgery. Trial results demonstrated that patients in the trial who received Angiomax experienced more rapid and consistent anticoagulation, a similar level of bleeding and significant improvement in graft patency. We expect the principal investigator to publish the trial data in a medical journal in early 2004.

        We have also completed Phase 2/3 dose-finding studies of Angiomax in on-pump CABG surgery. We believe that the optimal dosing regimen for Angiomax in CABG surgery will be employed in the Phase 3 program based on these results.

        We are conducting four studies as part of our Phase 3 clinical development program in CABG surgery:

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CHOOSE includes on-pump and off-pump studies to evaluate the use of Angiomax in patients identified to be at risk for HIT/HITTS, having tested positive for the heparin antibody or having a history of HIT/HITTS;



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EVOLUTION includes on-pump and off-pump studies to evaluate if the use of Angiomax in the general CABG surgery patient population can yield similar results to the heparin plus protamine treatment regimen.

        As of February 17, 2004, we have completed enrollment in the EVOLUTION off-pump study, and have enrolled patients in the CHOOSE off-pump study. We plan to commence enrollment of patients in the on-pump studies in 2004. Assuming positive results in the Phase 3 CHOOSE and EVOLUTION studies, we intend to submit the study data to the FDA in an application for approval to market Angiomax in patients at risk for HIT/HITTS, including patients who are heparin antibody positive, undergoing CABG surgery.

        Use of Angiomax in the emergency department for urgent medical treatment.    Ischemic heart disease patients are subject to chest pain that results from a range of conditions, from unstable angina to acute myocardial infarction, or AMI. The severe onset of these cardiac conditions is collectively referred to as acute coronary syndromes, or ACS. Some ACS patients enter the hospital by way of the emergency department and are triaged to be medically managed with pharmacotherapy and observation, scheduled for an angioplasty procedure, and/or scheduled for CABG surgery.

        Unstable angina is a condition in which patients experience the new onset of severe chest pain, increasingly frequent chest pain or chest pain that occurs while they are resting. Unstable angina is caused most often by a rupture of plaque on an arterial wall that results in clot formation and ultimately decreases coronary blood flow but does not cause complete blockage of the artery. Unstable angina is often medically managed in the emergency department with anticoagulation therapy that may include aspirin, indirect thrombin inhibitors such as heparin or a low molecular weight heparin such as enoxaparin and GP IIb/IIIa inhibitors. Many unstable angina patients also undergo coronary angioplasty or CABG surgery depending on the severity of the disease.

        AMI is a leading cause of death in ischemic heart disease patients. AMI occurs when coronary arteries, which supply blood to the heart, become completely blocked by a clot. AMI patients are

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routinely treated with heparin, with and without fibrinolytics, in combination with GP IIb/IIIa inhibitors. AMI patients are increasingly undergoing angioplasty as a primary treatment to unblock clogged arteries.

        Based on hospital reimbursement data, in the United States in 2001 there were approximately 1,680,000 patients hospitalized for ACS, including 758,000 unstable angina patients and 959,000 patients with heart attacks of varying severity.

        Angiomax has been the subject of five Phase 2 trials in patients with unstable angina or who had experienced a less serious form of MI known as non Q-wave MI. These trials enrolled a total of 630 patients, of whom 553 received various doses of Angiomax. These studies have demonstrated that Angiomax is an anticoagulant that can be administered safely in patients with unstable angina.

        We are currently conducting a Phase 3 trial, ACUITY, to study Angiomax in the ACS population. We plan to enroll a total of 13,800 patients worldwide in three main treatment regimens:

•

Angiomax monotherapy starting in the emergency department and continued through the cardiac catheterization laboratory, permitting use of GP IIb/IIIa inhibitors for treatment of breakthrough ischemic events prior to percutaneous coronary intervention, or PCI, or for bail-out during PCI;



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Angiomax with GP IIb/IIIa inhibitors started either in the emergency department and then continued through the cardiac catheterization laboratory, or Angiomax monotherapy started in the emergency department and GP IIb/IIIa inhibitors started in the cardiac catheterization laboratory only; or



•

Enoxaparin, a low molecular weight heparin, with GP IIb/IIIa inhibitors started either in the emergency department and then continued through the cardiac catheterization laboratory or enoxaparin monotherapy started in the emergency department and GP IIb/IIIa inhibitors started in the cardiac catheterization laboratory only.

        We believe that the Angiomax plus a GP IIb/IIIa inhibitor combination may demonstrate outcomes at least equivalent to enoxaparin plus a GP IIb/IIIa inhibitor. We also believe that the Angiomax alone arm may demonstrate that it is as effective as enoxaparin with a GP IIb/IIIa inhibitor, while at the same time being less likely to cause bleeding. Investigators began enrolling patients in the ACUITY trial in August 2003. We expect recruitment to last until July 2005.

        If the results of the ACUITY study confirm our expectations, we intend to submit the study data to the FDA in an application to obtain approval to market Angiomax in patients with ACS, who are starting treatment in the emergency department.

Use of Angiomax in Other Indications

        We have conducted a number of additional clinical trials evaluating Angiomax for other indications.

        HIT/HITTS.    Approximately one to three percent of patients who receive heparin experience HIT/HITTS. The underlying mechanism for the condition appears to be an immunological response to a complex formed by heparin and another factor, resulting in thrombocytopenia, and in some cases in arterial or venous clotting, which may result in death or the need for limb amputation. In order to treat a HIT/HITTS patient, an alternative anticoagulant is necessary because further administration of heparin is not possible.

        Prior to 1997, Angiomax was administered to a total of 39 HIT/HITTS patients treated for a variety of indications, including patients requiring anticoagulation for angioplasty, invasive coronary procedures or treatment of thrombosis. For those patients undergoing angioplasty and other

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procedures, Angiomax provided adequate anticoagulation, was well-tolerated and rarely resulted in bleeding complications. In the December 2000 approval letter for Angiomax, the FDA required us to complete our trial designed to evaluate the use of Angiomax for treatment of HIT/HITTS patients undergoing angioplasty. That trial, called ATBAT, was completed in 2003 and the results of the ATBAT trial were part of the supplemental new drug application package submitted to FDA with the REPLACE-2 data in July 2003.

        We are also conducting the Phase 3 CHOOSE trials studying the use of Angiomax as an anticoagulant in patients at risk for HIT/HITTS undergoing CABG surgery, with and without the use of a bypass pump.

        Neonates and Infants (AT deficiency).    Heparin can only bind to thrombin by first binding to AT, which may be absent or present in insufficient amounts in some patients. AT deficiency is often severe or unpredictable in infants and children, making the treatment and prevention of thrombosis especially difficult. We are conducting a Phase 2 trial program in neonates and infants up to six months old requiring intravenous anticoagulation due to active thrombosis.

        Angiomax Phase 4 trials.    In addition to the clinical trials conducted to pursue additional uses of Angiomax, we conduct Phase 4 post-marketing clinical trials. Phase 4 trials are intended to provide information about the use of Angiomax in procedures performed in the cardiac catheterization laboratory in specific patient populations or employing new technologies. These trials include the use of Angiomax:

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when a new device technology known as drug-eluting stents are employed;



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when using new technologies or techniques, such as ablation techniques that blast clots using high pressure water or beta-brachytherapy, which uses radiation to reduce the size of clots;



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when conducting peripheral percutaneous intervention, which is similar to coronary angioplasty, but conducted in arteries outside of the heart such as the carotid artery in the neck;



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in patients with severe dysfunction of the kidneys, which has been shown to impede cardiovascular treatment; and



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in patients who started treatment in the emergency department with enoxaparin, who are switched to Angiomax in the cardiac catheterization laboratory.

        We believe that these Phase 4, post-market studies provide an important service to our customers. They help us to provide contemporary clinical data about the use of Angiomax and also answer specific questions about the use of Angiomax posed by the marketplace.

Regulatory Status

        In December 2000, we received approval from the FDA for the use of Angiomax in combination with aspirin in patients with unstable angina undergoing coronary angioplasty. In connection with this approval, the FDA required us to complete our ATBAT trial evaluating the use of Angiomax for the treatment of HIT/HITTS patients undergoing angioplasty. We completed the ATBAT trial and submitted results as part of the submission to the FDA in 2003, which we believe fulfills this post-approval requirement.

        In July 2003, we submitted for FDA review an update to the Angiomax product labeling to include the most contemporary data of Angiomax in coronary angioplasty. We submitted data from studies in more than 7,000 patients undergoing coronary angioplasty in the REPLACE-1 and REPLACE-2 trials and the ATBAT study. Also in July 2003, we submitted a Marketing Authorization Application, or MAA, to the European Agency for the Evaluation of Medicinal Products, or EMEA, for authority to market Angiomax in the EU for use in patients undergoing coronary angioplasty. This filing was

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conducted with our European distributors, Nycomed and Grupo Ferrer. We believe that this submission addressed the concerns expressed by the Committee of Proprietary Medicinal Products, or CPMP, of EMEA with regard to an MAA submitted in February 1998 that we subsequently withdrew.

        Angiomax was approved in New Zealand in September 1999 for use in the treatment of patients undergoing coronary angioplasty. Angiomax was approved in Canada in October 2002 and Israel in June 2002 for use in unstable angina patients undergoing coronary angioplasty. We and our partners have filed applications for marketing authorization in several Latin American countries.

Clevelox

Overview

        In March 2003, we acquired from AstraZeneca exclusive license rights to Clevelox for all countries other than Japan. We acquired this license after conducting development work pursuant to the study and exclusive option agreement with AstraZeneca entered into in March 2002. Since acquiring the product, we have:

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conducted manufacturing development activities to scale the bulk product manufacturing process for clinical study and potential commercial use;



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commenced a Phase 2 clinical trial comparing Clevelox with nitroglycerin, a drug that is typically used to control high blood pressure in patients undergoing cardiac surgery; and



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commenced a Phase 3 clinical trial program in cardiac surgery after meeting with FDA to define program parameters.

Background

        Blood pressure control is important in patients undergoing surgery or other interventional procedures in a hospital. These patients are treated by a team of physicians and nurses, which include the surgeon and anesthesiologist. Usually, the anesthesiologist is responsible for controlling blood pressure and, in doing so, these physicians often employ multiple medications, which may increase the duration of the patient's stay in the intensive care unit. These medications include sodium nitroprusside, nicardipine and nitroglycerine. Each of these agents has been shown to increase a cardiac side effect known as reflex tachycardia, which is characterized by a quickening of the patient's heart rate that may cause severe adverse surgical outcomes.

        Clevelox belongs to a well-known class of drugs called calcium channel blockers, which are used to control high blood pressure. Clevelox acts by selectively relaxing the smooth muscle cells that line small arteries, resulting in widening of the artery opening and reducing blood pressure within the artery. Unlike some other blood pressure reducing agents, including some other calcium channel blockers, Clevelox does not appear, based on animal studies, to have effects on the coronary arteries or the veins, and has not been associated with reflex tachycardia in anesthetized patients. Moreover, Clevelox has been shown in clinical trials to improve the pumping performance of the heart.

        Prior to licensing Clevelox to us, AstraZeneca conducted Phase 2 clinical trials of Clevelox. These clinical trials demonstrated that Clevelox acts to reduce blood pressure rapidly after intravenous infusion. Clevelox is metabolized rapidly by enzymes in the blood, which results in the drug being cleared from the blood stream in a short period of time. Therefore, the effects of Clevelox are short-lived, and clinical trials have demonstrated reductions in blood pressure that are dose-dependent and that cease rapidly after stopping Clevelox infusions.

        We believe that attributes of Clevelox demonstrated in clinical trials to date, namely rapid, titratable onset of effect on blood pressure, simple preparation and administration, arterial selectivity and rapid metabolism and elimination, could potentially benefit patients with high blood pressure

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undergoing surgical procedures and patients with severely elevated blood pressure that requires rapid reduction.

        We are initially focusing our development efforts on the potential use of Clevelox in surgery, particularly cardiac surgery. Cardiac surgery is comprised of CABG surgery conducted on-pump or off-pump, as well as heart valve replacement surgery.

Development Investments

        After meeting with the FDA in 2003, we defined Phase 3 trials in two programs to investigate the potential of Clevelox to control blood pressure in patients undergoing surgery.

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The ESCAPE program consists of two clinical trials to evaluate the efficacy of Clevelox in controlling blood pressure before and after cardiac surgery compared to a placebo control. The protocols provide for approximately 200 patients to be enrolled in these trials. In December 2003, we commenced patient enrollment in this program.



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The ECLIPSE program consists of three clinical trials to evaluate the safety of Clevelox in comparison to sodium nitroprusside, nicardipine, and nitroglycerine during and following cardiac surgery. The protocols provide for a total of approximately 1,500 patients in these trials.

        We are also conducting a blinded Phase 2 study in approximately 100 patients undergoing cardiac surgery comparing Clevelox with nitroglycerin to evaluate if Clevelox can be feasibly administered in this patient population. Two data safety reviews have been conducted and cleared the study to continue. We expect to complete this Phase 2 study in 2004.

        We believe that Clevelox can be efficiently sold by our U.S. sales force to hospital customers, including Angiomax customers, when and if Clevelox is approved for sale by the FDA. We also believe that manufacturing development work conducted in 2003 in conjunction with a manufacturing infrastructure partner has scaled the manufacturing to a level ready for customer demand on an initial commercial scale.

Cangrelor

Overview

        We acquired cangrelor in December 2003 from AstraZeneca. Under terms of the agreement with AstraZeneca, we acquired exclusive license rights to develop, market and sell cangrelor worldwide excluding Japan, China, Korea, Taiwan and Thailand.

        Cangrelor is short-acting injectable platelet inhibitor agent that prevents the aggregation of platelets in the clotting process. We believe that cangrelor may fit into our hospital acute care product portfolio because of potential uses in the cardiac catheterization laboratory and the operating room.

        Cangrelor acts directly on the P2Y12 platelet receptor, a clinically validated target to treat or prevent arterial thrombosis by acting on a specific, well studied, enzyme pathway known as ADP. There is currently no short-acting, intravenous, P2Y12 antagonist approved for acute patient care.

        In the cardiac catheterization laboratory, the use of platelet inhibitors that block activation is considered important therapy because of several studies of oral platelet inhibitors that have demonstrated better patient outcomes when these agents are administered before coronary angioplasty.

        The leading oral platelet activation inhibitor is clopidogrel. Clopidogrel is commonly administered at a high dose by giving patients several oral tablets before the angioplasty procedure. This practice is known as pre-loading. Although clopidogrel pre-loading has been shown to improve ischemic outcomes

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in coronary angioplasty, there are several convenience and safety issues with the use of this agent in acute care practice:

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As a pro-drug, clopidogrel requires liver metabolism to form the active agent; therefore, the pre-loading doses require more than six hours to metabolize.



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There is not a clear relationship between increased dosage and intended effect that is consistent across different patient groups.



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The inhibition of platelet function is irreversible, meaning the agent remains active for the life of the platelet, which is typically five days; this may impede patient management and treatment flexibility, especially if a patient needs cardiac surgery, which is usually delayed for days to wait for the clopidogrel to be cleared from the bloodstream.



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Oral agents are difficult to administer in the acute care setting because they need to be swallowed by patients that may be under light anesthesia; this is especially true when there is a need to swallow multiple tablets in a restricted period of time.

        Based on input from our hospital customers in the cardiac catheterization laboratory, we believe that the combination of the ischemic outcomes benefits of platelet activation inhibition and the acute care limitations of current oral therapy has created a need for an injectable platelet antagonist that acts quickly and is cleared from the bloodstream rapidly. We believe that cangrelor has demonstrated these attributes in preclinical studies and clinical studies conducted in approximately 500 patients to date. Cangrelor has demonstrated the following characteristics in these studies:

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An immediate inhibitory effect on platelets;



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Inhibition of both platelet activation and aggregation that is proportional to the dose administered;



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Inhibitory effects that are sustainable through a period of infusion;



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Rapid clearance—half life of less than ten minutes; and



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Platelet function recovery in less than hour.

        With these attributes, we believe that cangrelor could also have utility as an anticoagulant administered for surgery patients. Surgeons have never had an approved agent at their disposal to control thrombosis during surgery by inhibiting platelets. The antiplatelet agents currently approved for use in coronary angioplasty, GP IIb/IIIa inhibitors, oral thienopyridines and aspirin, have not demonstrated feasibility in surgery due to bleeding concerns or the necessity of long infusions. We believe that cangrelor has potential for use in surgery due to its rapid effect in inhibiting platelets and the rapid recovery of platelet function following administration.

Development

        We plan to develop cangrelor for potential use as an antiplatelet agent in the acute care settings of the cardiac catheterization laboratory, the operating room, and/or the emergency department. Several features of the development program may be similar to those followed for Angiomax.

        In 2003, we began the process of transferring product technology and data from AstraZeneca. We believe that technology transfer and manufacturing development will take approximately one year to 18 months. Following these activities, we intend to conduct clinical development of cangrelor. We may also study the combination of Angiomax and cangrelor, which we believe are compatible anticoagulants.

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Manufacturing

        We do not build or operate manufacturing facilities but instead contract for manufacturing development and/or commercial supply. We have in-house expertise in manufacturing development, but do not have facilities to manufacture commercial supply products. We believe we can focus successfully on the specialty hospital markets without incurring the substantial fixed overhead costs associated with building or acquiring manufacturing infrastructure.

Angiomax

        In December 1999, we entered into a commercial development and supply agreement with UCB Bioproducts S.A. for the development and supply of Angiomax bulk drug substance. Together with UCB Bioproducts, we developed a second generation chemical synthesis process to improve the economics of manufacturing Angiomax bulk drug substance. This process, which was approved by the FDA in May 2003, is known as the Chemilog process.

        We have agreed that we will purchase a substantial portion of our Angiomax bulk drug substance exclusively from UCB Bioproducts at agreed upon prices for a period ending in September 2010, seven years from the first commercial sale of Angiomax produced under the Chemilog process. Following the expiration of the agreement, which automatically renews for consecutive three year periods unless either party provides notice of non-renewal within one year prior to the expiration of the initial term or any renewal term, or if we terminate the agreement prior to its expiration, UCB Bioproducts has agreed to transfer the development technology to us. We may only terminate the agreement prior to its expiration in the event of a material breach by UCB Bioproducts. If we engage a third party to manufacture Angiomax for us using this technology during the first ten years following the date of the first commercial sale of Angiomax produced under the Chemilog process, we will be obligated to pay UCB Bioproducts a royalty based on the amount paid by us to the third-party manufacturer.

        We have developed reproducible analytical methods and processes for the fill-finish of Angiomax drug product by Ben Venue Laboratories, Inc. Ben Venue Laboratories has carried out all of our Angiomax fill-finish activities.

Clevelox

        Prior to our acquisition of the Clevelox product, Astra Production Chemicals manufactured all clevidipine bulk drug which, after testing and release by Astra Hassle, has been used in clinical trials. Both Astra Production Chemicals and Astra Hassle are divisions of AstraZeneca. The manufacturing process for bulk drug has been transferred to PharmEco, a Johnson Matthey Company, for scale up and manufacture for Phase 3 clinical trials and commercial supplies. We have also entered into an agreement with Fresenius Kabi L.P. pursuant to which, using its formulation technology, Fresenius has agreed to manufacture all finished drug product for all Phase 3 clinical trials and commercial supplies and to carry out release testing and clinical packaging.

Competition

        The development and commercialization of new drugs is competitive, and we face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Our competitors may develop or license products or other novel technologies that are more effective, safer or less costly than any that have been or are being developed by us, or may obtain FDA approval for their products more rapidly than we may obtain approval for ours.

        The acquisition or licensing of pharmaceutical products is a competitive area, and a number of more established companies, which have acknowledged strategies to license or acquire products, may have competitive advantages as may emerging companies taking similar or different approaches to

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product acquisition. These established companies may have a competitive advantage over us due to their size, cash flows and institutional experience.

        Many of our competitors will have substantially greater financial, technical and human resources than we have. Additional mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the commercial applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in part on our ability to build and actively manage a portfolio of drugs that addresses unmet medical needs and creates value in patient therapy.

Angiomax

        Due to the incidence and severity of cardiovascular diseases, the market for anticoagulant therapies is large and competition is intense. We are evaluating Angiomax for additional uses in open vascular surgery such as CABG surgery, in medical conditions that require urgent treatment such as ACS, in patients with heparin allergy, in children and in peripheral angioplasty. There are a number of anticoagulant therapies currently on the market, awaiting regulatory approval or in development for these uses.

        In general, anticoagulant drugs may currently be classified into four groups according to their interaction with clotting mechanisms.

        Direct thrombin inhibitors.    Direct thrombin inhibitors act directly on thrombin, inhibiting the action of thrombin in the clotting process. Because thrombin activates platelets, direct thrombin inhibitors also prevent platelet aggregation. Direct thrombin inhibitors include Angiomax, Refludan from Berlex Laboratories and Argatroban from GlaxoSmithKline, Encysive Pharmaceuticals Inc, and Mitsubishi Chemical Corp. Both Refludan and Argatroban are approved for use in the treatment of patients with HIT/HITTS. Argatroban is also approved for use in patients with HIT/HITTS undergoing angioplasty.

        Indirect thrombin inhibitors.    Heparin and low molecular weight heparins act by first binding to AT-III. Heparin is manufactured and distributed by a number of companies as a generic product. Low molecular weight heparin products include Lovenox from Aventis Pharmaceuticals, Inc. and Fragmin from Pfizer Inc. Very short molecules of heparin, called pentasaccharide sequences, include Arixtra from Sanofi-Synthelabo Inc. Heparin is widely used in patients with ischemic heart disease. Low molecular weight heparins have been approved for use in the treatment of patients with unstable angina and are being developed for use in angioplasty and vascular surgery. Arixtra has been approved for use in the treatment and prevention of deep vein thrombosis and is being developed for arterial thrombosis.

        Platelet inhibitors.    Platelet inhibitors, such as GP IIb/IIIa inhibitors, block the aggregation of platelets by blocking surface sites on the platelets that allow the platelets to attach to fibrin and to each other. GP IIb/IIIa inhibitors include ReoPro from Eli Lilly and Company and Johnson & Johnson/Centocor, Inc., Integrilin from Millennium Pharmaceuticals, Inc. and Schering-Plough Corporation, and Aggrastat from Merck & Co., Inc. and Guilford Pharmaceuticals Inc. ReoPro is approved and marketed for angioplasty in a broad range of patients. Integrilin is approved and marketed for angioplasty and for the management of acute coronary syndromes. Aggrastat is approved for the management of ACS.

        Fibrinolytics.    Fibrinolytics, or thrombolytics, dissolve fibrin in clots that have already formed. Fibrinolytics include Streptase from Aventis, Retevase from Johnson & Johnson/Centocor, TNKase from Genentech, Inc., and Abbokinase from Abbott Laboratories. These products are approved for use in the treatment of AMI, stroke and/or peripheral vascular arterial blockages.

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        Although platelet inhibitors and fibrinolytic drugs may be complementary to Angiomax, Angiomax may compete with platelet inhibitors and fibrinolytic drugs for the use of hospital financial resources. For example, many U.S. hospitals receive a fixed reimbursement amount per procedure for the angioplasties and other treatment therapies they perform. Because this amount is not based on the actual expenses the hospital incurs, hospitals may be forced to use either Angiomax or a platelet inhibitor or fibrinolytic drugs but not necessarily several of the drugs together.

        In each case, we will compete with other anticoagulant drugs on the basis of efficacy, safety, ease of administration and economic value.

        We face potential competition from products that currently are in clinical development. One such potential competitor is an oral direct thrombin inhibitor, Exanta, for which AstraZeneca has submitted a new drug application, or NDA, to the FDA for the prevention of stroke in patients with atrial fibrillation and associated complications. We believe that use of Exanta in these indications will not have an effect upon our planned positioning for Angiomax.

Clevelox

        Clevelox will compete with a variety of parenteral antihypertensive agents including nigroglycerine, a generic product, Nipride from Hoffmann-La Roche Inc., Cardene from Hoffmann-La Roche Inc., Brevibloc from Baxter Healthcare Corporation, and Corlopam from Abbott Laboratories.

Research and Development

        Company-sponsored research and development expenses totaled $35.9 million in 2003, $38.0 million in 2002 and $32.8 million in 2001. The funding for Angiomax has represented and will continue to represent a significant portion of our research and development spending. We rely on contract research organizations, including International Health Care, to provide expertise, flexibility and resources in managing clinical trials.

Patents, Proprietary Rights and Licenses

        Our success will depend in part on our ability to protect the products we acquire or license by obtaining and maintaining patent protection both in the United States and in other countries. We rely upon trade secrets, know-how, continuing technological innovations, contractual restrictions and licensing opportunities to develop and maintain our competitive position. We plan to prosecute and defend any patents or patent applications we acquire or license, as well as any proprietary technology.

        In all, as of February 25, 2004, we exclusively licensed 16 issued United States patents and a broadly filed portfolio of corresponding foreign patents and patent applications. We have not yet filed any independent patent applications. The U.S. patents licensed by us are currently set to expire at various dates ranging from March 2010, in the case of the principal patent relating to Angiomax, to November 2019.

        We have exclusively licensed from Biogen patents and applications for patents covering Angiomax and Angiomax analogs and other novel anticoagulants as compositions of matter, and processes for using Angiomax and Angiomax analogs and other novel anticoagulants. We are responsible for prosecuting and maintaining patents and patent applications relating to Angiomax. We have exclusively licensed from AstraZeneca, patents and patent applications covering formulations and uses of Clevelox and patents and patent applications covering the formulations and uses of cangrelor. Under both licenses, AstraZeneca is responsible for prosecuting and maintaining these patents and patent applications relating to Clevelox and cangrelor, and we are required to reimburse AstraZeneca for expenses it incurs in connection with the prosecution and maintenance of the patents or patent applications. We have exclusively licensed patents and applications relating to CTV-05, a strain of

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bacteria with potential applications in the areas of gynelogical and reproductive health, from GyneLogix, Inc. In December 2002, we sublicensed our rights to develop CTV-05 to Osel, Inc. on an exclusive basis. Osel has assumed our obligation to prosecute and maintain the related patents and patent applications.

        The patent positions of pharmaceutical and biotechnology firms like us can be uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, we do not know whether any of the applications we acquire or license will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or will be challenged, circumvented or invalidated. Because unissued U.S. patent applications filed prior to November 29, 2000 and patent applications filed within the last 18 months are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, or in opposition proceedings in a foreign patent office, either of which could result in substantial cost to us, even if the eventual outcome is favorable to us. There can be no assurance that the patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using such technology.

        The development of anticoagulants is intensely competitive. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in this field. Some of these applications could be competitive with applications we have acquired or licensed, or could conflict in certain respects with claims made under such applications. Such conflict could result in a significant reduction of the coverage of the patents we have acquired or licensed, if issued, which would have a material adverse effect on our business, financial condition and results of operations. In addition, if patents are issued to other companies that contain competitive or conflicting claims and such claims are ultimately determined to be valid, no assurance can be given that we would be able to obtain licenses to these patents at a reasonable cost, or develop or obtain alternative technology.

        We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. We have a number of trademarks that we consider important to our business. These trademarks are protected by registration in the United States and other countries in which our products are marketed.

        It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for the our trade secrets in the event of unauthorized use or disclosure of such information.

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License Agreements

Biogen

        In March 1997, we entered into an agreement with Biogen, Inc., a predecessor of Biogen Idec, Inc., for the license of the anticoagulant pharmaceutical bivalirudin, which we have developed as Angiomax. Under the terms of the agreement, we acquired exclusive worldwide rights to the technology, patents, trademarks, inventories and know-how related to Angiomax. In exchange for the license, we paid $2.0 million on the closing date and are obligated to pay up to an additional $8.0 million upon the first commercial sales of Angiomax for the treatment of AMI in the United States and Europe. In addition, we are obligated to pay royalties on sales of Angiomax and on any sublicense royalties on a country-by-country basis earned until the later of (1) 12 years after the date of the first commercial sales of the product in a country or (2) the date on which the product or its manufacture, use or sale is no longer covered by a valid claim of the licensed patent rights in such country. Under the terms of the agreement, the royalty rate due to Biogen on sales increases with growth in annual sales of Angiomax. The agreement also stipulates that we use commercially reasonable efforts to meet certain milestones related to the development and commercialization of Angiomax, including expending at least $20 million for certain developmental and commercialization activities, which we met in 1998. The license and rights under the agreement remain in force until our obligation to pay royalties ceases. Either party may terminate the agreement for material breach by the other party, if the material breach is not cured within 90 days after written notice. In addition, we may terminate the agreement for any reason upon 90 days prior written notice. Through February 25, 2004, we have paid a total of approximately $9.6 million in royalties relating to Angiomax under our agreement with Biogen.

AstraZeneca

        In March 2003, we acquired from AstraZeneca exclusive worldwide license rights to Clevelox for all countries other than Japan. We acquired this license after having studied Clevelox under the study and exclusive option agreement with AstraZeneca that we entered into in March 2002. In exchange for the license, we paid $1.0 million in 2003 upon entering into the license and may have to pay up to an additional $5.0 million upon reaching certain regulatory milestones. In addition, we will be obligated to pay royalties on a country-by-country basis on future annual sales of Clevelox, and on any sublicense royalties earned, until the later of (1) the duration of the licensed patent rights which are necessary to manufacture, use or sell Clevelox in a country or (2) ten years from our first commercial sale of Clevelox in such country. The licenses and rights under the agreement remain in force until we cease selling Clevelox in any country or the agreement is otherwise terminated. We may terminate the agreement upon 30 days written notice, unless AstraZeneca, within 20 days of having received our notice, requests that we enter into good faith discussions to redress its concerns. If we cannot reach a mutually agreeable solution with AstraZeneca within three months of the commencement of such discussions, we may then terminate the agreement upon 90 days written notice. Either party may terminate the agreement for material breach upon 60 days prior written notice, if the breach is not cured within such 60 days.

        In December 2003, we acquired from AstraZeneca exclusive license rights to cangrelor for all countries other than Japan, China, Korea, Taiwan and Thailand. In exchange for the license, we accrued in December 2003 and paid in January 2004 an upfront payment upon entering into the license and may have to make additional payments upon reaching certain regulatory milestones. In addition, we will be obligated to pay royalties on a country-by-country basis on future annual sales of cangrelor, and on any sublicense royalties earned, until the later of (1) the duration of the licensed patent rights which are necessary to manufacture, use or sell cangrelor in a country or (2) ten years from our first commercial sale of cangrelor in such country. The licenses and rights under the agreement remain in force until we cease selling cangrelor in any country or the agreement is otherwise terminated. We may

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terminate the agreement upon 30 days written notice, unless AstraZeneca, within 20 days of having received our notice, requests that we enter into good faith discussions to redress its concerns. If we cannot reach a mutually agreeable solution with AstraZeneca within three months of the commencement of such discussions, we may then terminate the agreement upon 90 days written notice. Either party may terminate the agreement for material breach upon 60 days prior written notice, if the breach is not cured within such 60 days.

Government Regulation

        Government authorities in the United States and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing of our products. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, and, in the case of biologics, also under the Public Health Service Act, and implementing regulations. Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as a refusal by the FDA to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, and/or criminal prosecution.

        The steps required before a drug may be marketed in the United States include:

•

pre-clinical laboratory tests, animal studies and formulation studies;



•

submission to the FDA of an investigational new drug exemption, or IND, for human clinical testing, which must become effective before human clinical trials may begin;



•

adequate and well-controlled clinical trials to establish the safety and efficacy of the drug for each indication;



•

submission to the FDA of an NDA, or biologics license application, or BLA;



•

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practices, or cGMP; and



•

FDA review and approval of the NDA or BLA.

        Pre-clinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. The results of the pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. Submission of an IND does not necessarily result in the FDA allowing clinical trials to commence.

        Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the investigational new drug exemption.

        Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Each trial must be reviewed and approved by an independent Institutional Review Board before it can begin. Phase 1 usually involves the initial introduction of the investigational drug into

21

people to evaluate its safety, dosage tolerance, pharmacodynamics, and, if possible, to gain an early indication of its effectiveness. Phase 2 usually involves trials in a limited patient population to:

•

evaluate dosage tolerance and appropriate dosage;



•

identify possible adverse effects and safety risks; and



•

evaluate preliminarily the efficacy of the drug for specific indications.

        Phase 3 trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. We cannot guarantee that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

        Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. Before approving an application, the FDA usually will inspect the facility or the facilities at which the drug is manufactured, and will not approve the product unless cGMP compliance is satisfactory. If the FDA determines the application and the manufacturing facilities are acceptable, the FDA will issue an approval letter. If the FDA determines the application or manufacturing facilities are not acceptable, the FDA will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. After approval, certain changes to the approved product, such as adding new indications, manufacturing changes, or additional labeling claims are subject to further FDA review and approval. The testing and approval process requires substantial time, effort and financial resources, and we cannot be sure that any approval will be granted on a timely basis, if at all. As a condition of approval of an application, the FDA may require postmarket testing and surveillance to monitor the drug's safety or efficacy.

        In addition, holders of an approved NDA or BLA are required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with certain requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

        We use and will continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and we cannot be sure that future FDA inspections will not identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product may result in restrictions on a product, manufacturer, or holder of an approved NDA or BLA, including withdrawal of the product from the market. Also, new government requirements may be established that could delay or prevent regulatory approval of our products under development.

        We are also subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products which we sell outside the United States. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. Whether or not we obtain FDA approval, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before manufacturing or marketing the product in those countries. The approval process varies from country to country and the time required for these approvals may differ substantially from that required for FDA approval.

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Clinical trials in one country may not be accepted by other countries, and approval in one country may not result in approval in any other country. For clinical trials conducted outside the United States, the clinical stages generally are comparable to the phases of clinical development established by the FDA.

Employees

        We believe that our success will depend greatly on our ability to identify, attract and retain capable employees. We have assembled a management team with significant experience in drug development and commercialization.

        As of February 25, 2004, we employed 190 persons. Our employees are not represented by any collective bargaining unit, and we believe our relations with our employees are good.

Available Information

        Our Internet address is http://www.themedicinescompany.com. The contents of our website are not part of this Annual Report on Form 10-K, and our Internet address is included in this document as an inactive textual reference only. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the Securities and Exchange Commission, or the SEC.

Item 2. Properties

        We currently occupy approximately 20,220 square feet of office space in Parsippany, New Jersey under a lease expiring in January 2013. We have entered into an agreement to lease approximately 12,400 square feet of additional office space in the same building in Parsippany, New Jersey that we plan to occupy in June 2004, with a term expiring in January 2013. In addition, we lease approximately 5,700 square feet of office space in Waltham, Massachusetts under a lease expiring in December 2008. We believe our current arrangements will be sufficient to meet our needs for the foreseeable future and that any required additional space will be available on commercially reasonable terms to meet space requirements if they arise. We also have offices in Milton Park, Abingdon, United Kingdom and Parnell, Auckland, New Zealand.

Item 3. Legal Proceedings

        In November 2003, the Company received a notice from the Equal Employment Opportunity Commission, or EEOC, that a current employee of the Company had filed a Charge of Discrimination with the EEOC alleging that the Company has engaged in sexual discrimination and sexual harassment in violation of Title VII of the Civil Rights Act of 1964 and the New Jersey Law Against Discrimination. The Company has agreed to participate in non-binding mediation with the complainant to attempt to resolve the matter. If the matter is not resolved through mediation and a lawsuit is subsequently filed, the Company intends to vigorously defend against the allegations.

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

        No matters were submitted to a vote of our security holders through solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2003.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Market Information and Holders

        Our common stock trades on the Nasdaq National Market under the symbol "MDCO". The following table reflects the range of the high and low bid information per share of our common stock, as reported on the Nasdaq National Market for the periods indicated. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

        Mellon Investor Services, LLC is the transfer agent and registrar for our common stock. As of the close of business on February 25, 2004, we had 199 holders of record of our common stock.

Dividends

        We have never declared or paid cash dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors.

Recent Sales of Unregistered Securities

        None

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Item 6. Selected Consolidated Financial Data

        In the table below, we provide you with our selected consolidated financial data. We have prepared this information using our audited consolidated financial statements for the years ended December 31, 2003, 2002, 2001, 2000 and 1999. The pro forma net loss per share data reflect the conversion of our convertible notes, and accrued interest, and the conversion of our outstanding redeemable convertible preferred stock, and accrued dividends, into common stock upon the closing of our initial public offering in August 2000. The net loss per share data and pro forma net loss per share data do not include the effect of any options or warrants outstanding. For further discussion of earnings per share, please see note 8 to our consolidated financial statements.

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

        You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Consolidated Financial Data" and our financial statements and accompanying notes included elsewhere in this annual report. In addition to the historical information, the discussion in this annual report contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking statements due to the factors set forth under "Factors That May Affect Future Results" below and elsewhere in this annual report.

Overview

        We are a pharmaceutical company that specializes in acute hospital care with growing revenue from sales of our first product, Angiomax® (bivalirudin). Angiomax is a direct thrombin inhibitor that was approved by the FDA in December 2000 for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing coronary angioplasty. We began selling the product in the United States in January 2001. Our total net revenue was $14.2 million in 2001, $38.3 million in 2002, and $85.6 million in 2003, generated almost entirely from sales of Angiomax in the United States.

        Since the announcement of the results of our REPLACE-2 clinical trial, additional hospitals have granted Angiomax formulary approval and hospital demand for the product has increased, which are critical elements of our ability to increase revenues. We expect that these trends will continue, although near-term growth in our sales of Angiomax depends on a variety of factors, including physician acceptance of the REPLACE-2 trial results. In the fourth quarter of 2003, based on data from a third-party industry source, the number of hospitals purchasing Angiomax increased by approximately 15% as compared to the third quarter of 2003 and the number of hospitals purchasing four or more boxes of Angiomax increased by approximately 20% as compared to the third quarter of 2003. We focus on increased use of Angiomax by existing hospital customers, as well as penetration to new hospitals, to evaluate our operating performance.

        Since our inception we have generated significant losses, although we achieved profitability for the first time for the three months ended December 31, 2003. Most of our expenditures to date have been for research and development activities and selling, general and administrative expenses. Research and development expenses represent costs incurred for product acquisition, clinical trials, activities relating to regulatory filings and manufacturing development efforts. We outsource our clinical trials and manufacturing development activities to independent organizations to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with promotion and marketing activities.

        We expect to continue to spend significant amounts on the development of our products in the future. In 2004, we plan to continue to invest in clinical studies to expand the use of Angiomax and to develop Clevelox. In addition, we plan to invest in the manufacturing development of cangrelor. We also plan to continue our sales and marketing programs to educate and inform physicians, nurses, pharmacists and other medical decision-makers about the benefits of Angiomax. In light of these activities, as well as our plan to continue to evaluate possible acquisitions of development-stage or approved products that would fit within our growth strategy, we will likely need to generate greater revenues to maintain profitability.

        We have not generated any U.S. taxable income to date. Any taxes paid or accrued have been state taxes based on net worth and some income taxes in international jurisdictions. At December 31, 2003, net operating losses available to offset future taxable income for federal income tax purposes were approximately $235.2 million. If not utilized, federal net operating loss carryforwards will expire at various dates beginning in 2011 and ending in 2023. We have not recognized the potential tax benefit

26

of our net operating losses in our balance sheets or statements of operations. The future utilization of our net operating loss carryforwards may be limited based upon changes in ownership pursuant to regulations promulgated under the Internal Revenue Code of 1986, as amended.

Application of Critical Accounting Policies

        The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ significantly from these estimates under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

        We regard an accounting estimate or assumption underlying our financial statements as a "critical accounting estimate" where:

•

the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and



•

the impact of the estimates and assumptions on financial condition or operating performance is material.

        Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. Not all of these significant accounting policies, however, fit the definition of "critical accounting estimates." We have discussed our accounting policies with the audit committee of our board of directors, and we believe that our estimates relating to revenue recognition and inventory described below fit the definition.

Revenue Recognition

        Product Sales.    We sell our products primarily to wholesalers and distributors, who, in turn, sell to hospitals. We do not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay us, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from us, we have no obligation to bring about the sale of the product, the amount of returns can be reasonably estimated and collectibility is reasonably assured.

        We record allowances for product returns, rebates and discounts at the time of sale, and report revenue net of such allowances. We must make significant judgments and estimates in determining these allowances. In particular, determining the allowances is difficult because we must estimate whether trends in past buying patterns will predict future product sales. We have adjusted the allowances in the past based on our actual sales experience, and we will likely be required to make adjustments to these allowances in the future. In determining the allowances, our considerations include the following:

•

Our customers have the right to return any unopened product during the 18 month period beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. As a result, in calculating the allowance for product returns, we must estimate the likelihood that product sold to wholesalers might remain in their inventory to within six months of expiration and determine if it will be returned. We base our estimates on information from wholesalers, historic patterns of returns, industry data and on the expiration dates of product currently being shipped.

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•

Certain hospitals purchasing our products from wholesalers have the right to receive a discounted price and a volume-based rebate if they have a direct contract with us or participate in a group purchasing organization that has a contract with us. As a result, we must estimate the likelihood that product sold to wholesalers might be ultimately sold to a participating hospital. We base our estimates on information from wholesalers and hospitals, industry data, historic patterns of discounts and customer rebate thresholds.

        Collaborations.    Revenue from collaborative agreements with partners may include milestone payments. We record these payments as deferred revenue until contractual performance obligations have been satisfied, and we then recognize these payments ratably over the term of these agreements. When the period of deferral cannot be specifically identified from the contract, we must estimate the period based upon other critical factors contained within the contract. We review these estimates at least annually, which could result in a change in the deferral period.

Inventories

        We record inventory upon the transfer of title from our vendors. Inventory is stated at the lower of cost or market value, with cost determined using a weighted average of acquisition costs. Prior to FDA approval of Angiomax and of its original manufacturing process in December 2000, we expensed all costs associated with the manufacture of Angiomax bulk drug product and finished product to which title had transferred to us as research and development. We recorded as inventory any Angiomax bulk drug product manufactured according to its original manufacturing process to which we took title after FDA approval. Along with our contract manufacturing partner, UCB Bioproducts S.A., we have developed a second-generation chemical synthesis process, the Chemilog process, for the manufacture of Angiomax bulk drug substance. The Chemilog process involves enhancements to early manufacturing steps to improve the efficiency of synthesizing bivalirudin, the active ingredient of Angiomax. On May 23, 2003, we received FDA approval for this process. Accordingly, all Angiomax bulk drug product manufactured using the Chemilog process to which title had transferred to us prior to May 23, 2003 has been expensed as research and development, and all bulk drug product manufactured after FDA approval of the Chemilog process has been and will be recorded as inventory. We review our inventory for slow moving or obsolete amounts based on expected revenues. If actual revenues are less than expected, we may be required to make allowances for excess amounts of inventory in the future.

Results of Operations

Years Ended December 31, 2003 and 2002

        Net Revenue.    Net revenue increased 123% to $85.6 million for the year ended December 31, 2003 as compared to $38.3 million for the year ended December 31, 2002. Virtually all the revenue in both periods was from U.S. sales of Angiomax. We believe that growth in 2003 was due primarily to increased use of Angiomax by existing hospital customers and adoption of Angiomax by new hospital customers as well as increased prices.

        In each of 2003 and 2002, we recognized $0.1 million of a $1.5 million non-refundable distributor fee received from Nycomed Danmark A/S, a European pharmaceutical company, pursuant to a collaboration agreement we entered into in 2002. This payment was recorded as deferred revenue in 2002 and is being recognized ratably over the term of our agreement with Nycomed, which we estimated to be twelve years at that time.

        Cost of Revenue.    Cost of revenue in 2003 was $22.7 million, or 27% of net revenue, compared to $10.3 million, or 27% of net revenue in 2002. Cost of revenue in 2003 consisted of expenses in connection with the manufacture of the Angiomax sold, which represented 62% of the 2003 cost of revenue, royalty expenses under our agreement with Biogen which represented 25% of the 2003 cost of revenue and the logistics costs of selling Angiomax, such as distribution, storage, and handling, which

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represented 13% of the 2003 cost of revenue. Cost of revenue in 2002 consisted of expenses in connection with the manufacture of the Angiomax sold, which represented 58% of the 2002 cost of revenue, royalty expenses under our agreement with Biogen which represented 28% of the 2002 cost of revenue and the logistics costs of selling Angiomax, such as distribution, storage, and handling, which represented 14% of the 2002 cost of revenue.

        Prior to obtaining FDA approval for Angiomax and its original manufacturing process, all costs of manufacturing Angiomax were expensed as research and development costs and therefore not reflected in cost of revenue. In late 2000, after obtaining FDA approval for Angiomax and its original manufacturing process, we began recording the costs of manufacturing Angiomax as inventory, which is reflected in cost of revenue when sold, rather than as research and development expense.

        During 2002 and in early 2003, we took delivery of drug material manufactured using the Chemilog process. Because this material was manufactured prior to FDA approval of the Chemilog process, we expensed all costs of manufacturing as research and development. This process was approved by the FDA on May 23, 2003, and we are recording all costs of manufacturing Angiomax incurred after May 23, 2003 as inventory.

        Although we sold some Angiomax in 2003 that had been manufactured using the Chemilog process, most of the Angiomax that we sold in 2003 was manufactured using the original manufacturing process following the date of FDA approval of Angiomax. We recorded the cost of manufacturing such material as cost of revenue during 2003. In 2002, we sold a greater proportion of Angiomax whose costs had been previously expensed than Angiomax for which the cost of manufacturing needed to be recorded in 2002. As a result, our cost of manufacturing as a percentage of cost of revenue was higher in 2003 compared to 2002.

        Late in the third quarter of 2003, we began selling Angiomax produced by the Chemilog process whose cost of manufacturing was previously expensed. As a result, our cost of manufacturing as a percentage of product revenue decreased substantially in the fourth quarter of 2003. We expect that we will begin selling Angiomax produced using the Chemilog process after FDA approval as soon as the second quarter of 2004. At such time, we will experience an increase in our cost of manufacturing as a percentage of net revenue.

Research and Development Expenses.

        The funding for Angiomax has represented and will continue to represent a significant portion of our research and development spending. Over 76% of our research and development expenses in 2003 and 93% of our research and development expenses in 2002 related to Angiomax. For 2003 and 2002, research and development expenses relating to Angiomax included the costs of clinical trials, manufacturing development costs for the bulk drug product and infrastructure, including the cost associated with preparation of U.S. and worldwide marketing applications. For 2003, research and development expenses relating to Clevelox, which represented 17% of our total research and development expenses, consisted of a $1.0 million license fee to AstraZeneca and manufacturing development and other start-up costs relating to the Phase 3 clinical trial we commenced in the fourth quarter of 2003 in patients undergoing cardiac surgery. Research and development expenses in 2002 relating to Clevelox represented less than one percent of our total research and development expenses for 2002. For 2003, research and development expenses relating to cangrelor consisted of an initial payment to AstraZeneca in connection with our license. We had no research and development expenses in 2002 relating to cangrelor.

        Research and development expenses decreased 5% to $35.9 million for 2003, from $38.0 million for 2002. The decrease in research and development expenses was primarily due to $17.3 million less of clinical trial costs in 2003 relating to REPLACE-2, which completed enrollment in 2002, and $4.0 million in lower manufacturing development costs incurred in connection with our receipt of

29

Angiomax manufactured using the Chemilog process. These lower costs were partly offset by the addition of clinical development costs of $4.8 million for ACUITY, $4.0 million in additional costs for clinical trial programs studying Angiomax use in cardiac surgery and $5.8 million in additional costs relating to Clevelox development.

        The following table identifies for each of our clinical trial programs, the indication, development phase and clinical trial spending for the years ended December 31, 2003 and 2002. Spending for past periods is not indicative of spending in future periods.

Major Research and Development Projects

        We currently plan to spend approximately $49 million to $52 million on research and development in 2004, of which approximately 80% is planned for Angiomax. However, our success in expanding the approved indications for Angiomax, or developing our product candidates, is highly uncertain. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from, any of our product candidates due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

•

the scope, rate of progress and cost of our clinical trials and other research and development activities;



•

the financial contributions of our third-party distributors to the costs of our clinical trials;



•

future clinical trial results;



•

the terms and timing of any collaborative, licensing and other arrangements that we may establish;



•

the cost and timing of regulatory approvals;



•

the cost and timing of establishing sales, marketing and distribution capabilities;



•

the cost of establishing clinical and commercial supplies of our product candidates;



•

the effect of competing technological and market developments; and



•

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

        We partially funded development activities relating to the Chemilog process, including validation and process batch costs of approximately $1.2 million and $6.7 million incurred in 2003 and 2002, respectively. We expensed all of these development costs as research and development in the period incurred.

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        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 22% to $45.1 million for 2003, from $36.8 million for 2002. The increase in selling, general and administrative expenses of $8.3 million was primarily due to an increase in salary and recruiting expenses relating to our sales force, which grew in early 2003 from 86 to 97 persons, and additional marketing and medical education expenses relating to the promotion of Angiomax, and certain non-cash stock compensation recorded in connection with options granted to non-employees.

        Non-cash Stock Compensation.    We amortize the deferred stock compensation that was recorded in 2000 over the respective vesting periods of the individual stock options. We recorded amortization expense for such deferred compensation of approximately $2.2 million and $3.3 million for the years ended December 31, 2003 and 2002, respectively. We expect to record additional amortization expense for the deferred compensation associated with these options of approximately $0.8 million in 2004. The amortization expense is included in our operating expenses in the consolidated statements of operations.

        In May 2003 we granted options to a non-employee consultant to purchase 50,000 shares of common stock. In September 2003, we amended the terms of fully vested options to purchase 10,000 shares of common stock that were granted to a non-employee consultant in May 2001. In connection with these actions, we recorded $1.2 million in related non-cash stock compensation expense during 2003. The unvested options granted in May 2003 will be revalued, utilizing the Black-Scholes option pricing model, and expensed over the remaining five months of their one-year vesting term. In 2002, we accelerated the vesting of stock options held by terminated employees in connection with their termination agreements, which resulted in $0.5 million in non-cash compensation expense. Non-cash compensation expense is included in our operating expenses in the consolidated statements of operations.

        Other Income and Expense.    Interest income increased over 49% to $1.4 million for 2003, from $0.9 million for 2002. The increase in interest income of $0.5 million was primarily due to higher cash and available for sale securities balances attributable to our public offerings in 2002 and 2003, offset in part by lower available interest rates on securities. For 2002, interest income was attributable to the investment of the remaining proceeds of our sales of shares of common stock in a private placement in May 2001 and in a public offering in 2002.

        We had no interest expense in 2003 as there were no borrowings during this period. We had interest expense of $33,000 during 2002 associated with the draw down of our revolving line of credit at the end of March 2002. We terminated the revolving line of credit in August 2002.

Years Ended December 31, 2002 and 2001

        Net Revenue.    Net revenue increased 169% to $38.3 million in 2002 as compared to $14.2 million for 2001. Virtually all the revenue was from U.S. sales of Angiomax, which we commercially launched during the first quarter of 2001. The growth in 2002 was due primarily to increased use of Angiomax by existing hospital customers and penetration to new hospitals. Since we announced the results of REPLACE-2 in November 2002, additional hospitals have granted Angiomax formulary approval and hospital demand for the product has increased.

        In 2002, we received $1.5 million from Nycomed as a non-refundable distributor fee. This payment has been recorded as deferred revenue and is being recognized ratably over the term of our agreement with Nycomed, which we estimated to be twelve years at that time.

        Cost of Revenue.    Cost of revenue in 2002 was $10.3 million, or 27% of net revenue, compared to $2.1 million, or 15% of net revenue in 2001. Cost of revenue in 2002 consisted of expenses in connection with the manufacture of the Angiomax sold, which represented 58% of the 2002 cost of revenue, royalty expenses under our agreement with Biogen which represented 28% of the 2002 cost of

31

revenue and the logistics costs of selling Angiomax, such as distribution, storage, and handling, which represented 14% of the 2002 cost of revenue. Prior to obtaining FDA approval for Angiomax and its original manufacturing process, all costs of manufacturing Angiomax were expensed as research and development costs. In late 2000, after obtaining FDA approval for Angiomax and its original manufacturing process, we began recording the costs of manufacturing Angiomax as inventory, which is reflected in cost of revenue when sold, rather than as research and development expense. As a result, our cost of manufacturing as a percentage of net revenue increased substantially in 2002 as we sold a higher percentage of product manufactured after the date of FDA approval of Angiomax.

        Research and Development Expenses.    Research and development expenses increased 16% to $38.0 million for 2002, from $32.8 million for 2001. Over 90% of the 2002 expenses related to Angiomax development activities, of which 60% were associated with REPLACE-2. The increase in research and development expenses was primarily due to higher clinical development costs of $11.6 million relating to our REPLACE-2 trial and $1.5 million in higher manufacturing development cost incurred in connection with our receipt of Angiomax manufactured using the Chemilog process. These higher costs were partly offset by the absence of clinical development costs of the HERO-2 trial program, our Phase 3 trial of Angiomax in AMI that we completed in 2001 and other development programs savings.

Major Research and Development Projects

        We partially funded development activities relating to the Chemilog process, including validation and process batch costs of $6.7 million and $4.8 million incurred in 2002 and 2001, respectively. We expensed all of these development costs as research and development in the period incurred.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 1% to $36.8 million for 2002, from $36.6 million for 2001. The increase in selling, general and administrative expenses of $241,000 was primarily due to additional sales expense related to the promotion of Angiomax, offset in part by lower marketing expenses.

        Non-cash Stock Compensation.    We amortize the deferred stock compensation that was recorded in 2000 over the respective vesting periods of the individual stock options. We recorded amortization expense for deferred compensation of approximately $3.3 million and $4.1 million for the years ended December 31, 2002 and 2001, respectively. In 2002, we accelerated the vesting of stock options held by terminated employees in connection with their termination agreements, which resulted in $500,000 in non-cash compensation expense. The amortization and non-cash compensation expense is included in our operating expenses in the consolidated statements of operations.

        Other Income and Expense.    Interest income decreased 70% to $944,000 for 2002, from $3.2 million for 2001. The decrease in interest income of $2.3 million was primarily due to lower cash

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and available for sale securities balances and lower available interest rates on securities. For 2002, interest income was attributable to the investment of the remaining proceeds of our sales of shares of common stock in a private placement in May 2001 and in a public offering in 2002. In 2001, interest income was primarily attributable to the investment of the remaining proceeds of our initial public offering in August and September 2000.

        We had interest expense of $33,000 during 2002 associated with the draw down of our revolving line of credit at the end of March 2002. We terminated the revolving line of credit in August 2002. We had no interest expense for 2001. In 2001, we liquidated our $3.0 million principal investment in Southern California Edison 5⁷/8% bonds, recognizing a loss of $850,000 on the sale.

Liquidity and Capital Resources

        Sources of Liquidity.    Since our inception, we have financed our operations through the sale of common and preferred stock, sales of convertible promissory notes and warrants, interest income and revenues from sales of Angiomax. We experienced our first quarterly profit during the three months ended December 31, 2003.

        In August and September 2000, we received $101.4 million in net proceeds from the sale of common stock in our initial public offering. Since our initial public offering, we have received an additional $41.8 million in net proceeds in May 2001 from the sale of 4.0 million shares of our common stock in a private placement, $30.9 million in net proceeds in June 2002 from the sale of 4.0 million shares of our common stock in a public offering and $91.5 million in net proceeds in March 2003 from the sale of 5.6 million shares of our common stock in a public offering. Prior to our initial public offering, we had received net proceeds of $79.4 million from the private placement of equity securities, primarily redeemable convertible preferred stock, and $19.4 million from the issuance of convertible notes and warrants.

        In 2003, employees purchased stock pursuant to option exercises and our employee stock purchase plan for aggregate net proceeds to us of approximately $8.0 million.

        In March 2002, we entered into a collaboration agreement with Nycomed, under which Nycomed will serve as the exclusive distributor of Angiomax in approximately 35 countries, including 12 countries in the European Union. Under the agreement, Nycomed paid us an initial non-refundable fee of $1.5 million and agreed to pay up to $2.5 million in additional milestones based on regulatory approvals in Europe. In addition, Nycomed purchased 79,428 shares of our common stock for a total purchase price of approximately $1.0 million.

        Cash Flows.    As of December 31, 2003, we had $43.4 million in cash and cash equivalents, as compared to $36.8 million as of December 31, 2002. Our major uses of cash during 2003 include net cash used for operating activities of $5.2 million and net cash used in investing activities of $87.7 million, which were more than offset by $99.5 million received from financing activities.

        We used net cash of $5.2 million in operating activities during 2003. This use of cash consisted of a net loss of $16.9 million, an increase in accounts receivable of $0.6 million related to higher sales volume and accrued interest receivable of $0.9 million related to higher investment balance, a decrease in accounts payable of $1.0 million, a decrease in prepaid expenses of $0.3 million, and amortization of deferred revenue of $0.1 million, partly offset by a increase in accrued expenses of $6.8 million, non-cash stock compensation of $3.4 million, a decrease in inventory of $2.7 million, and depreciation of $0.6 million and amortization of premium on available for sale securities of $0.9 million. The increase in accrued expenses can be largely attributed to $2.1 million additional patient related accruals for our clinical trials currently underway, $1.1 million additional employee compensation accruals and increased royalty accruals and $1.3 million additional sales related accruals associated with higher sales volumes.

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        During 2003, we used $87.7 million in cash in net investing activities, which consisted principally of the purchase of $142.8 million of available for sale securities and purchase of $1.2 million of fixed assets, mostly related to our leasehold improvements, offset by $56.3 million in proceeds from the maturation and sale of available for sale securities.

        Cash provided by financing activities of $99.5 million during 2003 consisted primarily of the proceeds of the public offering of 5.6 million shares of our common stock in March 2003 that resulted in net proceeds of $91.5 million. In addition, employees purchased stock pursuant to option exercises and our employee stock purchase plan for aggregate net proceeds to us of approximately $8.0 million.

        Funding Requirements.    We expect to devote substantial resources to our research and development efforts and to our sales, marketing and manufacturing programs associated with the commercialization of our products. Our funding requirements will depend on numerous factors including:

•

the extent to which Angiomax is commercially successful;



•

the progress, level and timing of our research and development activities related to our clinical trials with respect to Angiomax, Clevelox and cangrelor;



•

the cost and outcomes of regulatory reviews;



•

the continuation or termination of third party manufacturing or sales and marketing arrangements;



•

the cost and effectiveness of our sales and marketing programs;



•

the status of competitive products;



•

our ability to defend and enforce our intellectual property rights; and



•

the establishment of additional strategic or licensing arrangements with other companies or acquisitions.

        We believe, based on our operating plan as of the date of this annual report, which includes anticipated revenues from Angiomax and interest income, that our current cash, cash equivalents and available for sale securities would be sufficient to fund our operations into 2005 and beyond, without requiring us to obtain external financing. We expect, however, to periodically assess our financing alternatives and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements due to slower than anticipated revenues from Angiomax or otherwise, or if we acquire additional product candidates, we may need to sell additional equity or debt securities or seek additional financing through other arrangements. Any sale of additional equity or debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to delay, reduce the scope of, or eliminate one or more of our planned research, development and commercialization activities, which could harm our financial condition and operating results.

Contractual Obligations

        Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. These include inventory related commitments to manufacture our products, research and development service agreements, operating leases and other selling and general administrative related obligations.

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        Future estimated contractual obligations are:

        Included above are inventory related non-cancellable commitments to make payments to UCB Bioproducts of a total of $18.7 million during 2004 for Angiomax bulk drug substance to be produced using the Chemilog process and $2.6 million in related filling, finishing and packaging commitments through August 2004. We also have $13.8 million of estimated contractual obligations for research and development activities of which $1.0 million is non-cancellable. The amounts included in selling, general and administrative obligations are primarily related to non-cancellable consulting arrangements.

        In addition to the contractual obligations above, we have agreed to make payments upon the achievement of sales and regulatory milestones, and agreed to pay royalties, to Biogen Idec, Inc. and to AstraZeneca AB under our product license agreements for Angiomax, Clevelox and cangrelor. Under the Angiomax license, we have agreed to pay up to an additional $8.0 million upon the first commercial sales of Angiomax for the treatment of acute myocardial infarction in the United States and Europe. Under the Clevelox license, we have agreed to pay up to an additional $5.0 million upon reaching certain regulatory milestones. Under the cangrelor license, we have made an upfront payment and will provide milestone payments upon regulatory approval in major markets.

Factors That May Affect Future Results

        This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking statements. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements. There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make. These important factors include our "critical accounting estimates" and the risk factors set forth below. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this annual report.

Risks Related to Our Business

We have a history of net losses and may not achieve or maintain profitability

        We have incurred net losses on an annual basis since our inception, including a net loss of approximately $16.9 million for the year ended December 31, 2003. As of December 31, 2003, we had an accumulated deficit of approximately $314.1 million. We expect to make substantial expenditures to further develop and commercialize our products, including costs and expenses associated with clinical trials, regulatory approvals and commercialization. Although we achieved profitability for the three months ended December 31, 2003, in light of our planned expenditures, we will likely need to generate

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significantly greater revenues to maintain profitability. We remain unsure as to when we will become profitable on an annual basis, if at all, or whether we will remain profitable for any substantial period of time. If we fail to achieve profitability on an annual basis within the time frame expected by investors or securities analysts, the market price of our common stock may decline.

Our business is very dependent on the commercial success of Angiomax

        Angiomax is our only commercial product and, we expect, will account for almost all of our revenues for the foreseeable future. The commercial success of Angiomax will depend upon its continued acceptance by regulators, physicians, patients and other key decision-makers as a safe, therapeutic and cost-effective alternative to heparin and other products used in current practice, or currently being developed. If Angiomax is not commercially successful, we will have to find additional sources of funding or curtail or cease operations.

Near-term growth in our sales of Angiomax is highly dependent on physician acceptance of the REPLACE-2 trial

        In the fall of 2002, we completed a 6,002 patient post-marketing Phase 3b/4 clinical trial of Angiomax in coronary angioplasty called REPLACE-2. In November 2002, the principal investigators of the clinical trial announced that, based on 30-day patient follow-up results, Angiomax met all of the primary and secondary objectives of the trial. In March 2003, we released the results of the detailed cost analysis study to examine per-patient total hospital resource consumption at U.S. clinical trial sites. In September 2003, the principal investigators of the clinical trial further announced that, based on six-month patient follow-up results, Angiomax again met all of the primary and secondary objectives of the trial. In November 2003, the principal instigators presented one-year follow-up mortality data from the trial, which confirmed the 30-day and six-month mortality results.

        We believe that the near-term commercial success of Angiomax will depend upon the extent to which physicians, patients and other key decision-makers accept the results of the REPLACE-2 trial. Since the original results were announced, additional hospitals have granted Angiomax formulary approval and hospital demand for the product has increased. We cannot be certain, however, that these trends will continue. Some commentators have challenged various aspects of the trial design of REPLACE-2, the conduct of the study and the analysis and interpretation of the results from the study, including how we define bleeding and the clinical relevance of types of ischemic events. If physicians, patients and other key decision-makers do not accept the trial results, adoption of Angiomax may suffer, and our business will be materially adversely affected.

We cannot expand the indications for which we are marketing Angiomax unless we receive FDA approval for each additional indication. Failure to expand these indications will limit the size of the commercial market for Angiomax

        In December 2000, we received approval from the FDA for the use of Angiomax as an anticoagulant in combination with aspirin in patients with unstable angina undergoing coronary angioplasty. One of our key objectives is to expand the indications for which Angiomax is approved for marketing by the FDA. In order to market Angiomax for these expanded indications, we will need to complete our clinical trials that are currently underway, conduct additional clinical trials, obtain positive results from those trials and obtain FDA approval for such proposed indications. If we are unsuccessful in expanding the approved indications for the use of Angiomax, the size of the commercial market for Angiomax will be limited.

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Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing Angiomax abroad

        We intend to market Angiomax through distribution partners in international markets, including Europe. In order to market Angiomax in the European Union and many other foreign jurisdictions, we or our distribution partners must obtain separate regulatory approvals. Obtaining foreign approvals may require additional trials and expense. In February 1998, we submitted a Marketing Authorization Application, or MAA, to the European Agency for Evaluation of Medicinal Products, or the EMEA, for use of Angiomax in unstable angina patients undergoing coronary angioplasty. Following extended interaction with European regulatory authorities, the Committee of Proprietary Medicinal Products of the EMEA voted in October 1999 not to recommend Angiomax for approval in coronary angioplasty, and we withdrew our application to the EMEA. In August 2003, we resubmitted an MAA with the results of the REPLACE-2 trial, and we are in discussions with regulatory authorities regarding the resubmitted MAA. We may not be able to obtain approval or may be delayed in obtaining approval from any or all of the jurisdictions in which we seek approval to market Angiomax.

The development and commercialization of our products may be terminated or delayed, and the costs of development and commercialization may increase, if third parties on which we rely to manufacture and support the development and commercialization of our products do not fulfill their obligations

        Our development and commercialization strategy entails entering into arrangements with corporate and academic collaborators, contract research organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage our clinical trials, manufacture our products and market and sell our products outside of the United States. We do not have the expertise or the resources to conduct such activities on our own and, as a result, are particularly dependent on third parties in most areas.

        We may not be able to maintain our existing arrangements with respect to the commercialization of Angiomax or establish and maintain arrangements to develop and commercialize Clevelox, cangrelor or any additional product candidates or products we may acquire on terms that are acceptable to us. Any current or future arrangements for development and commercialization may not be successful. If we are not able to establish or maintain agreements relating to Angiomax, Clevelox, cangrelor or any additional products we may acquire on terms that we deem favorable, our results of operations would be materially adversely affected.

        Third parties may not perform their obligations as expected. The amount and timing of resources that third parties devote to developing, manufacturing and commercializing our products are not within our control. Furthermore, our interests may differ from those of third parties that manufacture or commercialize our products. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive.

        If any third party that manufactures or supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to conduct its activities in a timely manner, such breach, termination or failure could:

•

delay or otherwise adversely impact the development or commercialization of Angiomax, Clevelox, cangrelor or any additional products that we may acquire or develop;



•

require us to undertake unforeseen additional responsibilities or devote unforeseen additional resources to the development or commercialization of our products; or



•

result in the termination of the development or commercialization of our products.

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Failure to achieve our revenue targets or raise additional funds in the future may affect the development, manufacture and sale of our products

        We will need to generate significantly greater revenues to achieve and then maintain profitability on an annual basis. The product development, including clinical trials, manufacturing development and regulatory approvals, of Angiomax for additional indications, Clevelox and cangrelor, and the acquisition and development of additional product candidates by us will require a commitment of substantial funds. Our future funding requirements depend upon many factors, including our ability to achieve our revenue targets, and may be significantly greater than we expect.

        As of the date of this annual report, we believe, based on our current operating plan, which includes anticipated revenues from Angiomax and interest income, that our current cash, cash equivalents and available for sale securities will be sufficient to fund our operations into 2005 and beyond, without requiring us to obtain external financing. If our existing resources are insufficient to satisfy our liquidity requirements due to slower than anticipated sales of Angiomax or otherwise, or if we acquire additional product candidates, we may need to sell additional equity or debt securities or seek additional financing through other arrangements. Any sale of additional equity or debt securities may result in additional dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to delay, reduce the scope of, or eliminate one or more of our planned research, development and commercialization activities, which could harm our financial condition and operating results. In addition, in order to obtain additional financing, we may be required to relinquish rights to products, product candidates or technologies that we would not otherwise relinquish.

We depend on single suppliers for the production of Angiomax and Clevelox bulk drug substance and different single suppliers to carry out all fill-finish activities

        We do not manufacture any of our products and do not plan to develop any capacity to manufacture them. As of the date of this annual report, we obtain all of our Angiomax bulk drug substance from one manufacturer, UCB Bioproducts, and rely on another manufacturer, Ben Venue Laboratories, to carry out all fill-finish activities for Angiomax, which includes final formulation and transfer of the drug into vials where it is then freeze-dried and sealed. The terms of our agreement with UCB Bioproducts require us to purchase a substantial portion of our Angiomax bulk drug product from UCB Bioproducts, which could hinder our ability to obtain an additional supplier for Angiomax.

        As of the date of this annual report, we obtain all of our Clevelox bulk drug substance for use in clinical trials from one manufacturer, Pharm-Eco, a Johnson Matthey Company. We will rely on a different single supplier, Fresnius Kabi Clayton, L.P., and its proprietary formulation technology, for the manufacture of all finished Clevelox product, as well as release testing and clinical packaging.

        The FDA requires that all manufacturers of pharmaceuticals for sale in or from the United States achieve and maintain compliance with the FDA's current good manufacturing practices, or cGMP, regulations and guidelines. There are a limited number of manufacturers that operate under cGMP regulations capable of manufacturing Angiomax. As of the date of this annual report, we do not have alternative sources for production of Angiomax bulk drug substance or to carry out fill-finish activities. In the event that either UCB Bioproducts or Ben Venue is unable to carry out its respective manufacturing obligations, we may be unable to obtain alternative manufacturing, or obtain such manufacturing on commercially reasonable terms or on a timely basis. If we were required to transfer manufacturing processes to other third party manufacturers, we would be required to satisfy various regulatory requirements, which could cause us to experience significant delays in receiving an adequate supply of Angiomax. Any delays in the manufacturing process may adversely impact our ability to meet commercial demands for Angiomax on a timely basis and supply product for clinical trials of Angiomax.

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We do not own the technology underlying the Chemilog process and may be unable to utilize the Chemilog process if UCB Bioproducts breaches our agreement

        Our agreement with UCB Bioproducts for the supply of Angiomax bulk drug substance provides that UCB Bioproducts owns all of the proprietary technology that was used to develop the Chemilog process. Although the agreement requires that UCB Bioproducts transfer this technology to a secondary supplier of Angiomax bulk drug substance or to us or an alternate supplier at the expiration of the agreement, if UCB Bioproducts fails or is unable to transfer successfully this technology, we would be unable to employ the Chemilog process to manufacture our Angiomax bulk drug substance, which could cause us to experience delays in the manufacturing process and increase our manufacturing costs in the future.

Clinical trials of product candidates are expensive and time-consuming, and the results of these trials are uncertain

        Before we can obtain regulatory approvals to market any product for a particular indication, we will be required to complete pre-clinical studies and extensive clinical trials in humans to demonstrate the safety and efficacy of such product for such indication. As of the date of this annual report, we are evaluating Angiomax in clinical trials for additional uses in open vascular surgery such as CABG surgery, in medical conditions that require urgent treatment such as unstable angina, in patients with heparin allergy, in children and in peripheral angioplasty. As of the date of this annual report, we have commenced a Phase 3 trial program in patients undergoing cardiac surgery to investigate the potential of Clevelox to simplify and improve the treatment of these patients. There are numerous factors that could delay our clinical trials or prevent us from completing our trials successfully. We, or the FDA, may suspend a clinical trial at any time on various grounds, including a finding that patients are being exposed to unacceptable health risks.

        The rate of completion of clinical trials depends in part upon the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. In particular, the patient population targeted by some of our clinical trials may be small. Delays in future planned patient enrollment may result in increased costs and program delays.

        In addition, clinical trials, if completed, may not show a product candidate to be safe or effective for the intended use. Results obtained in pre-clinical studies or early clinical trials are not always indicative of results that will be obtained in later clinical trials. Moreover, data obtained from pre-clinical studies and clinical trials may be subject to varying interpretations. As a result, the FDA or other applicable regulatory authorities may not approve a product in a timely fashion, or at all. Even if regulatory approval to market a product is granted, the regulatory approval may impose limitations on the indicated use for which the product may be marketed.

Our failure to acquire and develop additional product candidates or approved products will impair our ability to grow

        We have a single product approved for marketing. In order to generate additional revenues, we intend to acquire and develop additional product candidates or approved products. The success of this growth strategy depends upon our ability to identify, select and acquire pharmaceutical products that meet the criteria we have established. Because we neither have, nor intend to establish, internal scientific research capabilities, we are dependent upon pharmaceutical and biotechnology companies and other researchers to sell or license product candidates to us. We will be required to integrate any acquired products into our existing operations. Managing the development of a new product entails

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numerous financial and operational risks, including difficulties in attracting qualified employees to develop the product.

        Any product candidate we acquire will require additional research and development efforts prior to commercial sale, including extensive pre-clinical and/or clinical testing and approval by the FDA and corresponding foreign regulatory authorities. All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe, non-toxic and effective or approved by regulatory authorities.

        In addition, we cannot assure you that any approved products that we develop or acquire will be:

•

manufactured or produced economically;



•

successfully commercialized; or



•

widely accepted in the marketplace.

        We have previously acquired rights to products and, after having conducted development activities, determined not to devote further resources to those products. We cannot assure you that any additional products that we acquire will be successfully developed.

        In addition, proposing, negotiating and implementing an economically viable acquisition is a lengthy and complex process. Other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the acquisition of product candidates and approved products. We may not be able to acquire the rights to additional product candidates and approved products on terms that we find acceptable, or at all.

A breach of any of the agreements under which we license commercialization rights to products or technology from others could cause us to lose license rights that are important to our business or subject us to claims by our licensors

        We license rights to products and technology that are important to our business, and we expect to enter into additional licenses in the future. For instance, we have exclusively licensed patents and patent applications relating to Angiomax from Biogen and relating to Clevelox and cangrelor from AstraZeneca. Under these agreements, we are subject to commercialization and development, sublicensing, royalty, patent prosecution and maintenance, insurance and other obligations. Any failure by us to comply with any of these obligations or any other breach by us of these license agreements could give the licensor the right to terminate the license in whole, terminate the exclusive nature of the license or bring a claim against us for damages. Any such termination or claim, particularly relating to our agreement with Biogen, could have a material adverse effect on our business. Even if we contest any such termination or claim and are ultimately successful, our stock price could suffer. In addition, upon any termination of a license agreement, we may be required to license to the licensor any related intellectual property that we developed.

We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants

        Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on our ability to attract and retain qualified personnel for the acquisition, development and commercialization activities we conduct or sponsor. If we lose one or more of the members of our senior management, including our executive chairman, Dr. Clive A. Meanwell, or our chief executive officer, David M. Stack, or other key employees or consultants, our ability to implement successfully our business strategy could be seriously harmed. Our ability to replace these key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to acquire, develop and

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commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate such additional personnel.

Because the market for thrombin inhibitors is competitive, our product may not obtain widespread use

        We have positioned Angiomax as a replacement for heparin, which is a widely used, inexpensive, generic drug used in patients with arterial thrombosis. Because heparin is inexpensive and has been widely used for many years, physicians and medical decision-makers may be hesitant to adopt Angiomax. In addition, due to the high incidence and severity of cardiovascular diseases, competition in the market for thrombin inhibitors is intense and growing. There are a number of direct and indirect thrombin inhibitors currently on the market, awaiting regulatory approval and in development, including orally administered agents. The thrombin inhibitors on the market include products for use in the treatment of patients with a clinical condition known as HIT/HITTS, patients with unstable angina and patients with deep vein thrombosis.

Angiomax may compete with all groups of anticoagulant drugs, including platelet inhibitors and fibrinolytic drugs, which may limit the use of Angiomax

        In general, anticoagulant drugs may be classified into four groups: drugs that directly target and inhibit thrombin, drugs that indirectly target and inhibit thrombin, drugs that target and inhibit platelets and drugs that break down fibrin. Because each group of anticoagulants acts on different components of the clotting process, we believe that there will be continued clinical work to determine the best combination of drugs for clinical use. We expect Angiomax to be used with aspirin alone or in conjunction with platelet inhibitors or fibrinolytic drugs. Although platelet inhibitors and fibrinolytic drugs may be complementary to Angiomax, we recognize that Angiomax may compete with these and other anticoagulant drugs to the extent Angiomax and any of these anticoagulant drugs are approved for the same indication.

        In addition, platelet inhibitors and fibrinolytic drugs may compete with Angiomax for the use of hospital financial resources. For example, many U.S. hospitals receive a fixed reimbursement amount per procedure for the angioplasties and other treatment therapies they perform. Because this amount is not based on the actual expenses the hospital incurs, hospitals may be forced to use either Angiomax or platelet inhibitors or fibrinolytic drugs but not necessarily several of the drugs together.

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do

        Our industry is highly competitive. Our success will depend on our ability to acquire and develop products and apply technology, and our ability to establish and maintain markets for our products. Potential competitors in the United States and other countries include major pharmaceutical and chemical companies, specialized pharmaceutical companies and biotechnology firms, universities and other research institutions. Many of our competitors have substantially greater research and development capabilities and experience, and greater manufacturing, marketing and financial resources, than we do. Accordingly, our competitors may develop or license products or other novel technologies that are more effective, safer or less costly than existing products or technologies or products or technologies that are being developed by us or may obtain FDA approval for products more rapidly than we are able. Technological development by others may render our products or product candidates noncompetitive. We may not be successful in establishing or maintaining technological competitiveness.

Fluctuations in our operating results could affect the price of our common stock

        Our operating results may vary from period to period based on factors including the amount and timing of sales of Angiomax, the availability and timely delivery of a sufficient supply of Angiomax, the

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timing and expenses of clinical trials, announcements regarding clinical trial results and product introductions by us or our competitors, the availability and timing of third-party reimbursement and the timing of regulatory approvals. If our operating results do not match the expectations of securities analysts and investors as a result of these and other factors, the trading price of our common stock will likely decrease.

We may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions could damage our ability to attain or maintain profitability

        We may acquire additional businesses and products that complement or augment our existing business. Integrating any newly acquired business or product could be expensive and time-consuming. We may not be able to integrate any acquired business or product successfully or operate any acquired business profitably. Moreover, we may need to raise additional funds through public or private debt or equity financing to acquire any businesses or products, which may result in dilution for stockholders and the incurrence of indebtedness.

Our revenues are substantially dependent on a limited number of wholesalers to which we sell Angiomax, and such revenues may fluctuate from quarter to quarter based on the buying patterns of these wholesalers

        We sell Angiomax primarily to a limited number of national medical and pharmaceutical distributors and wholesalers with distribution centers located throughout the United States. During the year ended December 30, 2003, revenues from the sale of Angiomax to three wholesalers totaled approximately 95% of our net revenues. Our reliance on this small number of wholesalers could cause our revenues to fluctuate from quarter to quarter based on the buying patterns of these wholesalers. In addition, if any of these wholesalers fails to pay us on a timely basis or at all, our financial position and results of operations could be materially adversely affected.

Risks Related to Our Industry

If we do not obtain FDA approvals for our products or comply with government regulations, we may not be able to market our products and may be subject to stringent penalties

        Except for Angiomax, which has been approved for sale in the United States for use as an anticoagulant in patients undergoing coronary angioplasty, and which has been approved for sale in five other countries for indications similar to that approved by the FDA, we do not have a product approved for sale in the United States or any foreign market. We must obtain approval from the FDA in order to sell our product candidates in the United States and from foreign regulatory authorities in order to sell our product candidates in other countries. We must successfully complete our clinical trials and demonstrate manufacturing capability before we can file with the FDA for approval to sell our products. The FDA could require additional studies as part of the regulatory review process. Delays in obtaining or failure to obtain regulatory approvals may:

•

delay or prevent the successful commercialization of any of our product candidates;



•

diminish our competitive advantage; and



•

defer or decrease our receipt of revenues or royalties.

        The regulatory review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical data, clinical data and supporting information must be submitted to the FDA for each additional indication to obtain such approvals, and we cannot be certain when we will receive these regulatory approvals, if ever.

42

        In addition to initial regulatory approval, our product and product candidates are subject to extensive and rigorous ongoing domestic and foreign government regulation of, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing of our products and product candidates. Any approvals, once obtained, may be withdrawn if compliance with regulatory requirements is not maintained or safety problems are identified. Failure to comply with these requirements may also subject us to stringent penalties.

We may not be able to obtain or maintain patent protection for our products, and we may infringe the patent rights of others

        The patent positions of pharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual issues. Our success depends significantly on our ability to:

•

obtain and maintain U.S. and foreign patents;



•

protect trade secrets;



•

operate without infringing the proprietary rights of others; and



•

prevent others from infringing our proprietary rights.

        We may not have any additional patents issued from any patent applications that we own or license. If additional patents are granted, the claims allowed may not be sufficiently broad to protect our technology. In addition, issued patents that we own or license may be challenged, invalidated or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications of discoveries in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications.

        We exclusively license U.S. patents and patent applications and corresponding foreign patents and patent applications relating to Angiomax, Clevelox, cangrelor and CTV-05. As of the date of this annual report, we exclusively license six issued U.S. patents relating to Angiomax, three issued U.S. patents relating to Clevelox, four issued U.S. patents relating to cangrelor and three issued U.S. patents relating to CTV-05. The principal U.S. patent that covers Angiomax expires in 2010. The U.S. Patent and Trademark Office has rejected our application for an extension of the term of the patent beyond 2010 because the application was not filed on time. We are exploring an alternative to extend the term of the patent, but we can provide no assurance that we will be successful. We have not yet filed any independent patent applications.

        We may not hold proprietary rights to some patents related to our product candidates. In some cases, others may own or control these patents. As a result, we may be required to obtain licenses under third-party patents to market some of our product candidates. If licenses are not available to us on acceptable terms, we will not be able to market these products.

        We may become a party to patent litigation or other proceedings regarding intellectual property rights. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. If any patent litigation or other intellectual property proceeding in which we are involved is resolved unfavorably to us, we may be enjoined from manufacturing or selling our products without a license from the other party, and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms, or at all.

43

If we are not able to keep our trade secrets confidential, our technology and information may be used by others to compete against us

        We rely significantly upon unpatented proprietary technology, information, processes and know-how. We seek to protect this information by confidentiality agreements with our employees, consultants and other third-party contractors, as well as through other security measures. We may not have adequate remedies for any breach by a party to these confidentiality agreements. In addition, our competitors may learn or independently develop our trade secrets.

We could be exposed to significant liability claims if we are unable to obtain insurance at acceptable costs and adequate levels or otherwise protect ourselves against potential product liability claims

        Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of human healthcare products. Product liability claims might be made by patients in clinical trials, consumers, health care providers or pharmaceutical companies or others that sell our products. These claims may be made even with respect to those products that are manufactured in licensed and regulated facilities or otherwise possess regulatory approval for commercial sale.

        These claims could expose us to significant liabilities that could prevent or interfere with the development or commercialization of our products. Product liability claims could require us to spend significant time and money in litigation or pay significant damages. As of the date of this annual report, we are covered, with respect to our commercial sales and our clinical trials, by primary product liability insurance in the amount of $20.0 million per occurrence and $20.0 million annually in the aggregate on a claims-made basis. This coverage may not be adequate to cover any product liability claims.

        As we commercialize our products, we may wish to increase our product liability insurance. Product liability coverage is expensive. In the future, we may not be able to maintain or obtain such product liability insurance on reasonable terms, at a reasonable cost or in sufficient amounts to protect us against losses due to product liability claims.

Our ability to generate future revenue from products will depend on reimbursement and drug pricing

        Acceptable levels of reimbursement of drug treatments by government authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize, and attract collaborative partners to invest in the development of, product candidates. We cannot be sure that reimbursement in the United States or elsewhere will be available for any products we may develop or, if already available, will not be decreased in the future. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize our products, and may not be able to obtain a satisfactory financial return on our products.

        Third-party payers increasingly are challenging prices charged for medical products and services. Also, the trend toward managed health care in the United States and the changes in health insurance programs, as well as legislative proposals to reform health care or reduce government insurance programs, may result in lower prices for pharmaceutical products, including any products that may be offered by us. Cost-cutting measures that health care providers are instituting, and the effect of any health care reform, could materially adversely affect our ability to sell any products that are successfully developed by us and approved by regulators. Moreover, we are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business.

44

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

        Market risk is the risk of change in fair value of a financial instrument due to changes in interest rates, equity prices, creditworthiness, financing, exchange rates or other factors. Our primary market risk exposure relates to changes in interest rates in our cash, cash equivalents and available for sale securities. We place our investments in high-quality financial instruments, primarily money market funds, corporate debt and U.S. government agency securities with maturities or auction dates of less than one year, which we believe are subject to limited interest rate and credit risk. We currently do not hedge interest rate exposure. At December 31, 2003, we held $135.9 million in cash, cash equivalents and available for sale securities which had an average interest rate of approximately 1.5%. Of this amount, approximately 59% of the cash, cash equivalents and available for sale securities were due on demand or within one year and had an average interest rate of approximately of 1.2%. The remaining 41% were due within two years and had an average interest rate of approximately 1.8%.

        Most of our transactions are conducted in U.S. dollars. We do have certain agreements with parties located outside the United States. Transactions under certain of these agreements are conducted in U.S. dollars, subject to adjustment based on significant fluctuations in currency exchange rates. Transactions under certain other of these agreements are conducted in the local foreign currency. If the applicable exchange rate undergoes a change of 10.0%, we do not believe that it would have a material impact on our results of operations or cash flows.

Item 8. Financial Statements and Supplementary Data

        All financial statements and schedules required to be filed hereunder are filed as Appendix A hereto and are listed under Item 15(a).

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

        None

Item 9A. Controls and Procedures

        Our management, with the participation of our chief executive officers and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31,2003. Based on this evaluation, our chief executive officers and chief financial officer concluded that, as of December 31, 2003, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officers and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

        No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal year ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

45

PART III

Item 10. Directors and Executive Officers of the Registrant

        Our executive officers, directors and key employees and their respective ages are as follows:

*

Executive Officer

(1)

Member of the Audit Committee

(2)

Member of the Compensation Committee

(3)

Member of the Nominations Committee

        Set forth below is certain information regarding the business experience during the past five years for each of the above-named persons.

        Clive A. Meanwell, M.D., Ph.D. has been a director since the inception of our company in July 1996 and has served as our Executive Chairman since September 2001. From 1996 to September 2001, Dr. Meanwell served as our Chief Executive Officer and President. From 1995 to 1996, Dr. Meanwell was a Partner and Managing Director at MPM Capital L.P., a venture capital firm. From 1986 to 1995, Dr. Meanwell held various positions at Hoffmann-La Roche, Inc., a pharmaceutical company, including Senior Vice President from 1992 to 1995, Vice President from 1991 to 1992 and Director of Product Development from 1986 to 1991. Dr. Meanwell currently serves as a director of Endo Pharmaceuticals Inc. Dr. Meanwell received an M.D. and a Ph.D. from the University of Birmingham, United Kingdom.

        David M. Stack has been our President and Chief Executive Officer and a director since September 2001. From April 1, 2000 to September 2001, Mr. Stack served as a Senior Vice President. From January 2000 to September 2001, Mr. Stack also served as President and General Partner of Stack Pharmaceuticals, Inc., a commercialization, marketing and strategy consulting firm serving healthcare companies, and, from January 2000 to December 2001, as a Senior Advisor to the Chief Executive Officer of Innovex Inc., a contract pharmaceutical organization. Mr. Stack served as President and General Manager of Innovex Inc. from May 1995 to December 1999. Mr. Stack currently serves as a director of BioImaging Technologies, Inc. Mr. Stack received a B.S. in biology from Siena College and a B.S. in pharmacy from Albany College of Pharmacy.

        Steven H. Koehler, M.B.A. has been our Vice President and Chief Financial Officer since April 2002. From March 2002 to April 2002, Mr. Koehler served as our Vice President, Finance and Business Administration. From July 2001 to March 2002, Mr. Koehler was Vice President, Finance and Chief Financial Officer of Vion Pharmaceuticals, Inc., a biotechnology company which develops cancer

46

treatments. From April 1999 to July 2001, Mr. Koehler served as Vice President, Finance and Administration and as a member of the executive board of Knoll Pharmaceuticals, Inc., a wholly owned subsidiary of BASF Corporation, the U.S. subsidiary of a transnational chemical and life sciences company. From June 1997 to April 1999, Mr. Koehler was Vice President, Finance and Controlling for Knoll AG in Ludwigshafen, Germany, the former global pharmaceutical subsidiary of BASF AG. From November 1995 to June 1997, he served as Vice President, Value Based Management for Knoll AG. Mr. Koehler was Vice President, Finance and Treasurer for Boots Pharmaceuticals, Inc. from 1993 until its acquisition by Knoll in 1995. Mr. Koehler is a Certified Public Accountant. Mr. Koehler received a B.A. degree from Duke University and an M.B.A. degree from the Kellogg Graduate School of Management, Northwestern University.

        Gary Dickinson has been a Vice President since April 2001 with a focus on human resources activities. From March 2000 to April 2001, Mr. Dickinson was the Vice President of Human Resources of Elementis Specialties, Inc., a specialty chemicals manufacturing firm. From January 1997 to April 2001, Mr. Dickinson was the Senior Director of Human Resources of Bristol-Myers Squibb Company, a pharmaceuticals firm. Mr. Dickinson holds a B.A. from the University of Sheffield, United Kingdom.

        John D. Richards, D.Phil. joined us in October 1997 and has been a Vice President since 1999, with a focus on product manufacturing and quality. From 1993 until he joined us in October 1997, Dr. Richards was Director of Process Development and Manufacturing at Immulogic Pharmaceutical Corporation, a pharmaceutical company. From 1989 to 1993, Dr. Richards was a Technical Manager at Zeneca PLC, a pharmaceutical company, where he developed and implemented processes for the manufacture of peptides as pharmaceutical active intermediates. In 1986, Dr. Richards helped establish Cambridge Research Biochemicals, a manufacturer of peptide-based products for pharmaceutical and academic customers. Dr. Richards received an M.A. and a D.Phil. in organic chemistry from the University of Oxford, United Kingdom, and has carried out post-doctoral research work at the Medical Research Councils Laboratory of Molecular Biology in Cambridge, United Kingdom.

        Fred M. Ryan, M.B.A. has been a Vice President since April 2000, with a focus on corporate strategic development, new product acquisitions and Angiomax commercial development. From April 2000 to September 2001, Mr. Ryan also served as a Partner and the Vice President of Business Development of Stack Pharmaceuticals, Inc. From July 1991 to April 2000, he held senior management positions with Novartis Pharmaceuticals Corporation, a pharmaceutical company, in the United States in the areas of Finance, Strategic Planning, Business Development and Marketing, serving from 1998 to April 2000 as Executive Director Mature Products responsible for managing sales and marketing activities for a portfolio of products having annual sales in excess of $500 million. He received a B.S. and a B.A. degrees from Bryant College and his M.B.A. from Fairleigh Dickinson University.

        Paul M. Antinori, J.D. has been our General Counsel since May 2002. From March 1998 to April 2002, Mr. Antinori was General Counsel and a consultant to Physician Computer Network, Inc., a healthcare information technology company. Prior to March 1998, Mr. Antinori was a partner at Gibbons, Del Deo, Dolan, Griffinger & Vecchione in Newark, NJ. Mr. Antinori received his J.D. from the University of Virginia School of Law and his B.A. from Boston College.

        Leonard Bell, M.D. has been a director since May 2000. From January 1992 to March 2002, Dr. Bell served as the President and Chief Executive Officer, Secretary and Treasurer of Alexion Pharmaceuticals, Inc., a pharmaceutical company. Since March 2002, Dr. Bell has served as the Chief Executive Officer, Secretary and Treasurer of Alexion Pharmaceuticals, Inc. Since 1993, Dr. Bell has served as an Adjunct Assistant Professor of Medicine and Pathology at the Yale University School of Medicine. From 1991 to 1992, Dr. Bell was an Assistant Professor of Medicine and Pathology and co-Director of the Program in Vascular Biology at the Yale University School of Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the Yale-New Haven Hospital and an Assistant

47

Professor in the Department of Internal Medicine at the Yale University School of Medicine. Dr. Bell was the recipient of the Physician Scientist Award from the National Institutes of Health and Grant-in-Aid from the American Heart Association. Dr. Bell is the recipient of various honors and awards from academic and professional organizations and his work has resulted in more than 45 scientific publications, invited presentations and patent applications. Dr. Bell is an invited Member of the State of Connecticut Governor's Council on Economic Competitiveness and Technology and a director of Connecticut United for Research Excellence, Inc. He also served as a director of the Biotechnology Research and Development Corporation from 1993 to 1997. Dr. Bell currently also serves as a director of Alexion Pharmaceuticals, Inc. Dr. Bell received an A.B. from Brown University and an M.D. from the Yale University School of Medicine.

        William W. Crouse, M.B.A. has been a director since April 2003. Since January 1994, Mr. Crouse has been a Managing Director of HealthCare Ventures, a venture capital firm with a focus on biotechnology firms. From 1987 to 1993, Mr. Crouse served as Worldwide President of Ortho Diagnostic Systems, a subsidiary of Johnson & Johnson that manufactures diagnostic tests for hospitals, and a Vice President of Johnson & Johnson International. Before joining Johnson & Johnson, Mr. Crouse was a Division Director of DuPont Pharmaceuticals Company, a pharmaceutical firm, where he was responsible for international operations and worldwide commercial development activities. Before joining Dupont, he served as President of Revlon Health Care Group's companies in Latin America, Canada, and Asia/Pacific. Mr. Crouse currently also serves as a director of ImClone Systems, Inc. Mr. Crouse received a B.S. in finance and economics from Lehigh University and an M.B.A. from Pace University.

        Robert J. Hugin has been a director since April 2003. Since June 1999, Mr. Hugin has been the Senior Vice President and Chief Financial Officer of Celgene Corporation, a biopharmaceutical company focused on cancer and immunological diseases. From 1985 to 1999, Mr. Hugin held positions with J.P. Morgan & Co. Inc., an investment banking firm, serving most recently as a Managing Director. Mr. Hugin also currently serves as a director of Celgene Corporation. Mr. Hugin received an A.B. from Princeton University and an M.B.A. from the University of Virginia.

        T. Scott Johnson, M.D. has been a director since September 1996. In July 1999, Dr. Johnson founded JSB Partners, L.P., an investment bank focusing on mergers and acquisitions, private financings and corporate alliances within the health care sector. From September 1991 to July 1999, Dr. Johnson served as a founder and managing director of MPM Capital, L.P., a venture capital firm. Dr. Johnson received both a B.S. and an M.D. from the University of Alabama.

        Armin M. Kessler has been a director since October 1998. Mr. Kessler joined us after a 35-year career in the pharmaceutical industry, which included senior management positions at Sandoz Pharma Ltd., Basel, Switzerland, United States and Japan (now Novartis Pharma AG) and, most recently, at Hoffmann-La Roche, Basel where he was Chief Operating Officer and Head of the Pharmaceutical Division until 1995. Mr. Kessler currently also serves as a director of Spectrum Pharmaceuticals, Inc. and Gen-Probe Incorporated. Mr. Kessler received degrees in physics and chemistry from the University of Pretoria, a degree in chemical engineering from the University of Cape Town, a law degree from Seton Hall and an honorary doctorate in business administration from the University of Pretoria.

        Robert G. Savage, M.B.A. has been a director since April 2003. From March 2002 to April 2003, Mr. Savage was Group Vice President and President for the General Therapeutics and Inflammation Business, of Pharmacia Corporation, a research-based pharmaceutical firm acquired by Pfizer Inc. in April 2003. From September 1996 to January 2002, Mr. Savage held several senior positions with Johnson & Johnson, including Worldwide Chairman for the Pharmaceuticals Group during 2001, Company Group Chairman responsible for the North America pharmaceuticals business from 2000 to 2001, President, Ortho-McNeil Pharmaceuticals from 1998 to 2000 and Vice President Sales &

48

Marketing from 1996 to 1998. From 1985 to 1996, Mr. Savage held several positions at Hoffmann-La Roche, Inc., a healthcare firm. Mr. Savage also serves as a director for Noven Pharmaceuticals, a leader in the development of advanced drug delivery technologies, and NovaDel Pharma Inc., a specialty pharmaceutical company developing drug delivery systems. Mr. Savage received a B.S. in biology from Upsala College and an M.B.A. from Rutgers University.

        James E. Thomas, M.Sc. has been a director since September 1996. Since March 2001, Mr. Thomas has served as Managing Partner of Thomas, McNerney & Partners, LLC, a health care private equity investment fund. From 1989 to June 2000, Mr. Thomas served in various capacities, including from 1994 to 2000, as a Partner and Managing Director, at E.M. Warburg, Pincus & Co., LLC, a private equity investment firm. From 1984 to 1989, Mr. Thomas was a Vice President of Goldman Sachs International, an investment banking firm, in London. Mr. Thomas currently also serves as a director of Wright Medical Group. Mr. Thomas received a B.Sc. in finance and economics from The Wharton School of the University of Pennsylvania and an M.Sc. in economics from the London School of Economics.

Audit Committee

        Members of the Audit Committee.    Our board of directors has a separately-designated standing audit committee established by our full board for the purposes of overseeing our accounting and financial reporting processes and audits of our financial statements. The members of the audit committee are Robert Hugin, who serves as Chairman, Armin Kessler and T. Scott Johnson.

        Financial Expert on Audit Committee.    Our board of directors has determined that we currently have two audit committee financial experts, Robert J. Hugin and Armin M. Kessler. In deciding whether members of our audit committee qualify as financial experts within the meaning of the SEC regulations and the NASDAQ listing standards, our board considered the nature and scope of experiences and responsibilities members of our audit committee have previously had with reporting companies. Messrs. Hugin and Kessler, like all of the other members of our audit committee, are independent directors.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than ten percent of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Based solely on our review of copies of reports filed by the reporting persons furnished to us, or written representations from reporting persons, we believe that during 2003, the reporting persons complied with all Section 16(a) filing requirements, other than one late filing by Peter Teuber, a former Vice President.

Code of Ethics

        We have adopted a code of business conduct and ethics applicable to all of our employees, including our principal executive officers, our principal financial officer and our controller. The code of business conduct and ethics is available on our website (www.themedicinescompany.com).

1.

From our main web page, first click on "The Medicines Investment."

2.

Next, click on "Corporate Governance."

3.

Finally, click on "Code of Business Conduct and Ethics."

        We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.

49

Item 11. Executive Compensation

        The following table presents summary information for the years ended December 31, 2003, 2002 and 2001, for:

•

our executive chairman and our chief executive officer; and



•

our two other executive officers who were serving at the end of the fiscal year.

        These four individuals are referred to collectively as our named executive officers.

Summary Compensation Table

(1)

Perquisites for the named executive officers did not exceed the lesser of $50,000 or 10% of total salary and bonus for the respective fiscal years and accordingly have been omitted in accordance with SEC rules.

(2)

The dollar amount in the "Other Annual Compensation" column represents life insurance premium payments made by us on behalf of the named executive officer.

(3)

Dr. Meanwell served as our President and Chief Executive Officer from 1996 to September 2001. In September 2001, he became our Executive Chairman.

(4)

Mr. Stack became our President and Chief Executive Officer in September 2001. Mr. Stack served as our Senior Vice President from April 2000 to September 2001.

(5)

Mr. Koehler became our Vice President in March 2002 and our Chief Financial Officer in April 2002.

Option Grants in 2003

        The following table summarizes information regarding options granted to each of the named executive officers during the year ended December 31, 2003. Options granted in 2003 become exercisable in 48 equal monthly installments, commencing one month after the vesting commencement date, which is typically the grant date.

        Amounts in the following table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The 5% and 10% assumed annual rates of

50

compounded stock price appreciation are mandated by the rules of the SEC and do not represent an estimate or projection of our future common stock prices. These amounts represent assumed rates of appreciation in the value of our common stock from the fair market value on the date of grant. Actual gains, if any, on stock option exercises are dependent on the future performance of our common stock and overall stock market conditions. The amounts reflected in the following table may not be achieved.

Option Grants in Last Fiscal Year

(1)

The percentage of total options granted to employees in 2003 is calculated based on options granted to employees under our 1998 stock incentive plan and 2001 non-officer, non-director employee stock incentive plan.

Option Exercises in 2003 and Option Values at December 31, 2003

        The following table sets forth information regarding any options exercised by the named executive officers during the fiscal year ended December 31, 2003 and exercisable and unexercisable stock options held as of December 31, 2003 by each of the named executive officers.

        Amounts shown under the column "Value Realized" represent the difference between the option exercise price and the closing sale price of our common stock on the date of exercise. Amounts shown under the column "Value of Unexercised In-the-Money Options at December 31, 2003" have been calculated based on the closing sale price of our common stock on the Nasdaq National Market on December 31, 2003 of $29.46 per share, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the exercise price payable for these shares.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

Director Compensation

        Each of our non-employee directors who attends, either in person or by phone, at least 75% of the meetings of the board of directors held during the year receives annual compensation of $12,500. In addition, each member of our audit, compensation or nominations committee who attends, either in

51

person or by phone, at least 75% of the meetings of the committee on which he served held during the year receives an additional $12,500. Directors are reimbursed for expenses in connection with their attendance at board meetings.

        In addition, non-employee directors may receive stock options and other equity awards under our 1998 stock incentive plan and our 2000 outside director stock option plan, or 2000 Plan. In April 2003 upon their initial election to our board of directors, we granted each of Messrs. Crouse, Hugin and Savage a non-statutory stock option under our 2000 Plan to purchase 20,000 shares of common stock at an exercise price of $17.19 per share. In May 2003, we granted each of Drs. Bell and Johnson, and Messrs. Crouse, Hugin, Kessler, Savage and Thomas an option under our 2000 Plan to purchase 12,500 shares of common stock at an exercise price of $23.00 per share. We also granted to Fazle Husain, a director until his resignation in October 2003, an option under our 1998 plan to purchase 12,500 shares of common stock at an exercise price of $23.00 per share. All of the options vest in 48 equal monthly installments commencing one month after the date of grant.

2000 Outside Director Stock Option Plan

        Our 2000 Plan was adopted by our board of directors on May 15, 2000. Under the plan, our non-employee directors are eligible to receive non-statutory options to purchase shares of our common stock. A total of 250,000 shares of our common stock may be issued upon the exercise of options granted under the 2000 Plan. As of December 31, 2003, options to purchase 195,000 shares of our common stock were outstanding under the 2000 Plan.

        Under the terms of the 2000 Plan, each non-employee director will be granted an option to purchase 20,000 shares of our common stock on the date of his or her initial election to the board of directors. In addition, since the 2003 annual meeting of stockholders, each non-employee director receives an option to purchase 12,500 shares of our common stock on the date of each annual meeting of our stockholders, other than a director who was initially elected to the board of directors at any such annual meeting.

        All options granted under the 2000 Plan vest in 48 equal monthly installments commencing one month after the date of grant and have an exercise price per share equal to the closing sale price of our common stock on the Nasdaq National Market on the date of grant. An optionee may exercise his or her option only while he or she is a director and for one year after he or she ceases to be a director. Unexercised options expire ten years after the date of grant. Options granted under the 2000 Plan are not transferable or assignable other than by will or the laws of descent and distribution and expire upon an acquisition event, which is defined to mean (1) any merger or consolidation which results in our stockholders prior to the transaction holding less than a majority of the voting power of the combined or acquiring entity immediately after the transaction, (2) any sale of all or substantially all of our assets or (3) our complete liquidation.

Employment Agreements

        Dr. Meanwell serves as our Executive Chairman pursuant to the terms of an employment agreement dated September 5, 1996. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal at least 90 days prior to the expiration of the then-current term. Pursuant to the terms of the agreement, Dr. Meanwell's annual compensation is determined by our board of directors. If Dr. Meanwell terminates his employment for good reason, as defined in the agreement, or if we terminate his employment other than for cause, Dr. Meanwell will be entitled to three months salary and the same health, disability and other benefits as were provided during his employment for a period ending upon the earlier of (1) three months after the date of his termination, or (2) the date upon which Dr. Meanwell commences full-time employment with a new employer. Dr. Meanwell has agreed not to compete with us during the term of his employment and for

52

a period of one year after his termination, unless such termination is at our election or at the election of Dr. Meanwell for good reason.

        Mr. Stack serves as our Chief Executive Officer and President pursuant to the terms of an employment agreement dated November 1, 2001. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal at least 90 days prior to the expiration of the then-current term. Pursuant to the terms of the agreement, Mr. Stack's annual compensation is determined by our board of directors. If Mr. Stack terminates his employment for good reason, as defined in the agreement, or if we terminate his employment other than for cause, Mr. Stack will be entitled to three months salary and the same health, disability and other benefits as were provided during this employment for a period ending upon the earlier of (1) three months after the date of his termination, or (2) the date upon which Mr. Stack commences full-time employment with a new employer. Mr. Stack has agreed not to compete with us during the term of his employment and for a period of one year after his termination, unless such termination is at our election or at the election of Mr. Stack for good reason.

        Dr. Richards serves as one of our Vice Presidents pursuant to the terms of an employment agreement dated October 16, 1997. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal. Pursuant to the terms of the agreement, Dr. Richards' annual compensation is determined by our board of directors. If Dr. Richards terminates his employment for good reason, as defined in the agreement, or if we terminate his employment other than for cause, Dr. Richards will be entitled to three months salary and the same health, disability and other benefits as were provided during his employment for a period of three months after the date of his termination. Dr. Richards has agreed not to compete with us during the term of his employment and for a period of one year after his termination.

Compensation Committee Interlocks and Insider Participation

        The compensation committee consists of Messrs. Kessler, Savage and Thomas, none of whom ever has been an officer or employee of our company. Messrs. Kessler and Thomas served on the compensation committee throughout 2003 while Mr. Savage began serving on the compensation committee in April 2003. Nicholas J. Lowcock, a former director, served on the compensation committee from January 1, 2003 until April 2003. Mr. Lowcock has never been an officer or employee of our company.

        None of our executive officers has served as a director or member of the compensation committee, or other committee serving an equivalent function, of any other entity, one of whose executive officers served as one of our directors or as a member of our compensation committee.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The following table presents information we know regarding the beneficial ownership of our common stock as of January 31, 2004 for each person, entity or group of affiliated persons whom we know to beneficially own more than 5% of our common stock. The table also sets forth such information for our directors and named executive officers, individually, and our directors and executive officers as a group.

        Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated by footnote, to our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Common stock purchase warrants and options to purchase shares of common stock that are exercisable within 60 days of January 31, 2004 are deemed to be beneficially owned by the person holding such options for the purpose of computing ownership of such person, but are not treated as outstanding for the purpose of

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computing the ownership of any other person. Applicable percentage of beneficial ownership is based on 47,514,460 shares of common stock outstanding as of January 31, 2004.

        Unless otherwise indicated in the footnotes, the address of each of the individuals named below is: c/o The Medicines Company, 8 Campus Drive, Parsippany, New Jersey 07054.

*

Represents beneficial ownership of less than 1%.

(1)

Includes shares owned by various investors for which Wellington Management Company, LLP serves as investment advisor with shared power to direct investments and/or to vote the shares. The shares were acquired by Wellington Trust Company, NA, a wholly owned subsidiary of Wellington Management Company, LLP. The address of Wellington Trust Company, NA and Wellington Management Company, LLP is 75 State Street, Boston, Massachusetts 02109. This information is based on a Schedule 13G/A filed by Wellington Management Company, LLP with the SEC on February 12, 2004.

(2)

Consists of warrants to purchase 675,925 shares and 4,024,075 shares owned directly by Biotech Growth N.V. with respect to which BB Biotech AG and Biotech Growth N.V. share voting and dispositive power. Biotech Growth N.V. is a wholly owned subsidiary of BB Biotech AG. The address of Biotech Growth N.V. is Calle 53, Urbanizacion Obarrio, Torre Swiss Bank, Piso 16, Panama City, Zona 1, Republic of Panama. This information is based on a Schedule 13G/A filed by BB Biotech AG on behalf of Biotech Growth N.V. with the SEC on February 17, 2004.

(3)

Consists of shares for which Sectoral Asset Management, Inc. has or shares dispositive power and/or voting power in its capacity as an investment adviser. Jérôme G. Pfund and Michael L. Sjöström are the sole shareholders of Sectoral Asset Management, Inc. Jérôme G. Pfund, Michael L. Sjöström and Sectoral Asset Management, Inc. disclaim beneficial ownership of such shares. The address of Sectoral Asset Management is 2120-1000 Sherbrooke St., West Montreal PQ H3A 3G4 Canada. This information is based on a Schedule 13G with the SEC on February 13, 2004.

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(4)

Includes shares owned by various individual and institutional investors for which T. Rowe Price Associates, Inc. serves as investment advisor with power to direct investments and/or sole power to vote the shares. For purposes of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of such shares; however, T. Rowe Price Associates, Inc. expressly disclaims that it is, in fact, the beneficial owner of such shares. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202. This information is based on a Schedule 13G/A filed by T. Rowe Price Associates, Inc. with the SEC on February 6, 2004.

(5)

Includes warrants to purchase 59,143 shares and options to purchase 496,933 shares. Excludes 450,000 shares subject to pre-paid variable forward sales contracts, pursuant to which Dr. Meanwell pledged 450,000 shares to secure future obligation to deliver a maximum of 350,000 shares in February 2006 and 100,000 shares in August 2006.

(6)

Includes options to purchase 321,846 shares.

(7)

Includes options to purchase 118,750 shares.

(8)

Includes options to purchase 43,092 shares.

(9)

Consists of options to purchase 25,347 shares.

(10)

Consists of options to purchase 7,187 shares.

(11)

Consists of options to purchase 7,187 shares.

(12)

Includes 5,000 shares held by Dr. Johnson as trustee, warrants to purchase 13,744 shares held by Dr. Johnson and options to purchase 11,355 shares held by Dr. Johnson.

(13)

Includes 3,000 shares held by Mr. Kessler's wife, warrants to purchase 33,796 shares held by Mr. Kessler and options to purchase 25,955 shares held by Mr. Kessler.

(14)

Consists of options to purchase 7,187 shares.

(15)

Includes options to purchase 25,347 shares.

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Securities Authorized for Issuance Under Equity Compensation Plans

        The following table provides information as of December 31, 2003 about the securities authorized for issuance under our equity compensation plans.

Equity Compensation Plan Information

(1)

Includes shares of common stock issuable under our 1998 stock incentive plan and 2000 outside director stock option plan.

(2)

Excludes shares issuable at the end of the then-current offering period under our 2000 employee stock purchase plan.

(3)

Includes shares available for issuance as of December 31, 2003 under our 1998 stock incentive plan, 2000 outside director stock option plan and 2000 employee stock purchase plan (which includes shares which were subsequently issued on February 22, 2004 at the close of the then-current offering period). All of the shares available under the 1998 stock incentive plan, and none of the shares available under the 2000 outside director stock option plan or the 2000 employee stock purchase plan, may be issued in the form of restricted stock or other equity-based awards.

(4)

Consists of shares of common stock issuable under our 2001 non-officer, non-director employee stock incentive plan.

(5)

Consists of shares available for issuance as of December 31, 2003 under our 2001 non-officer, non-director employee stock incentive plan.

2001 Non-Officer, Non-Director Employee Stock Incentive Plan

        In May 2001, our board of directors approved the 2001 plan pursuant to which non-statutory stock options for up to 1,250,000 shares of common stock were authorized to be issued to our employees, consultants and advisors and those of our subsidiaries. The 2001 plan has not been approved by our stockholders.

        Our board is authorized to administer the 2001 plan, to adopt, amend and repeal the administrative rules, guidelines and practices relating to the 2001 plan and to interpret the provisions of the 2001 plan. Our board may amend, suspend or terminate the 2001 plan at any time. In accordance with the provisions of the 2001 plan, our board of directors may delegate any or all of its powers under the 2001 plan to one or more committees or subcommittees of the board.

        Our board selects the recipients of awards under the 2001 plan and determines:

•

the number of shares of common stock covered by such awards;

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•

the dates upon which such awards become exercisable;



•

the exercise price of options; and



•

the duration of the options.

        If any award granted under the 2001 plan expires or is terminated, surrendered, canceled or forfeited, the unused shares of common stock covered by such option or other award will again be available for grant under the 2001 plan.

        Our board is required to make appropriate adjustments in connection with the 2001 plan to reflect any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar event to the extent that the board determines, in good faith, that such as adjustment is necessary and appropriate. Upon the occurrence of an acquisition event, as defined in the 2001 plan, the 2001 plan requires our board to take one or more of the following actions with respect to any then outstanding options and other awards:

•

provide that each outstanding option or award will be assumed, or an equivalent option or award will be substituted by, the successor entity or an affiliate of the successor entity;



•

provide that all outstanding options become exercisable in full for a specified period of time before such acquisition event takes place, even if such options would not have been exercisable otherwise; and



•

if the acquisition event involves a cash payment to holders of common stock in exchange for their shares of common stock, provide for the termination of all outstanding options and provide for a cash payment to each option holder equal to the amount by which (1) the cash payment per share of common stock paid the holders of common stock multiplied by the number of shares of common stock subject to such outstanding option (whether or not exercisable), exceeds (2) the total exercise price of such options.

        Upon the occurrence of a change in control, as defined in the 2001 plan, that is not an acquisition event, each option shall become immediately exercisable in full if, on or prior to the first anniversary of the date of the change in control event, a termination event, as defined in the 2001 plan, occurs, provided that the parties involved in the change of control have not explicitly agreed to the contrary.

Item 13. Certain Relationships and Related Transactions

        None

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Item 14. Principal Accountant Fees and Services

Independent Auditor's Fees

        The following table summarizes the fees of Ernst & Young LLP, our independent auditor, billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services:

(1)

Audit fees consist of fees for the audit of our financial statements, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements.

(2)

Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review of our financial statements and which are not reported under "Audit Fees." These services relate to Sarbanes-Oxley compliance.

(3)

Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services, which relate to preparation of original and amended tax returns, accounted for all of the total tax fees paid for 2003 and 2002.

Pre-Approval Policy and Procedures

        The audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent auditor. This policy generally provides that we will not engage our independent auditor to render audit or non-audit services unless the service is specifically approved in advance by the audit committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.

        From time to time, the audit committee may pre-approve specified types of services that are expected to be provided to us by our independent auditor during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

Documents filed as part of this Report:

        (1)   Financial Statements. The Consolidated Financial Statements are included as Appendix A hereto and are filed as part of this Report. The Consolidated Financial Statements include:

        (2)   Financial Statement Schedule. The financial statement schedule following the Notes to Consolidated Financial Statements is filed as part of this Report.

        (3)   Exhibits. The exhibits set forth on the Exhibit Index following the signature page to this Report are filed as part of this Report. This list of exhibits identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report.

(b)

Reports on Form 8-K:

        On October 21, 2003, we filed a current report on Form 8-K, dated October 21, 2003, with the SEC furnishing our announcement of financial results for the quarter and nine-month period ended September 30, 2003.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 5, 2004.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 5, 2004:

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APPENDIX A

61

INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF
THE MEDICINES COMPANY

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
The Medicines Company

        We have audited the accompanying consolidated balance sheets of The Medicines Company as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows, for each of the three years in the period ending December 31, 2003. Our audits also included the financial statement schedule listed in Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Medicines Company at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

MetroPark, New Jersey
February 10, 2004

F-2

THE MEDICINES COMPANY

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

F-3

THE MEDICINES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS