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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

Commission file number 0-27914

SIRNA THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

2950 WILDERNESS PLACE, BOULDER, COLORADO 80301

(Address of principal executive offices)

(303) 449-6500

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:

NONE

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE

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  x    No  ¨

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

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 registrants knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

The aggregate market value of the voting stock held by non-affiliates of the registrant, as of March 29, 2005, was approximately $53,010,306.

As of March 29, 2005, the registrant had 41,527,292 shares of common stock, par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive Proxy Statement which will be filed on or before April 30, 2005 with the Securities and Exchange Commission in connection with Registrant’s annual meeting of stockholders to be held on or about May 11, 2005 in San Francisco, California is incorporated by reference into Part III (Items 10,11,12, 13 and 14) of this Report.

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Explanatory Note

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ITEM 1. BUSINESS

Forward-Looking Statements

Statements in this Form 10-K contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current events. Forward-looking statements use words such as “anticipate,” “estimate,” “expect,” “will,” “may,” “intend,” “plan,” “believe” and similar expressions in connection with discussion of future operating or financial performance. The forward-looking statements include statements relating to future actions, prospective products and product approvals, future performance or results of current and anticipated products, sales efforts, expenses and financial results. For example there is a very significant risk that promising pre-clinical or clinical results may not translate into an FDA-approved drug. In addition, patent applications may not result in issued patents, and issued patents may not be enforceable or could be invalidated. Furthermore, our ability to develop products and to operate as a going concern are contingent upon having readily available cash to fund our operating programs and are subject to the escalating expenses and risks associated with the initiation of clinical trials and their potential outcomes. Other risks and uncertainties include our early stage of development and short operating history, our history and expectation of losses and need to raise capital, our need to obtain clinical validation and regulatory approval for products, our need to obtain and protect intellectual property, risk of third-party patent infringement claims, our need to attract and retain qualified personnel, our need to engage collaborators, availability of materials for product manufacturing, the highly competitive nature of the pharmaceutical market, the limited trading volume and history of volatility of our common stock, our concentration of stock ownership, and risks from relocating our headquarters. Forward-looking statements are not guarantees of future performance and they can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors, including, without limitation, those listed under “Risk Factors” included herein. Except to fulfill our obligations under the federal securities laws, we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date on which it is made.

An Overview of Our Company

Sirna Therapeutics, Inc., (“Sirna” or the “Company”), is focused on developing therapeutics based on RNA interference (RNAi). We are using our expertise to design, stabilize, manufacture and deliver short interfering nucleic acids (siRNAs) that activate selectively the process of RNA interference. We are in research, preclinical and/or clinical development with product candidates in the following areas: Age-related Macular Degeneration (AMD), Huntington’s disease (HD), dermatology (initially permanent hair removal), asthma, chronic hepatitis, and diabetes. Sirna is also evaluating other disease targets and indications for the development of RNA interference-based therapeutics on our own and in collaboration with academic research institutions and commercial enterprises such as the Company’s ongoing collaboration in oncology with Eli Lilly and Company (Lilly). In addition, Sirna manufactures and sells oligonucleotides in order to generate revenue for the purpose of subsidizing our ongoing operations.

Since our inception as Ribozyme Pharmaceuticals, Inc. in 1992, we have dedicated ourselves to engineering RNA-based molecules for therapeutic and diagnostic purposes. In 2001 we began to study RNAi and in 2003, based on scientific advancements and the potential of the field, we directed our research and development activities entirely to RNAi technology. Concurrent with our redirection, we changed our name to Sirna Therapeutics, Inc. We believe siRNA-based drugs may present an entirely new platform of therapeutics in the future. Our expertise in nucleic acid technology enables us to be a leader in this very promising field.

We are developing a new class of RNA-based therapeutics.

RNA Interference Background

RNA interference technology generally uses a double-stranded sequence of nucleic acid, such as RNA, capable of reducing the expression of messenger RNA (mRNA) and viral RNA in a sequence-specific manner. For simplicity, we refer to the double-stranded RNA molecule facilitating this process as a siRNA (short interfering RNA). The process of reducing the expression of an mRNA or viral RNA using siRNAs is called RNA interference or RNAi. RNA interference is a mechanism used by cells to regulate the expression of genes and replication of viruses. The RNA interference mechanism induces the destruction of target RNA using naturally occurring cellular protein machinery.

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Harnessing the natural phenomenon of RNA interference holds potential for the development of a new class of drugs with specificity toward a wide range of different diseases that result from undesirable protein production or viral replication. Although there is widespread use of RNA interference-based reagents for target validation, the development of RNA interference-based pharmaceuticals for therapeutic uses is currently in an early stage of development.

To date, one of the major limitations of RNA interference has been the instability of unmodified siRNAs. Unmodified siRNAs generally break down rapidly in the body, thereby restricting the duration and magnitude of their potential therapeutic activity. Effective drugs need to be resistant to breaking down in the human body and cells to ensure a sustained therapeutic response. Over the past 10 years, Sirna has developed the chemical and pharmacological expertise and a portfolio of patents to support the design and synthesis of chemically modified siRNA derivatives that retain substantially all the properties required for recognizing their target but also have increased resistance to degradation. Our chemically modified and stabilized siRNAs are stable in human serum for several days in serum stability assays. This is in contrast to unmodified siRNAs, most of which have human serum stability of less than a few minutes. Chemical modification of siRNAs can improve their potency, pharmacological properties and duration of action. We have also shown that chemical modification of siRNAs can efficiently block double-stranded RNA-mediated interferon and immune response in vivo. Sirna has made stabilized siRNAs against a number of targets and successfully tested them in cell culture, and in some cases, with animal experiments showing reduced expression of specific genes without affecting expression of other genes. These targets cover the therapeutic fields of ophthalmologic, central nervous system, metabolic, inflammatory, renal, infectious, and oncology diseases and dermatological conditions, for which we have filed for patent protection of our siRNAs against these targets. We believe this provides us with a competitive advantage in developing RNA interference-based therapeutics.

Another limitation of any drug development is delivery to the desired site in the body and delivery of nucleic acid-based therapeutics is generally challenging. We are exploring a number of delivery possibilities, including local (directly to the target area), systemic (directly into the blood stream), and topical delivery (directly to the surface of the skin). With respect to local delivery, we have successfully administered chemically modified siRNAs into the eye and demonstrated efficacy in an animal model of age-related macular degeneration. To date, we have demonstrated in animal model systems that chemically stabilized siRNA molecules are present in the bloodstream after intravenous delivery for up to 4 days. We are working on improving the delivery of siRNA by various methods and to increase the tissue-specific delivery of these drugs in vivo. We have carried out experiments in animal model systems that demonstrate systemic efficacy of stabilized siRNA in endothelial cells and stabilized siRNA formulations in liver hepatocytes following a normal intravenous route of administration. In addition, we have successfully administered chemically modified siRNAs into the hair follicles and demonstrated efficacy in an animal model of hair removal via topical administration of siRNAs. In addition, we have recently entered into agreements with Targeted Genetics Corportion (Targeted) and Protiva Biotherapeutics, Inc., (Protiva) related to delivery methods for our product candidates. With Targeted we plan to develop siRNAs targeting Huntington’s disease gene using an adeno-associated virus (AAV) vector. Under the terms of the Protiva agreement, we received exclusive rights to Protiva’s SNALP (stable nucleic acid-lipid particles) delivery technology to develop and commercialize RNAi-based therapeutics against certain undisclosed targets.

RNA interference has potentially significant advantages over traditional drugs.

RNA interference-based therapeutics have potentially significant advantages over traditional approaches to treating diseases, including the following:

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We are seeking to develop a new class of drugs using siRNAs that address significant and unmet medical needs. Currently, we are in research, preclinical and clinical development with product candidates in the following areas:

Local Delivery (Directly to the target area)

Systemic Delivery (Directly into the blood stream)

Topical Delivery (Directly to the surface of the skin)

Gene Expression and Human Disease

The undesirable production of certain proteins (gene expression) is a substantial factor in many human diseases. The abnormality may be due to a defective gene, the over- or under-production of a protein by a “normal” gene, or the expression of genes from viruses or bacteria. This abnormal protein production may have direct effects on cells within the body or may initiate a series of events involving other proteins, thereby producing disease. Gene expression by viruses or bacteria causes replication and growth of infectious agents.

Protein production generally involves two steps. First, the information from the DNA sequence of the gene is “transcribed” to mRNA. The second step involves “translation” of the mRNA and its information into a protein. The process by which genetic information is “expressed” in the form of a protein is highly selective; production of a particular protein generally requires its own specific DNA sequence that leads to a corresponding mRNA sequence. Being able to identify any abnormal production of protein is an important tool in diagnosing human disease. A typical mRNA is believed to produce approximately 5,000 copies of the protein. By destroying a single copy of mRNA, production of 5,000 copies of the target protein could potentially be blocked. Preventing the formation of a protein by targeting the mRNA is, therefore, believed to be a more potent approach for therapeutic intervention than preventing the function of the target protein. Our RNA interference technology targets

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the mRNA and blocks the formation of protein. Blocking a gene’s expression using RNA interference, once a protein target has been identified, is, we believe, a promising therapeutic approach for those diseases where abnormal protein overproduction is a problem.

Our Nucleic Acid Technology

Our approach to drug discovery and development begins by either identifying a gene in human beings causing or contributing to disease or identifying an essential gene in a disease-causing infectious agent. We analyze the nucleotide sequence of the mRNA corresponding to the target gene and focus on one or more complementary siRNA nucleotide sequences. We then synthesize the siRNAs using our proprietary processes.

Initially, we test the effectiveness of the siRNA in cell culture and, if possible, in animal models. If the siRNA reduces or stops production of the protein associated with the disease, or slows the associated growth or spread of the disease, not only have we validated the disease contributing function of the gene, but we also have identified a drug candidate.

Once we identify a target gene and related siRNA, we attempt to improve the effectiveness of the siRNA by varying its structure to increase further its stability and improve its pharmacokinetic properties in the human body.

To date, we have achieved a number of significant milestones in siRNA technology development, including the following:

Stability. To be useful as a therapeutic treatment, siRNAs must remain stable in human serum and cells long enough to destroy the targeted RNA and, ideally, long enough to destroy multiple copies of the target RNA. Unmodified siRNAs are stable in human serum for only a few minutes. We have successfully produced chemically modified siRNAs that retain their activity in cell culture and are stable in human serum for several days in serum stability assays, thereby overcoming the first barrier to making an effective drug. We have carried out experiments in animal model systems that demonstrate the activity of our stabilized siRNA molecules.

Circulation Time. Another hurdle in the development of siRNAs for therapeutic use is reducing drug clearance from the blood stream and the site of action. siRNAs are rapidly cleared from circulation by the renal system in less than an hour. We have successfully produced chemically modified siRNAs and formulations that have improved the circulation time of siRNAs to several days. We have carried out proof-of-principle experiments in animal model systems that demonstrate the activity of these stabilized siRNA formulations with improved circulation time.

Interferon Response. It has been observed that long double-stranded RNA (dsRNA) molecules generally induce interferon response. We have successfully produced chemically modified siRNAs that can block the induction of interferon and immune response.

Selectivity. Ideally, our siRNA molecules should interact only with the target RNA and therefore not affect the functions of other genes. As a result, our siRNA molecules should have the potential to be less toxic than traditional drugs that interact with many targets. We have demonstrated a high degree of selectivity with siRNAs. Based on our work and the work of others, we believe that a binding region of approximately 19 nucleotides is optimal for siRNA selectivity.

Delivery. Successful development of any drug requires that the drug be delivered to the desired site in the body, and delivery of nucleic acid-based therapeutics is generally challenging. We are exploring a number of delivery possibilities, including local (directly to the target area), systemic (directly into the blood stream), and topical delivery (directly to the surface of the skin). To date, we have demonstrated in animal model systems that chemically stabilized siRNA molecules are present in the bloodstream after intravenous delivery. We believe that some chemically stabilized siRNAs can be delivered via a single subcutaneous injection to patients and result in the extended presence of siRNAs in the patient’s blood. We are working on improving the delivery of siRNAs by various methods, to increase the tissue-specific delivery of these drugs in vivo. We have carried out experiments in animal model systems that demonstrate systemic efficacy of stabilized siRNA in endothelial cells and stabilized siRNA formulations in liver hepatocytes following a normal intravenous route of administration.

Safety. To date we have not assessed the safety of our chemically stabilized siRNA drugs in human beings. However, in 2004 we conducted initial safety studies which evaluated the tolerability of intraocular administration of Sirna-027, our lead candidate to target the VEGF pathway. This chemically stabilized siRNA is currently being developed for the treatment of age-related macular degeneration (AMD). Intraocular doses of Sirna-027 were identified in animal studies which were well tolerated

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and provided ample margins of safety for the initiation of a Phase 1 clinical trial. The safety and tolerability of intraocular administration of Sirna-027 in humans is currently being evaluated in that Phase 1 trial. The tolerability of systemically administered siRNA formulated in a liposome has also been evaluated after single intravenous doses in mice and monkeys. Similar to the findings with Sirna-027, doses have been identified which would permit further development of this type of formulated, chemically stabilized siRNA.

Effectiveness. We have demonstrated through internal research that RNA interference can reduce the amount of target mRNA and the corresponding level of protein produced in cell culture and animal models. Additionally, our siRNAs targeted against the VEGF pathway inhibit the development of new blood vessels in ocular animal models and inhibit tumor growth in cancer animal models. In addition, we have shown the effectiveness of our anti-viral siRNAs in decreasing hepatitis C (HCV) and hepatitis B (HBV) viral replication in cell culture models and that our siRNAs targeted against HBV inhibit the viral replication in animal models. In collaboration with academic collaborators, we have demonstrated in several animal models that our siRNAs can efficiently inhibit target gene expression in vivo.

Manufacturing. To meet our needs for research, preclinical studies, clinical trials and the eventual commercialization of RNA interference-based therapeutics, we must be able to manufacture sufficient amounts of drug in a cost effective manner. We have developed proprietary technology allowing us to synthesize several hundred stabilized siRNA molecules in hundreds of microgram quantities per month. These quantities are sufficient to permit us to perform direct cell-based screening of multiple potential target sites over short periods of time. We also have developed the capability to manufacture kilogram quantities under the FDA’s current good manufacturing practices (cGMP). In early 2002, we expanded our internal manufacturing capabilities and increased our level of cGMP compliance to enable the production of nucleic acid material for clinical trials.

Our Business Strategy

Our strategy is to use our considerable expertise, know-how and intellectual property to create shareholder value:

Our Product Development Process

The development process for our products starts with research and preclinical development. Research includes identifying a target protein or viral sequence, synthesizing a panel of appropriate siRNAs to block expression of the target protein or virus, and testing the activity of the siRNAs in a specific cell population. We will pursue preclinical and clinical testing only for those products that we believe have a high likelihood of commercial success based on identifying a disease causing target, favorable pharmacokinetics and unmet medical need.

Preclinical testing includes pharmacology and toxicology testing in animal models, product formulation, dosage studies and manufacturing scale-up for submission of the data necessary to comply with regulatory requirements of the FDA and similar agencies in other countries prior to commencing human trials.

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The ubiquitous nature of RNA interference provides for development programs that can be delivered through local, systemic and topical administration.

Local Delivery Programs (Age-Related Macular Degeneration, Huntington’s disease, Asthma)

Age-Related Macular Degeneration

Age-related macular degeneration, or AMD, is caused by the deterioration of the central portion of the retina. This disease is the leading cause of irreversible vision loss among Americans over the age of 55. The “wet” form of AMD accounts for 10 to 15% of all AMD cases and is associated with severe vision loss. Approximately 1.2 million people in the United States have wet AMD with 200,000 new cases per year that require treatment. Wet AMD results from a proliferation of abnormal blood vessels beneath the retina called neovascularization. To date, we demonstrated that we can inhibit the formation of new blood vessels in cell culture and several animal model systems of ocular neovascularization using our stabilized siRNAs targeting genes in the vascular endothelial growth factor (VEGF) pathway.

Current approved therapies for wet AMD include laser photocoagulation, Visudyne® (QLT/Novartis) and Macugen® (Eyetech/Pfizer) a new therapy approved by the Food and Drug Adminstration (FDA) in December 2004. In 2004, Visudyne had global sales of $448 million and in 2005, annual sales for Macugen are expected to be in the range of $125 to $140 million. Also, there are a number of other product candidates in preclinical and clinical trials that target wet AMD, including Lucentis® (Genentech/Novartis) which is a customized fragment of an anti-VEGF antibody drug currently in Phase 3 clinical trials, results of which are expected in the second half of 2005. There are also other companies using RNAi technology to develop drugs targeting wet AMD. Acuity Pharmaceuticals, an RNAi technology company, began Phase 1 clinical trials in 2004 to evaluate their wet AMD drug Cand5®. In addition, Alnylam Pharmaceuticals, Inc, a biopharmaceutical company focusing their research in RNAi technology, have announced their intention to start Phase 1 clinical trials in the second half of 2005 with a wet AMD drug candidate targeting VEGF.

In November 2004, we initiated Phase 1 testing of Sirna-027, a chemically modified siRNA targeting Vascular Endothelial Growth Factor Receptor-1 (VEGFR-1), which is a key component of the clinically validated VEGF pathway. To date, we have completed the first of five cohorts of patients in the planned dose escalation study that is being conducted at four centers in the United States: John’s Hopkins University, the Cleveland Clinic, the combined Harvard – Massachusetts Eye and Ear Infirmary, and UCLA. Under the supervision of Dr. Peter Campochiaro, clinical and laboratory data from all four sites are being compiled and reviewed at the Wilmer Ophthalmologic Institute of John’s Hopkins University. The Phase 1 clinical trial is primarily designed to test safety and tolerability of Sirna-027; however, we hope to be able to detect the biological activity of our compound. We expect to announce results of the Phase 1 study by the end of 2005.

Huntington’s Disease

Huntington’s disease (HD) is a devastating, degenerative brain disorder for which there is, at present, no effective treatment or cure. According to the National Institute of Neurological Disorders and Stroke, 30,000 people in the United States alone have HD, and at least another 200,000 are at risk for developing the disease. HD accounts for $2 billion in patient costs annually in the U.S. HD results from genetically programmed degeneration of neurons in certain areas of the brain. This degeneration causes uncontrolled movements, loss of intellectual faculties, and emotional disturbance.

HD typically begins in mid-life, between the ages of 30 and 45, though onset may occur as early as the age of 2. Children who develop the juvenile form of the disease rarely live to adulthood. Early symptoms of HD may affect cognitive ability or mobility and include depression, mood swings, forgetfulness, clumsiness, involuntary twitching and lack of co-ordination. As the disease progresses, concentration and short-term memory diminish and involuntary movements of the head, trunk and limbs increase. Walking, speaking and swallowing abilities deteriorate. Eventually the person is unable to care for him or herself. Death follows from complications such as choking, infection or heart failure.

In June 2004, we entered into a worldwide exclusive license agreement with the University of Iowa Research Foundation for intellectual property relating to RNAi technology covering siRNA for targeting neurological disease indications, including HD and Alzheimer’s disease. Our scientific advisor and collaborator, Dr. Beverly Davidson at the University of Iowa, has published data demonstrating that the delivery of siRNA using an adeno-associated viral (AAV) vector efficiently inhibited

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gene expression in an animal model of spinocerebellar ataxia 1 (SCA1), a member of a class of inherited human neurodegenerative diseases that includes HD (Nature Medicine 10:816-820 [2004]). In January 2005, we entered into a collaboration with Targeted Genetics Corporation, a gene-based therapeutic company, for the development of AAV vector delivery of siRNAs that target the expression of Huntington’s protein, which in its mutant form causes the disease. We are also collaborating with the Huntington’s Disease Society of America.

Asthma

Asthma is a chronic respiratory disease which currently affects 15 million people in the U.S. Asthma is the leading cause of childhood hospital admissions as well as absenteeism from work, and is the cause of approximately 5,000 deaths per year. Despite extensive progress in the understanding of the etiology and treatment of asthma, the prevalence of asthma has been steadily increasing for the past 20 years. Although there are many pharmaceutical treatments that manage asthma symptoms, there are no drugs that effectively modulate the progression of the disease. The U.S. market for asthma therapies in 2003 totaled $13.3 billion.

We are developing a drug candidate for local delivery to treat asthma. Clinical data has demonstrated a critical role for cytokines generated by Th2 lymphocytes in the pathogenesis of asthma. Certain key cytokines orchestrate airway inflammation which underlies airway hyperresponsiveness, while others regulate the production of immunoglobulin E (IgE) in allergic asthmatics. Knocking out these cytokines by systemic or local (aerosol) delivery to the respiratory tract may be a benefit in treating the disease. We are working with Dr. Erwin Gelfand of the National Jewish Medical & Research Center to test siRNAs that target Th2 cytokines (e.g., IL-4, IL-13 and their receptors), which play a critical role in inflammation and bronchconstriction in the airways. In collaboration with Dr. Erwin Gelfand we have shown a statistically significant reduction of airway hyperresponsiveness (66%) in an RNAi treatment group.

Systemic Delivery Programs (Diabetes, Chronic Hepatitis and Oncology)

Diabetes

Type 2 diabetes is the most common form of diabetes. In Type 2 diabetes, either the body does not produce enough insulin or the cells ignore the insulin. Insulin is necessary for the body to be able to use sugar. Sugar is the basic fuel for the cells in the body, and insulin takes the sugar from the blood into the cells. When glucose builds up in the blood instead of going into cells, it can cause metabolic problems that lead to heart disease (cardiovascular disease), blindness (retinopathy), nerve damage (neuropathy), and kidney damage.

We are currently in preclinical studies to systemically deliver siRNAs directed at PTP-1B (phosphatase 1B), a target in diabetes that is associated with insulin resistance. As an intracellular cytoplasmic protein, PTP-1B has been a difficult-to-reach target for small molecule drugs and biologics. The catalytic pocket of the enzyme is large, which has made it difficult to synthesize a small chemical inhibitor. Further, due to its large family of congeners, specificity is difficult to obtain by small molecules. These developmental challenges make PTP-1B a suitable target for an RNAi approach.

Our pharmacokinetic studies have shown that 28% of an administered formulated siRNA dose gets into the liver. The technology pioneered in this work to efficiently deliver systemically administered stabilized siRNAs to the liver now enables us to address liver associated disease indications such as diabetes, obesity and hepatitis. By approaching Type 2 diabetes early in the mechanistic cascade, we believe siRNAs will become an important innovation in the treatment of this devastating and rapidly growing disease.

Chronic Hepatitis

There are approximately 3.9 million individuals infected with chronic hepatitis in the United States and over 170 million worldwide. Of the 3.9 million infected individuals in the United States, 70% have chronic hepatitis C and are potential candidates for treatment. Each year in the United States, hepatitis C virus (HCV) infects between 250,000 to 500,000 new individuals and leads to between 8,000 to 10,000 deaths. It is one of the most common blood-borne infections in the United States and has been identified as a “silent epidemic” and “a daunting challenge to public health” by the United States Congress. Current therapies for HCV, that include various interferons combined with Ribavarin^® (Hoffmann-La Roche), are effective in approximately 50% of patients and have significant side effects.

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There are no validated in vivo models to study therapies for HCV, therefore, we have used surrogate models using the hepatitis B virus (HBV). Intravenous (IV) dosing at 3 mg/kg of our formulated and stabilized siRNAs targeting HBV RNA resulted in a greater than 1 log reduction in viral titers for at least 7 days in a mouse model of HBV replication. Pharmacokinetic studies have shown that 28% of an administered formulated siRNA dose gets into the liver. We are in the preclinical stage of development of siRNAs that target the HCV viral RNA to treat HCV infection.

Oncology

In January 2004, we entered into an eighteen month collaboration with Lilly to jointly investigate our proprietary modified siRNAs against specific oncology targets provided by Lilly. The goal of the collaboration is to establish a proof of concept that could lead to the development of novel RNAi therapeutics for oncology. To date, the collaboration has demonstrated target mRNA knockdown in vitro in human and mouse cell lines. Demonstration of in vivo target knockdown is currently in progress. Lilly received a non-exclusive research license to our technologies for oncology during the term of the collaboration.

Topical Delivery Program (Dermatology)

Dermatology

In December 2004, we launched our dermatology division following the acquisition of Skinetics Biosciences, Inc. (Skinetics). Pursuant to the acquisition, Skinetics founder, Dr. Angela Christiano of Columbia University, a leading researcher in the area of hair biology, became an exclusive consultant to the Company which led to our first dermatology program focused on the removal of unwanted hair. The removal of unwanted hair accounts for an estimated $4 billion dollar market in the U.S. (including shaving). We are in the preclinical stages of developing an siRNA targeting the “hairless” protein, so-called because people who have a nonfunctional version of this protein do not grow any hair. We believe that infrequent treatments with an siRNA targeting the “hairless” protein could achieve results comparable to those seen in laser hair removal with less inconvenience and discomfort to the patient. In collaboration with Dr. Christiano, we have demonstrated that topical application of siRNA in mice directed against the “hairless” gene can result in compromised hair follicle integrity consistent with the “hairless” phenotype resulting in permanent hair removal.

Our Patents and Proprietary Technology

Obtaining patent protection as well as protecting patent rights and other proprietary rights is crucial to our business. In addition to patents, we rely upon trade secrets, know-how and continuing technological innovations in the design, synthesis, and purification of nucleic acid molecules, such as RNA and in nucleic acid chemistry. We also rely on licensing opportunities to develop and maintain our competitive position. It is our policy to file patent applications when appropriate to protect technology, inventions and improvements that we believe are important in the development of our business.

We have in-licensed patents from third parties, such as academic institutions, and we have filed patents on our own internal research. Altogether, we have 41 issued patents in the US and abroad and 250 pending patent applications.

In-Licensed Patents

As part of our overall intellectual property strategy, we selectively enter into agreements with third parties, such as academic institutions, either to license pre-existing technology or to support the development of new products, technologies and business opportunities.

University of Massachusetts

In September 2003, we announced our worldwide license agreement with the University of Massachusetts Medical School (Medical School) for its undivided interest in intellectual property relating to RNA interference technology covering

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siRNA. The license covers the RNAi technology patent application filed by Tuschl et al., International PCT Publication No. WO 01/75164, which was jointly developed and is co-owned by the University of Massachusetts Medical School, Max-Planck Institute, Whitehead Institute and the Massachusetts Institute of Technology. The subject matter of this intellectual property includes the demonstration that short pieces of RNA, or siRNAs, could be engineered to inhibit gene expression in mammalian cells. The license grants us rights to the undivided interest of the Medical School in the Tuschl et al. pending intellectual property for uses relating to human and veterinary therapeutic, prophylactic, diagnostic and health care applications.

Under the terms of the license agreement, we paid $3.0 million in cash and issued 579,150 shares of our common stock, valued at $3.0 million at the time of signing, to the Medical School in exchange for the license. The Medical School will receive additional cash and common stock from us following the achievement of certain milestones, including the issuance of the patent in the United States and the European Union. The Medical School would also receive royalties on commercial product sales covered by the licensed patents. In addition, the Medical School will receive a portion of any revenues we may generate from the direct sublicensing of this patent.

Carnegie Institution of Washington

In September 2003, we obtained a non-exclusive license to the early RNAi patents filed jointly by Carnegie Institution of Washington and the Medical School (Carnegie Patent). The Carnegie Patent that has issued in the United States is based on the work of Drs. Andrew Fire and Craig Mello governing genetic inhibition of genes by double-stranded RNA via RNAi.

University of Iowa

In June 2004, we entered into a worldwide exclusive license agreement with the University of Iowa Research Foundation (UIRF) for intellectual property relating to technology covering siRNA for targeting neurological disease indications, including Huntington’s disease and Alzheimer’s Disease. This UIRF patent application is based on the pioneering work of Dr. Beverly Davidson at the University of Iowa. Under the terms of the license agreement, UIRF received an up-front license fee and will receive additional cash from us following the achievement of other certain milestones, including initiation of clinical trials for product candidates covered under the license. UIRF may also receive royalties on commercial product sales covered by the licensed patents.

Columbia University

In December 2004, related to the Skinetics acquisition, we entered into a worldwide exclusive license agreement with Columbia University for pending intellectual property relating to genes involved in the hair growth pathway. This license includes rights to siRNAs targeting the “hairless gene” that can be used to inhibit hair growth.

Under the terms of the license agreement, we issued 303,951shares of our common stock, valued at $1.0 million, to Columbia in exchange for the license. Columbia will receive additional cash from us following the achievement of other certain milestones, including initiation of clinical trials for product candidates covered under the license. Columbia would receive royalties on commercial product sales covered by the licensed patents.

Company Owned Patents

Our internal scientific work has resulted in 41 issued patents and over 250 patent applications. These patents include: 10 patent applications for siRNAs and micro-RNAs; one patent granted and 10 patent applications for “No-Ribo” siNAs; 5 patent applications for multifunctional siRNAs; 23 issued patents and over 70 patent applications for oligonucleotide chemistry and delivery; 15 issued patents and 25 patent applications for oligonucleotide manufacturing; and, one granted and over 135 patents pending for fully enabled siRNAs against specific gene targets.

In February 2005, we received notice of grant for two patents in the United Kingdom (UK) Patent Office on our fundamental RNA interference (RNAi) technology:

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In addition, we have filed patent applications for over 100 important mammalian disease targets including: alpha-synuclein (Parkinson’s disease), HBV (hepatitis B), HCV (hepatitis C), HD (Huntington’s disease), HIV (human immunodeficiency virus), HR (hairless gene), IL-4, IL-13, IL-4 Receptors, IL-13 Receptors (asthma, respiratory diseases), NOGO & NOGO Receptors (spinal cord injury), PTP-1B (diabetes, obesity), VEGF (angiogenesis, AMD, diabetic retinopathy, cancer, kidney disease).

We have filed opposition documents against two European patents granted to competitors that are related to RNA interference. Additionally, we have filed opposition documents against an RNA interference-related Australian patent granted to a competitor. We are also involved in a re-examination proceeding involving one of our patents in the United States. We may not yet have identified all United States and foreign patents that pose a risk of infringement to our business operations. There can be no guarantee that we will prevail in any opposition or re-examination or other legal proceedings.

Our Collaborations

Eli Lilly and Company

In January 2004, we initiated a collaboration with Lilly to apply our RNAi technology against Lilly’s proprietary models in oncology. Under the terms of the eighteen month collaboration, Lilly is providing oncology targets, preclinical in vivo models and research funding. We are providing the RNAi expertise and a non-exclusive research license for our oncology technologies during the term of the collaboration. The goal is to establish a proof of concept that could lead to the development of novel RNAi therapies for oncology. To date, the collaboration has demonstrated target mRNA knockdown in vitro in human and mouse cell lines. Demonstration of in vivo target knockdown is currently in progress. Under the terms of the agreement with Lilly, we may receive $1.8 million in August 2005 upon the completion of certain milestones.

Targeted Genetics

In January 2005, we entered into a collaboration with Targeted Genetics Corporation to develop siRNAs targeting Huntington’s disease gene using an adeno-associated virus (AAV) vector. Under the terms of the collaboration, Sirna and Targeted Genetics will share the costs and revenues associated with research and development of AAV-based siRNA product for the treatment of Huntington’s disease. Jeremy Curnock Cook, a member of our Board of Directors and audit committee, is the Chairperson of the board of directors of Targeted Genetics. Mr. Cook assisted in the negotiations, but removed himself from the approval processes on both boards.

Protiva

In February 2005, we entered into a Strategic Alliance Agreement with Protiva Biotherapeutics Inc. (Protiva) for delivery technology applicable to RNAi products. The alliance will expand our delivery capability with respect to a limited number of targets and provide Protiva with access to our RNAi technology against a limited number of other targets. Under the terms of the agreement, we received exclusive rights to Protiva’s SNALP (stable nucleic acid-lipid particles) delivery technology to develop and commercialize RNAi-based therapeutics against certain undisclosed targets. Pursuant to the agreement, Protiva will collaborate with us in the production of the delivery formulations against our targets. In return, Protiva was granted exclusive rights to our RNAi technology, including access to patents, for the development of RNAi-based therapeutics against certain undisclosed targets. Additionally, we will manufacture the RNAi components used by Protiva and provide technical assistance to Protiva in the preparation and evaluation of the RNAi components against Protiva’s targets. Each company will pay

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the other party royalties on product sales using such other party’s licensed technology. Pursuant to the alliance agreement, Protiva received 155,763 shares of our common stock (subsequently converted to cash) and cash (subject to the release from escrow pursuant to the terms of the agreement).

Our Process Development and Pilot Manufacturing Activities

Archemix Corporation

In May 2001, we entered into a collaborative agreement with Archemix Corporation (Archemix), a privately held company. One of Archemix’s technologies, RiboReporters^™, incorporates allosteric ribozymes. This technology allows researchers to detect individual molecules in complex mixtures, for drug discovery and environmental monitoring. Under the terms of the agreement with Archemix, we granted certain licenses and sublicenses to its intellectual property covering the allosteric ribozyme technology. We also received a license to Archemix’s intellectual property covering allosteric ribozymes for use in molecular diagnostic applications. In exchange for the licenses, we received an equity position in Archemix. On a fully diluted basis, we currently own approximately 1.6% of the outstanding stock of Archemix.

In addition, in July 2004, we entered into an exclusive four-year process development, analytical development and manufacturing alliance for all of Archemix’s cGMP aptamers through Phase 2a clinical development. As part of this agreement, we also granted Archemix a worldwide, perpetual, non-exclusive license to its intellectual property for the manufacture and commercialization of aptamers. In addition to payments for the manufacture of aptamers, we will receive certain downstream consideration for the license granted to Archemix. This agreement follows an October 2003 agreement between our companies that also provided for us to manufacture cGMP grade of Archemix’s anti-thrombin aptamer, ARC183, for preclinical, Phase 1 and Phase 2a studies.

Our Competition

We are engaged in the rapidly changing business of developing treatments for human disease through the regulation of gene expression. Competition among entities attempting to develop products to treat diseases by regulating gene expression is intense and is expected to increase. In addition to competitors in the regulation of gene expression field, there are other competitors using other technologies to target the same diseases that we are targeting.

We face direct competition from other companies engaged in the research, development and commercialization of RNA interference-based technology, as well as competition from companies attempting other methods of gene expression control. We compete with large pharmaceutical companies and established biotechnology firms, many of whom are developing new products to treat the same diseases that we target. In some cases, those companies have already commenced clinical trials for their products. Many of these companies have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies and clinical trials, obtaining regulatory approvals and marketing than we do. Our collaborators and licensees may be conducting research and development programs using non-RNA interference technologies directed at the same diseases that we are targeting. Smaller companies also may prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and biotechnology companies. In addition, our competitors may complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before us, thus achieving a significant competitive advantage.

We are aware that a number of companies are pursuing research and development programs relating to the emerging area of RNA interference. A number of these companies have filed patent applications in the area of RNA interference. It is difficult to predict whether any of these companies will be successful in obtaining patent protection, whether the patent protection sought will address important aspects of the technology and, to what extent these companies will be successful in their RNA interference efforts.

Academic institutions, governmental agencies and other public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for products and clinical development and marketing. These companies and institutions compete with us in recruiting and retaining highly qualified scientific and management personnel.

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Government Regulation of our Drug Development Activities

The development, manufacture and potential sale of therapeutics are subject to extensive regulation by United States and foreign governmental authorities. In particular, pharmaceutical products undergo rigorous preclinical and clinical testing and other approval requirements by the Food and Drug Administration (FDA) in the United States under the federal Food, Drug and Cosmetic Act and the Public Health Service Act and by comparable agencies in most foreign countries.

Before we may begin testing agents with potential therapeutic value in healthy human test subjects or patients, stringent government requirements for preclinical data must be satisfied. The data, obtained from studies in several animal species, as well as from laboratory studies, are submitted in an Investigational New Drug (IND) application or its equivalent in countries outside the United States where clinical studies are to be conducted. Preclinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initiation of clinical trials.

Clinical trials are typically conducted in three sequential phases, although these phases may overlap. In Phase 1, which frequently begins with initial introduction of the compound into healthy human subjects prior to introduction into patients, the product is tested for safety, adverse affects, dosage, tolerance, absorption, metabolism, excretion and clinical pharmacology. Phase 2 typically involves studies in a small sample of the intended patient population to assess the efficacy of the compound for a specific indication to determine dose tolerance and the optimal dose range as well as to gather additional information relating to safety and potential adverse effects. Phase 3 trials are undertaken to further evaluate clinical safety and efficacy in an expanded patient population at geographically dispersed study sites to determine the overall risk-benefit ratio of the compound and to provide an adequate basis for product labeling. Each trial is conducted in accordance with certain standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND application.

Data from preclinical and clinical trials are submitted to the FDA as a New Drug Application, or NDA, for marketing approval and to other health authorities as a marketing authorization application. The process of completing clinical trials for a new drug is likely to take a number of years and requires the expenditure of substantial resources. Preparing an NDA or marketing authorization application involves considerable data collection, verification, analysis and expense. There can be no assurance that FDA or any other health authority approval will be granted on a timely basis, if at all. The approval process is affected by a number of factors, primarily the risks and benefits demonstrated in clinical trials as well as the severity of the disease and the availability of alternative treatments. The FDA or other health authorities may deny an NDA or marketing authorization application if the authority’s regulatory criteria are not satisfied or may require additional testing or information.

Even after initial FDA or other health authority approval has been obtained, further studies, including Phase IV post-marketing studies, may be required to provide additional data on safety and will be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested. Also, the FDA or other regulatory authorities may require post-marketing reporting to monitor the side effects of the drug. Results of post-marketing programs may limit or expand the further marketing of the products. Further, if there are any modifications to the drug, including changes in indication, manufacturing process or labeling or a change in manufacturing facility, an application seeking approval of such changes will be required to be submitted to the FDA or other regulatory authority.

Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to commencing commercial sales of the product in such countries. The requirements governing the conduct of clinical trials and product approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country at this time has its own procedures and requirements. Further, the FDA regulates the export of products produced in the United States and may prohibit the export of such products even if they are approved for sale in other countries.

We are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resources Conservation and Recovery Act and other present and potential future federal, state and local regulations. Completing the multitude of steps necessary before marketing can begin requires the expenditure of considerable resources and a lengthy period of time. Delay or failure in obtaining the required approvals, clearances or permits by us, our corporate partners or our licensees would have a material adverse affect on our ability to generate sales or royalty revenue. The impact of new or changed laws or regulations cannot be predicted.

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Our Manufacturing and Marketing

To support our research, preclinical and clinical trial manufacturing requirements, we constructed (in our leased buildings) manufacturing facilities that we believe comply with applicable regulatory requirements. We have also established operational quality assurance and quality control procedures. We believe that our existing facilities and capability will be satisfactory for production of siRNAs needed for clinical trials up to Phase 3.

We do not currently have the internal facilities or means to manufacture, market, distribute or sell on a commercial scale any products we may develop. We have expanded our quality control and quality assurance program internally, including adopting a set of standard operating procedures designed to assure that any products manufactured by or for us are made in accordance with GMP and other applicable domestic and foreign regulations.

We expect our corporate collaborators to enter into distribution or partnership agreements with pharmaceutical or biotechnology companies that have large, established sales organizations to market and sell most products developed, at least initially.

Our Employees

As of December 31, 2004, we had 77 full-time employees, including a technical scientific and support staff of 62 and the balance in general administration. Our future performance depends significantly on the continued service of our key personnel. None of our employees are covered by collective bargaining arrangements. In April 2005, we will move our headquarters from Boulder, Colorado to San Francisco, California. While the move could significantly affect employee relations, we believe our employee relations are good.

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Risk Factors

Risks Relating to our Business, Industry and Common Stock

We are a biotechnology company in the early stage of development and have only a limited operating history for you to review in evaluating our current business and its prospects.

Our focus is directed towards RNAi technology, which is in an early stage of pre-clinical and clinical development and will require substantial further testing. There can be no assurance that our technologies will enable us to discover and develop therapeutic products.

All of our product candidates are in early stages of development, have never generated any sales and require extensive testing before commercialization. Our RNAi-based drugs, which are the focus of our business, may require more than five years to bring to market, and may never reach the market. You must consider, based on our limited history, our ability to:

We have a history of losses, expect future losses, a continuing need to raise additional capital, and cannot assure you that we will ever become or remain profitable.

We have incurred significant losses and have had negative cash flows from operations since inception. To date, we have dedicated most of our financial resources to research and development and general and administrative expenses. We have funded our activities primarily from sales of our stock, revenues we receive under contract manufacturing of oligonucleotides, research and development agreements, and lines of credit. We will continue to need to raise additional capital through any or all of the following: public or private financing, new collaborative relationships, merger or acquisition, new credit facilities and/or other sources. We will dilute our current stockholders’ ownership if we raise funds through the sale of equity securities. We do not know if additional funding will be available or available on acceptable terms when needed.

As of December 31, 2004, our accumulated deficit was approximately $253.2 million. We expect that the ability to use our net operating loss as a tax benefit have been significantly restricted as a result of the change of control associated with the 2003 private placement transaction with the Sprout Group, Venrock Associates, Oxford Bioscience Partners IV, TVM V Life Science Ventures GmbH & Co. KG and Granite Global Ventures (collectively, the “Investors”).

We expect to incur losses for at least the next several years because we plan to spend substantial amounts on research and development of our product candidates, including preclinical studies and clinical trials.

Because we must obtain regulatory approval to market our products in the United States and foreign jurisdictions, we cannot predict whether or when we will be permitted to commercialize our products.

The pharmaceutical industry is subject to stringent regulation by a wide range of authorities. We cannot predict whether regulatory clearance will be obtained for any product we develop. A pharmaceutical product cannot be marketed in the United States until it has completed rigorous preclinical testing and clinical trials and an extensive regulatory clearance process implemented by the Food and Drug Administration, the FDA. Satisfaction of regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product, and requires the expenditure of substantial resources. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use.

Before commencing clinical trials in human beings, we must submit and receive approval from the FDA for an investigational new drug, or IND. In addition to the FDA regulations, clinical trials are subject to oversight by institutional review boards at the universities or research institutions where we plan to carry out our clinical trials. The clinical trials:

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Before receiving FDA clearance to market a product, we must demonstrate that the product is safe and effective on the patient population that would be treated. Data obtained from preclinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory clearances. In addition, delays or rejections may be encountered based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our potential products or us. Additionally, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval.

If regulatory clearance for a product is granted, this clearance will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and efficacious. We cannot ensure that any compound developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all the applicable regulatory requirements needed to receive marketing clearance.

Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process includes all of the risks associated with FDA clearance described above.

We may experience negative results, problems or delays in our clinical trials with Sirna-027, or subsequent clinical trials, that could adversely affect our stock price, financial position and our commercial prospects.

We are required to do extensive testing in animal models with our product candidates before we can be approved by the FDA to initiate clinical trials in humans. We cannot be sure that our drugs will be safely tolerated by humans or be efficacious. Therefore, as our clinical trials progress we will closely monitor results for both safety and efficacy. Results from our early stage clinical trials are based on a limited number of patients and may, upon review, be revised or negated by authorities or by later stage clinical trials. Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may encounter regulatory delays or rejections as a result of many factors, including: changes in regulatory policy during the period of product development; delays in obtaining regulatory approvals to commence a study; lack of efficacy during clinical trials; or unforeseen safety issues. Problems with our clinical trials may result in a decline in our stock price, failure to raise capital when needed and would harm our business, financial condition and results of operations.

There is inherent uncertainty in administrative proceedings and litigation relating to our patents that could cause us to incur substantial costs and delays in obtaining and enforcing our patents and other proprietary rights. The ultimate result of any patent litigation could be the loss of some or all protection for the patent involved or the loss of ability to pursue business opportunity. We may also decide to oppose or challenge third party patents.

We have filed patent applications on various aspects of RNAi technology, a majority of which have not yet been approved. We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us or that such patents, if issued, will have scope sufficient to prevent competing products. In addition, the scope of our present or future patents may not be sufficiently broad to prevent competitive products. We have received issuance of patents covering various aspects of basic RNA and other oligonucleotide technology, and we have filed patent applications for other technology improvements and modifications that have not yet been approved.

We are involved in a re-examination proceeding involving one of our patents in the United States that relates to

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oligonucleotides. Additionally, we have filed documents in opposition to two RNAi-related European patents granted to potential competitors. Also, we have filed opposition documents against an RNA interference-related Australian patent granted to a competitor.

Additionally, we cannot be certain that the patents and patent applications that we own or have licensed represent named inventors or assignees who were the first to invent or the first to file patent applications, or that those persons are proper assignees for these inventions.

The manufacture, use or sale of our products may infringe on the patent rights of others. We may not have identified all United States and foreign patents and patent applications that pose a risk of infringement. We may be forced to in-license or litigate if an intellectual property dispute arises.

If we infringe or are alleged to have infringed another party’s patent rights, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming and unpredictable. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action, or are unable to have infringed patents declared invalid, we may:

In addition, we regularly enter into agreements to license technologies and patent rights. Should we fail to comply with the terms of those license agreements, including payment of any required maintenance fees or royalties, or should the licensors fail to maintain their licensed interest in the licensed patents, we could lose the rights to those technologies and patents.

We are aware of a number of issued patents and patent applications that are owned by third parties and that purport to cover chemically modified oligonucleotides as well as their manufacture and use. We have investigated the breadth and validity of these patents to determine their impact upon the company’s programs in the field of RNAi. Based on our review of these patents and, in some instances, the advice of outside patent counsel, we believe that our technology does not infringe any valid claims of such patents and that these patents are not likely to impede the advancement of the company’s programs. There can be no assurance, however, that third parties will not assert infringement claims against the company’s programs with respect to these patents or otherwise, or that any such assertions will not result in costly litigation or require the company to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to us, if at all. Parties making such claims may be able to obtain injunctive relief that could effectively block the company’s ability to further develop or commercialize our products in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm the company. Litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts by the company.

Disclosure of our trade secrets could reduce our competitiveness.

Because trade secrets and other unpatented proprietary information are critical to our business, we attempt to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. However, these agreements can be breached and, if they are, there may not be an adequate remedy available to us. In addition, third parties may independently discover trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights.

Our success depends on attracting and retaining qualified personnel.

We are highly dependant on qualified personnel in highly specialized technological fields. We also depend on academic collaborators for each of our research and development programs. The loss of any of our key employees or academic collaborators could delay our discovery research program and the development and commercialization of our product candidates or result in termination of them in their entirety. Our future success also will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in

clinical testing, governmental regulation and commercialization. We face competition for personnel from other companies,

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universities, public and private research institutions, government entities and other organizations. We also rely on consultants, collaborators and advisors to assist us in formulating and conducting our research. All of our consultants, collaborators and advisors are employed by other employers or are self-employed and may have commitments to or consulting contracts with other entities that may limit their ability to contribute to our company.

To develop, market or sell RNAi-based drugs, we may need to find partners for collaboration.

Engaging corporate partners and other third parties to help develop, manufacture and market our RNAi-based products may be a requirement of a successful business strategy. Our partnership with Lilly is focused on developing novel RNAi therapeutics in oncology. During the eighteen-month collaboration that began in January 2004, the companies will jointly investigate Sirna’s proprietary modified small interfering RNAs against Lilly’s specific oncology targets. There can be no assurances that Lilly will extend the collaboration beyond the eighteen-month period when it concludes in July 2005 or that we will be able to engage other partners.

Generally, if a partner were to terminate its funding of the development of a particular product candidate from our collaboration, we may not have the right or resources to continue development of that product candidate on our own. Similarly, if we are unable to attract partners for particular product candidates, then we may be unable to develop those candidates.

In addition, there are many aspects of our collaborations that have been and will continue to be outside of our control, including:

We currently lack sales and marketing experience and may need to rely upon third parties to market our products which will result in a loss of control over the marketing process. These third parties, if engaged, may have significant control over important aspects of the commercialization of our products, including market identification, marketing methods, pricing, sales force recruitment and management and promotional activities. We may be unable to control the actions of these third parties. We may be unable to make or maintain arrangements with third parties to perform these activities on favorable terms.

Our products require materials that may not be readily available or cost effective, which may reduce our competitiveness or reduce our profitability.

The products we are developing are new chemical entities that are not yet available in commercial quantities. Raw materials necessary for the manufacture of our products may not be available in sufficient quantities or at a reasonable cost in the future. Therefore, our products may not be available at a reasonable cost in the future.

Our competitors may develop and market drugs that are more effective, safer, easier to use, or less expensive than our product candidates.

The pharmaceutical market is highly competitive. Many pharmaceutical and biotechnology companies have developed or are developing products that will compete with products we are developing. Several significant competitors are working on, or already marketing drugs, for the same indications as Sirna-027, diabetes, chronic hepatitis, Huntington’s disease, oncology and asthma. It is possible that our competitors will develop and market products that are more effective, safer, easier to use, or less expensive, than our future products, or will render our products obsolete. It is also possible that our competitors will commercialize competing products before any of our product candidates are approved and marketed. We expect that competition from pharmaceutical and biotechnology companies, universities and public and private research institutions will increase. Many of these competitors have substantially greater financial, technical, research and other resources than we do. We may not have the financial resources, technical and research expertise or marketing, distribution or support capabilities to compete successfully.

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Our success may depend on third party reimbursement of patients’ costs for our products that could result in price

pressure or reduced demand for our products.

Our ability to market products successfully will depend in part on the extent to which various third parties are willing to reimburse patients for the costs of our products and related treatments. These third parties include government authorities, private health insurers and other organizations, such as health maintenance organizations. Third party payors are increasingly challenging the prices charged for medical products and services. Accordingly, if less costly drugs are available, third party payors may not authorize or may limit reimbursement for our products, even if our products are safer or more effective than the alternatives. In addition, the trend toward managed healthcare and government insurance programs could result in lower prices and reduced demand for our products. Cost containment measures instituted by healthcare providers and any general healthcare reform could affect our ability to sell our products and may have a material adverse effect on us. We cannot predict the effect of future legislation or regulation concerning the healthcare industry and third party coverage and reimbursement on our business.

Our common stock has limited trading volume and a history of volatility, which could impair your investment.

You may be unable to sell securities you purchase from us at the time or price desired. The market price of our common stock has fluctuated dramatically in recent years. The trading price of our common stock may continue to fluctuate substantially due to:

These fluctuations are not necessarily related to our operating performance. Additionally, future sales of our equity securities may dilute our shareholders or cause our stock price to fluctuate. As a result, the value of your shares could vary significantly from time to time. The historical trading volume of our common stock has been limited.

A small number of investors can control the company.

As of December 31, 2004 the Investors in our April 2003 private placement collectively own approximately [68.7%] (after giving effect to the exercise of their warrants issued in connection with the private placement and the warrant restructuring, but prior to giving effect to exercise of any stock options) of our outstanding common stock. Three of six members of our Board of Directors are affiliated with our three largest Investors and comprise majorities of the audit committee, nominations and corporate governance committee, and compensation committee. If they were to act in concert, they could control the votes of the Board of Directors and each of these committees, although they have not indicated any present intent to do so. Also, in connection with the private placement transaction, our stockholders agreed to amend our certificate of incorporation to permit stockholder action to be taken by written consent in addition to by means of an actual meeting. As a result, our Investors (if they acted together) are now able to take any action without the need for a stockholders’ meeting. For example, if our Investors were to act in concert, they could decide to take us private, to sell some or all of our assets, or to effect a merger without holding a stockholders’ meeting. If the Investors were to act in concert, they would have sufficient voting power to affect these types of transactions, although they have not indicated any present intent to do so.

Both our charter documents and Delaware law have anti-takeover provisions that may discourage transactions involving actual or potential changes of control at premium prices.

Our corporate documents and provisions of Delaware law applicable to us include provisions that discourage change of control transactions. For example, our charter documents authorize our board of directors to issue up to 5,000,000 shares of preferred stock without stockholder approval and to set the rights, preferences and other designations of preferred stock, including the voting rights, at its discretion.

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In addition, we are subject to provisions of Delaware General Corporation Law that may make some business combinations more difficult. As a result, transactions that otherwise could involve a premium over prevailing market prices to holders of our common stock may be discouraged or may be more difficult for us to effect as compared to companies organized in other jurisdictions.

We are moving our headquarters from Colorado to California, and this move could reduce employee retention and efficiency and could add to our expenses.

In April 2005, we will move our headquarters from Boulder, Colorado to San Francisco, CA. For a period of at least two years and for potentially up to several years, management will be based in San Francisco while research, development, and our other operations continue to be based in Boulder. This could impair management’s ability to supervise employees and operations and could reduce employee retention, morale, or efficiency or impair our focus. While we believe that our moving to the Bay area will facilitate recruiting top talent to Sirna, some of our employees who may be required to relocate, may be unwilling or unable to relocate and we could lose talented personnel that are hard to replace. The cost of living in the San Francisco Bay area is substantially higher than in Boulder, Colorado, which could make retention of existing employees and recruiting of new employees more difficult.

We anticipate that the move will result initially in cost savings to Sirna because of lease restructuring and tax incentives. However, it is possible that costs of additional facilities in California will be significantly higher than we estimate. The move could potentially add significantly to our real estate, payroll and other expenses.

Available Information

Our principal Internet address is www.sirna.com. We make available free of charge on www.sirna.com our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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ITEM 2. PROPERTIES

We lease approximately 4,350 square feet of office space in San Francisco, California under an operating lease that expires in March 2007. In addition, we lease approximately 57,000 square feet of laboratory, manufacturing and office space in two adjacent buildings in Boulder, Colorado, under operating leases that will expire in October 2007 and June 2007, respectively. We are presently attempting to sublease approximately 20,000 square feet of laboratory and office space in Boulder, Colorado to reduce operating expenses related to excess capacity. Our current and planned facilities are sufficient to meet our needs for the foreseeable future.

We anticipate that the move will result in cost savings to Sirna because of lease restructuring and tax incentives. However, it is possible that costs of additional facilities in California will be significantly higher than we estimate. The move could potentially add significantly to our real estate, payroll and other expenses.

ITEM 3. LEGAL PROCEEDINGS

We do not have any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we are a party or of which any of our property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers, who are elected by and serve at the discretion of the Board of Directors, are as follows (all ages are as of March 29, 2005):

Howard W. Robin has served as Chief Executive Officer, President and Director since July 2001. From January 2001 to June 2001, Mr. Robin was Chief Operating Officer, President and Director. From 1991 to 2001, Mr. Robin was Corporate Vice President and General Manager at Berlex Laboratories, Inc., a subsidiary of Schering, AG, and from 1987 to 1991 he served as Vice President of Finance and Business Development and Chief Financial Officer. From 1984 to 1987, Mr. Robin was Director of Business Planning and Development at Berlex. He was a Senior Associate with Arthur Andersen & Co. prior to joining Berlex. He received his BS in Accounting and Finance from Farleigh Dickinson University in 1974.

Nassim Usman, Ph.D., served as Chief Operating Officer and Senior Vice President since December 2003. Prior to December 2003 he served as Chief Scientific Officer since February 2002, and as Vice President of Research and Development since August 2000. From December 1999 to July 2000, Dr. Usman served as Senior Vice President of Research. From May 1996 to December 1999, Dr. Usman served as Vice President of Research. From April 1994 until May 1996, Dr. Usman served as Director of Chemistry and Biochemistry Research and from September 1992 until April 1994 Dr. Usman served as Senior Scientist in Chemistry and Biochemistry. From January 1987 to September 1992, Dr. Usman was a Postdoctoral Fellow and Scientist in the Departments of Biology and Chemistry at the Massachusetts Institute of Technology. Dr. Usman received his Ph.D. in chemistry from McGill University. Dr. Usman left the Company in March 2005. He will receive certain severance payments in accordance with the terms and conditions of the Employment Agreement between the Company and Dr. Usman dated February 11, 2003.

Martin E. Schmieg has served as Chief Financial Officer and Senior Vice President since September 2004. Prior to joining Sirna Therapeutics, Mr. Schmieg was Senior Vice President and CFO of Advanced Bionics Corporation. Mr. Schmieg has also held senior management positions with Cytometrics, Inc., a development-stage medical device company, and MSMTC, Inc., a health care technology consulting company. Early in his career, Mr. Schmieg served in various accounting and financial management positions with E.M. Diagnostics Systems, Inc., a subsidiary of E. Merck, Darmstadt, Germany, and Boekel Scientific Company. Mr. Schmieg has also practiced as a CPA with Zelenkofski, Alexrod & Co., Ltd., Philadelphia, PA. Mr. Schmieg announced his resignation from the Company in March 2005.

Roberto Guerciolini, MD., has served as Chief Medical Officer and Senior Vice Presidentsince April 2004. Prior to joining Sirna Therapeutics, Dr. Guerciolini served as the Senior Director of Clinical Pharmacology and Experimental Medicine at Millennium Pharmaceuticals, where he was responsible for overseeing the conduct of early-stage clinical trials in the areas of inflammation and metabolic diseases. He also contributed significantly towards the successful filing of the NDA for VELCADE(R), a treatment for multiple myeloma. Prior to this, he served as Director, Medical Research at Roche Global Development and Director, Clinical Pharmacodynamics/International Clinical Research at Hoffmann-La Roche, with responsibilities for Phase I clinical studies in a number of therapeutic areas. He also played an important role in the filing and registration of XENICAL(R) in the U.S. and Europe for the treatment of obesity. Previously, he was Associate Director of clinical pharmacology at Schering-Plough Corporation. Dr. Guerciolini has presented major clinical research findings at the leading health science conferences and has authored or co-authored 40 articles in peer-reviewed journals. He received his medical degree and his specialty in Internal Medicine from the University of Perugia Medical School in Italy and completed his postdoctoral fellowship in clinical pharmacology at the Mayo Clinic. Dr. Guerciolini is also certified by the American Board of Clinical Pharmacology. In addition to his medical training, Dr. Guerciolini received his Executive MBA degree from the Haas School of Business, University of California-Berkeley.

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Barry Polisky, Ph.D., has served as Chief Scientific Officer and Senior Vice President since March 2005. From December 2003 to February 2005, Dr. Polisky was Senior Vice President of Research. Dr Polisky joined Sirna Therapeutics in June 2002 as Vice President of Research. Prior to joining Sirna Therapeutics, Dr. Polisky served as Vice-President of Research at ThermoBiostar, Inc. where he initiated and launched a SNP diagnostic platform. From 1992 to 1998, Dr. Polisky was Vice President of Research and Drug Discovery at NeXstar, Inc. where he developed several aptamers (nucleic acid-based therapeutics including the VEGF aptamer currently in Phase III development). Prior to joining NeXstar, Dr. Polisky was Professor and Chairman of the Molecular Biology program at Indiana University. Dr. Polisky received his Ph.D. in molecular biology from the University of Colorado and conducted his post-doctoral work in the Department of Biochemistry and Biophysics, University of California, San Francisco.

Bharat M. Chowrira, Ph.D., J.D. has served as Chief Patent Counsel and Vice President, Legal Affairs since Janaury 2005. From January 2002 until December 2004, Dr. Chowrira was Vice President of Legal Affairs, Licensing and Patent Counsel. Dr. Chowrira joined Sirna Therapeutics in 1993 as a scientist. He is responsible for Sirna Therapeutics legal and business licensing activities and general corporate matters. Dr. Chowrira also serves as the corporate secretary. Dr. Chowrira has been responsible for building and maintaining our intellectual property portfolio and strategic alliance initiatives. Dr. Chowrira received his J.D. degree from the College of Law at the University of Denver and holds a Ph.D. in Microbiology and Molecular Genetics from the University of Vermont. Dr. Chowrira is a registered patent attorney and a member of the Colorado Bar Association, American Intellectual Property Law Association, Licensing Executive Society and the Association of Corporate Counsel.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq National Market under the symbol “RNAI.” The last sale price of the common stock as reported on the Nasdaq National Market on March 29, 2005, was $2.86 per share. On March 29, 2005 there were approximately 221 holders of record of our common stock. Effective April 16, 2003, we declared a 1-for-6 reverse stock split. The sale prices below reflect the 1-for-6 reverse stock split. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the Nasdaq National Market.

Dividend Policy

We have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. The Company’s ability to pay dividends is restricted by the terms of its convertible debt and equipment loan facility agreements.

Purchases of Equity Securities

Not applicable.

Recent Sales of Unregistered Securities

Not applicable.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are derived from our audited financial statements. Our financial statements for 2004, 2003, 2002, 2001 and 2000 have been audited by Ernst & Young LLP, independent registered public accounting firm. These historical results do not necessarily indicate future results. When you read this data, it is important that you also read our financial statements and related notes, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with the company’s business overview to give you an understanding of the technology of our business and the direction in which our business and our product candidates are moving. This is followed by a discussion of the Critical Accounting Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for 2004 compared to 2003, and for 2003 compared to 2002, separated by our functions. We then provide an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section entitled “Liquidity and Capital Resources”.

This MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business,” “Item 6: Selected Financial Data,” and “Item 8: Financial Statements and Supplementary Data.” This MD&A and various other sections of this Annual Report on Form 10-K contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors, including those described under “Risk Factors” included under Item 1. Except to fulfill our obligations under the federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which it is made.

Business Overview

Sirna Therapeutics, Inc., (“Sirna” or the “Company”) is focused on developing therapeutics based on RNA interference (RNAi). We are using our expertise to design, stabilize, manufacture and deliver short interfering nucleic acids (siRNAs) that activate selectively the process of RNA interference. We are in research, preclinical and/or clinical development with product candidates in the following areas: Age-related Macular Degeneration (AMD), Huntington’s disease (HD), dermatology (initially permanent hair removal), asthma, chronic hepatitis, and diabetes. Sirna is also evaluating other disease targets and indications for the development of RNA interference-based therapeutics on our own, and in collaboration with academic research institutions and commercial enterprises such as the Company’s ongoing collaboration in oncology with Eli Lilly and Company (Lilly). In addition, Sirna manufactures and sells oligonucleotides in order to generate revenue for the purpose of subsidizing our ongoing operations.

Since our inception as Ribozyme Pharmaceuticals, Inc. in 1992, we have dedicated ourselves to engineering RNA-based molecules for therapeutic and diagnostic purposes. In 2001 we began to study RNAi and in 2003, based on scientific advancements and the potential of the field, we directed our research and development activities entirely to RNAi technology. Coinciding with our redirection, we changed our name to Sirna Therapeutics, Inc. We believe siRNA-based drugs may present an entirely new platform of therapeutics in the future. Our expertise in nucleic acid technology enables us to be a leader in this very promising field.

RNA Interference

RNA interference is an endogenous mechanism that generally relies on a sequence of double-stranded nucleic acid capable of reducing the expression of genes through the degradation of messenger RNA (mRNA) and viral RNA in a sequence-specific manner. We refer to such RNA molecules facilitating this process of RNAi as a short interfering RNA (siRNA). The RNAi mechanism induces the destruction of target RNA using naturally occurring cellular protein machinery.

Harnessing the natural phenomenon of RNAi through the production and targeted delivery of synthetic siRNAs holds potential for a new and important future class of drugs. Although there is widespread use of RNAi-based reagents for target validation, the development of RNAi-based pharmaceuticals for therapeutic uses to target disease is currently in an early stage of development.

Product Candidate Programs

The Company is seeking to develop a new class of drugs using siRNAs that address significant and unmet medical needs. Currently, we are in research, preclinical and clinical development with product candidates in the following areas:

Local Delivery (Directly to Target Area)

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Systemic Delivery (Directly to the Blood Stream)

Topical Delivery (Directly to the Skin Surface)

The Drug Discovery and Development Process

The new drug discovery and development process is generally considered a long (5 to 7 years or greater) and expensive (greater than $100 million) undertaking, which is subject to many uncertainties and regulatory oversight. These generalized timelines and costs are estimates and as such involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from estimates. Research and development project costs, among others, include costs of salaries, benefits, clinical trial site costs, outside services, materials and supplies incurred to support the clinical programs. Indirect costs allocated to projects include facility and occupancy costs, license and royalty payments. The primary phases of new drug discovery and development include:

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The most significant costs associated with clinical development are the Phase 3 trials, as they tend to be the longest and largest studies conducted during the drug development process. The FDA closely monitors the progress of each phase of clinical testing. The FDA may, at its discretion, re-evaluate, alter, suspend or terminate testing based upon the data accumulated to that point and the FDA’s assessment of the risk/benefit ratio to patients. If Phase 3 trials are successful, the final step in a drug approval timeline is submission of a New Drug Application (NDA) with the FDA. The NDA process may last several years.

In addition, development stage companies, like Sirna Therapeutics, often seek collaborations and/or partnerships with large, established pharmaceutical companies to assist in the cost and complexities of developing and marketing new drugs. At this time, the Company believes it may be too early to enter into such business arrangements as the full potential and value of its product candidate programs are unknown.

Intellectual Property

Obtaining patent protection as well as protecting patents and other proprietary rights is crucial to developing our business. In addition to patents, we rely upon trade secrets, know-how and continuing technological innovations. As part of our overall intellectual property strategy, we selectively enter into agreements with third parties, such as academic institutions, either to license pre-existing technology or to support the development of new technologies. For example, in 2003 we entered into a worldwide licensing agreement with the University of Massachusetts (UMass) Medical School for its undivided interest in intellectual property relating to the seminal RNA interference technology covering siRNA (the “Tuschl 1 Patent”) for uses relating to human and veterinary therapeutic, prophylactic, diagnostic and health care applications. This pending Tuschl 1 Patent broadly covers siRNAs, including those with blunt ends and ends with 3’-overhangs. In 2003, we obtained a non-exclusive license to the early RNAi patents filed jointly by Carnegie Institution of Washington and UMASS (Carnegie Patent). The Carnegie Patent is based on the work of Drs. Andrew Fire and Craig Mello governing genetic inhibition of genes by double-stranded RNA via RNAi. In June 2004, we entered into a worldwide exclusive license agreement with the University of Iowa Research Foundation for intellectual property relating to RNAi technology covering siRNA for targeting neurological disease indications, including Huntington’s disease and Alzheimer’s Disease. In December 2004, we entered into a worldwide exclusive license agreement with Columbia University for intellectual property relating to genes involved in the hair growth pathway. This license includes rights to siRNAs targeting the “hairless” gene that can be used to inhibit hair growth. This intellectual property is based on pioneering work of Dr. Angela Christiano at Columbia University on identifying genes involved in promotion and inhibition of hair growth.

It is our policy to file patent applications when appropriate to protect technology, inventions and improvements that are considered important in the development of our business. We seek patent protection in the United States as well as in several key foreign countries. The following table summarizes the Company’s current intellectual property estate (excluding ribozyme technology):

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We believe our intellectual property holdings adequately enable the Company to pursue its business plans. We cannot however guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us or that such patents, if issued, will have scope sufficient to prevent competing products. In addition, the scope of our present or future patents may not be sufficiently broad to prevent competitive products. The Company, to the best of its ability, will defend its intellectual property estate from infringement. There is however inherent uncertainty in administrative proceedings and litigation relating to our patents that could cause us to incur substantial costs and delays in obtaining and enforcing our patents and other proprietary rights. The ultimate result of any patent litigation could be the loss of some or all protection for the patent involved. We may also decide to oppose or challenge third party patents. When prudent and for appropriate consideration, the Company is willing to out license its intellectual property. The manufacture, use or sale of our products may infringe on the patent rights of others. We may not have identified all United States and foreign patents and patent applications that pose a risk of infringement. We may be forced to in-license or litigate if an intellectual property dispute arises.

Licensing, Process Development and Pilot Manufacturing

In addition to our work with RNAi, we also have developed an extensive expertise in nucleic acid technologies. We intend to leverage our nucleic acid expertise through licensing, process development and pilot manufacturing opportunities. In July 2004, we entered into an exclusive four-year process development and manufacturing alliance with Archemix Corporation (Archemix), a privately held company. Archemix is currently developing ARC183, an anti-thrombin aptamer. Pursuant to the agreement, we will manufacture all of Archemix’s aptamers through Phase 2a clinical development. In addition, in 2003 we completed a collaboration with Geron Corporation, a biopharmaceutical company focused on oncology and regenerative medicine. Our first program, which began in 2001, was a process development collaboration with Geron for GRN163, a nucleic acid-based telomerase agonist for cancer. We successfully completed the program and renewed the agreement to manufacture GMP clinical-grade GRN163 for Geron’s Phase 1 clinical study. Delivery under the agreement was completed in June 2003.

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying our accounting policies may have an impact on the results we report in our financial statements, which we discuss under the heading “Results of Operations” following this section of our MD&A. Some of our accounting policies require us to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

Revenue Recognition

Revenues recorded from our collaborative agreements may consist of: research revenue, contract manufacturing revenue, milestone revenue and license or royalty revenue. We generally recognize revenue when we have satisfied all

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contractual obligations and we are reasonably assured of collecting the resulting receivable. Given the nature of our business and the infrastructure that we need to support, we often enter into collaborations where we receive nonrefundable up-front payments for prior or future expenditures. In compliance with current accounting rules, we recognize revenue related to up-front payments over the period of the contractual arrangements as we satisfy our performance obligations. Occasionally, we are required to estimate the period of a contractual arrangement or our performance obligation when the information is not clearly defined in the agreements we enter into. Should different estimates prevail, revenue recognized could be different. As of December 31, 2004, we evaluated our estimates for the periods of contractual arrangements and determined that our estimates are appropriate.

Patent Expenses

Due to the early stage of development of RNAi technology, we expense all legal costs directly incurred in connection with patent applications or patents until we determine that the estimated recoverability of such costs is sufficiently probable, at which time such costs are capitalized. If capitalized, such deferred patent costs are then amortized over the estimated economic life of the patent on a straight-line basis. We review all capitalized patent costs on a quarterly basis and, if we decide to abandon a patent or a patent application or determine that an issued patent or a patent application no longer has significant economic value, the unamortized balance in deferred patent costs related to that patent or patent application is immediately expensed.

In 2003, we changed our business strategy which focused on development of ribozyme-based therapeutics and diagnostics to developing a new class of nucleic acid-based therapeutics based on RNAi. As a result of finalizing this change in strategic direction during the quarter ended June 30, 2003, we undertook a detailed review of our existing patent portfolio. Based on this review, we wrote off $447,000 of patent costs related to patents or patents that we abandoned in the second quarter of 2003. In addition, because we are no longer pursuing the development of ribozymes internally, we expensed approximately $4.9 million of capitalized patent costs related to the ribozyme technology. This expense is reflected as a separate line item in our statement of operations for the year ended December 31, 2003. Legal expenses related to patents are included in general and administrative expenses.

Results of Operations for Twelve Months Ended December 31, 2004, 2003 and 2002

Revenues

The following table sets forth information on revenues earned from our collaborations for the periods indicated (in thousands):

Generally, revenue fluctuations result from changes in the number of funded research projects as well as the timing and completion of contractual obligations. Our revenues for 2004 were $1.5 million, a decrease of $2.6 million compared to 2003.

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The decrease is a result of our change in business strategy in 2003 and the subsequent termination of ribozyme-related programs and the associated revenues from Chiron, Fujirebio and atugen AG. However, in the fourth quarter of 2004, we received a final payment from Fujirebio related to our discontinued ribozyme related diagnostic program. Offsetting our loss in revenues in the ribozyme programs are revenues related to our Archemix manufacturing collaboration. Archemix revenues were $860,000 in 2004. In addition, during the first quarter of 2004, we entered into an eighteen-month collaboration with Eli Lilly and Company to jointly investigate our proprietary modified siRNAs against specific oncology targets provided by Lilly. Revenues recognized during 2004 are from Lilly’s access to a non-exclusive research license to certain of our technologies in oncology during the eighteen-month collaboration. The decrease of revenues year to date is primarily due to the completion of our process development and manufacturing scale-up for Geron’s anti-cancer drug, GRN163 in June 2003. During the second quarter of 2003, we completed our manufacturing contract with Geron, whereby we recognized $2.7 million upon the release of the product.

Our revenues for 2003 were $4.2 million, a decrease of $973,000 compared to 2002. The decrease was primarily due to lower research revenues associated with ANGIOZYME (a ribozyme drug candidate targeting tumors) and HERZYME (a ribozyme drug candidate targeting breast cancer). Revenues for ANGIOZYME and HERZYME are based on the fully loaded expense of a researcher working on the project. As both ANGIOZYME and HERZYME had moved beyond the research phase and forward in clinical trials, less time was required of our researchers and more third party expenses were incurred. Reimbursements from our collaborators for third party expenses are credited against expenses and not recognized as revenue. We are not pursuing independent development of ANGIOZYME and discontinued clinical trials in 2003. In addition, in April 2003, we terminated our joint venture with Elan and are not pursuing independent development of HERZYME. Offsetting our loss in revenues in the ribozyme programs are the revenues related to our Geron manufacturing collaboration. Geron revenues increased $2.0 million in 2003 compared to 2002. During the second quarter of 2003, we recognized revenue of $2.7 million upon the completion of the contract and the release of product to Geron. Revenues attributable to atugen have decreased due to an overall reduction in services provided.

At the completion of the Lilly contract, a milestone payment of $1.8 million may be earned by us in August 2005. Since this is a substantive at risk milestone, it has not yet been recognized in 2004 as contract success has not been determined. The collaborations with Lilly and Archemix are expected to continue in 2005, however, we are actively pursuing additional partnerships and collaborations to fund our research and development programs.

Expenses

Research and Development

The following table sets forth information on research and development expenses for the periods indicated (in thousands):

Our research and development expenses for 2004 were $21.1 million, a decrease of $1.2 million compared to 2003. The decrease is primarily due to the acquisition of a license to the University of Massachusetts’ rights in RNAi technology for $6.0 million in September 2003. Under the terms of the license agreement, we paid $3.0 million in cash and issued 579,150 shares of our common stock, valued at $3.0 million, to its Medical School in exchange for the license. The purchase price was expensed as in-process research and development due to the uncertainty of both the technological feasibility and alternative future uses of the technology as of the acquisition date. In 2004, upon the first anniversary of the license agreement, the filing of our first IND and the initiation of our first Phase 1 clinical trial, we paid the Medical School a total of $1.4 million in cash. The net $4.6 million decrease in the licenses paid to the Medical School was offset by approximately $4.1 million in increases in 2004 due to the scale up of our research and outside services costs as we progress in our preclinical activities for Sirna-027, our RNAi drug candidate targeting AMD, as well as general overall scale-up of research activities focused on RNAi technology.

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Our research and development expenses for 2003 were $22.3 million, a decrease of $5.1 million compared to 2002. The decrease in expenses was primarily due to outside service costs decreasing $8.5 million because we discontinued clinical trials for ANGIOZYME in 2003. Expenses such as clinical trial site fees and third party manufacturing costs of ANGIOZYME and HEPTAZYME (a ribozyme drug targeting hepatitis C virus) were included in outside service expenses in 2002. In 2003, outside service expenses included completing phase II clinical studies for ANGIOZYME and outside studies conducted for our preclinical work in our RNAi programs. In addition, we had an overall reduction in staffing of 20% which decreased personnel costs $2.4 million. The reductions in 2003 were offset by the aforementioned $6.0 million in expense recognized for the license from the University of Massachusetts in September 2003.

General and Administrative.

The following table sets forth information on general and administrative expenses for the periods indicated (in thousands):

General and administrative expenses for 2004 were $6.7 million, an increase of $500,000 compared to 2003. The increase in 2004 compared to 2003 is primarily due to increased activity in patent expense and related applications in RNAi technology. Until we can determine that the estimated recoverability of patent costs is sufficiently probable, we expense all legal costs directly incurred in connection with patent applications or patents. Increases in other costs in 2004 compared to 2003 are due to the scale-up of our business development efforts. The decrease of $700,000 in salaries and benefits in 2004 compared to 2003 is due to a reduction in force, primarily in administration, which occurred in February 2003.

General and administrative expenses for 2003 were $6.2 million, compared to $6.8 million for 2002. General and administration expenses for year 2003 were $600,000 less than 2002 primarily due to concerted efforts to reduce general expenses. The immaterial change in personnel expenses between 2003 and 2002, despite our reduced staffing, are due to severance packages in restructuring and increases in remaining salaries and benefits. We expect general and administrative costs to increase in 2005 due to additional hires in the later half of 2004.

Acquired in-process research and development

In December 2004, we announced the first program to apply RNAi technology to dermatology, with an initial focus on hair removal. In the formation of our dermatology division, we acquired Skinetics Biosciences, Inc., (Skinetics) a company formed around the research related to the development of siRNAs for permanent hair removal. Under the terms of the acquisition, we issued 502,845 shares of our common stock, valued at $1.5 million, to Skinetics’ founders and consultant, in exchange for 100% of the common stock of Skinetics. In addition, we incurred $315,000 in net costs related to the acquisition. At the date of acquisition, the acquired intellectual property and research had not yet reached technological feasibility, and the in-process research and development had no alternative future uses. Accordingly, the acquisition cost was expensed in December 2004 and is reflected as a separate line item in our statement of operations for the period ended December 31, 2004. The purchase price is composed of and allocated as follows (in thousands):

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Subject to the achievement of certain milestones and other conditions, we may issue additional shares of our common stock (some or all of which may be paid in cash in lieu of shares) plus additional shares of common stock based on possible future sales (some or all of which may be paid in cash in lieu of shares), the value of such stock will be based on the price of the stock as of future dates.

Write-off of patent costs. In April 2003, we changed our business strategy which had focused on development of ribozyme-based therapeutics and diagnostics to developing a new class of nucleic acid-based therapeutics based on RNA interference. As a result of finalizing this change in strategic direction during the second quarter, we undertook a detailed review of our existing patent portfolio. Based on this review, we wrote off $447,000 related to abandoned patents in the second quarter. In addition, since we are no longer pursuing the development of ribozymes internally, we have expensed approximately $4.9 million of capitalized patent costs related to the ribozyme technology.

Due to the early stage of our technology, we are expensing all patent-related legal costs until we determine that the estimated recoverability of the associated legal costs is sufficiently probable, at which time such costs will be capitalized. Future patent-related legal costs will be included in research and development expenses.

Interest income. Interest income was $482,000 in 2004, compared to $426,000 and $389,000 in 2003 and 2002, respectively. The fluctuation from year to year is due to the fluctuation of average balances in our cash, cash equivalents and securities available-for-sale. In addition, overall average reductions are attributable to the decrease in the prevailing interest rates over the last few years.

Interest expense. Interest expense was $334,000 in 2004, compared to $415,000 and $803,000 for 2003 and 2002, respectively. Interest expense in 2004 was primarily our interest paid related to our Schering AG loan. In February 2004, we paid off a third-party equipment loan of $1.0 million. Interest expense in 2003 includes the interest on a the $1.0 million equipment loan and the quarterly interest paid on our Schering AG loan. The decrease over the periods reported is primarily due to the conversion of the Elan convertible note to Series B Preferred Stock in June 2002. The Elan note accrued interest expense and the Series B Preferred Stock accrued dividends. The note was converted in June of 2002, therefore interest expense related to the Elan note of $449,000 was expensed in 2002, compared to zero expense in 2003.

Equity in loss of unconsolidated affiliate. Equity in loss of unconsolidated affiliate was $0 in 2004, compared to $209,000 and $5.3 million in 2003 and 2002, respectively. The expense is our share of Medizyme’s expenses. The decrease in loss recognized for the last three years, is due to the wind-down and subsequent termination of our joint venture with Elan in April 2003. As of December 31, 2003, all material expenses incurred with Medizyme have been recognized.

Liquidity and Capital Resources

We had cash, cash equivalents and securities available-for-sale of $36.1 million at December 31, 2004 compared with $36.6 million at December 31, 2003. The $500,000 decrease in cash, cash equivalents and securities available-for-sale is primarily the result of $24.9 million received in net proceeds from the private placement of common stock and warrant and option exercises; $23.1 million (net of $1.5 million in revenues) used for operations; $979,000 used for investments in equipment, leasehold improvements and patents; and $1.3 million paid for debt obligations.

We invest our securities available-for-sale in interest bearing, investment-grade securities.

Accounts receivable at December 31, 2004 were $66,000 compared to $156,000 at December 31, 2003. Accounts receivable at December 31, 2004 included $48,000 due from Archemix related to our manufacturing agreement.

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Total additions for property, plant and equipment for the twelve months ended December 31, 2004 were $397,000. We anticipate future property, plant and equipment needs to be financed either through credit facilities, equity sales or revenues, all of which are yet to be determined.

Schering AG. At December 31, 2004, we had an outstanding convertible loan, including accrued interest, of $3.06 million to Schering AG. In connection with the Stock Purchase Agreement, and in consideration for the issuance of warrants and our agreement to pay accrued interest on the loan on a quarterly basis, Schering AG extended the due date for repayment of the loan from April 2004 to January 2005.

The Company’s ability to pay dividends is restricted by the terms of its convertible debt and equipment loan facility agreements.

Liquidity - We have financed our operations through sales of equity securities in public offerings, private placements of preferred and common stock, funds received under our collaborative agreements and financing under equipment and tenant improvement loans. We anticipate that, with the consummation of our private placements in April 2003 and May 2004 and our warrant restructuring of December 2005, our existing financial resources and expected revenues from collaborations, our cash should be sufficient to meet our anticipated operating and capital requirements into 2006. We expect to incur substantial additional costs, including costs related to:

We will continue to need to raise additional capital through any or all of the following: public or private financing, merger or acquisition, new collaborative relationships, new credit facilities and/or other sources. If we raise funds by issuing and selling more stock, your ownership in us will be diluted. We may grant future investors rights superior to those of existing stockholders. In addition, we do not know if additional funding will be available or available on acceptable terms when needed.

Recently Adopted Accounting Standards

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS No. 123(R) must be adopted no later than July 1, 2005. We expect to adopt SFAS No. 123(R) in the third quarter of 2005.

SFAS No. 123(R) permits companies to adopt its requirements using one of two methods:

We are still assessing the appropriate transition method.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using the APB No. 25 intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have an impact on our results of operations, although it will have no

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impact on our overall financial position or cash flows. We have not yet determined the method of adoption or the effect of adopting SFAS 123R will have on our results of operations, and also have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes guidelines on how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003. The Company adopted SFAS No. 150 on June 1, 2003. The adoption did not have a material impact on the Company’s results of operations or financial condition.

Net Operating Loss Carryforwards. At December 31, 2004, we had available net operating loss carryforwards and research and development credit carryforwards of $211.3 million and $5.5 million, respectively, for income tax purposes. However, pursuant to the “change in ownership” rules under Section 382 of the Internal Revenue Code, our ability to utilize our net operating loss carryforwards is subject to an annual limitation in future periods. As a result of our private placement in April, 2003, which we deem a change of ownership for tax purposes, we believe that there are substantial limitations on the utilization of our net operating loss carryforwards.

Off-Balance Sheet Arrangements. As of December 31, 2004, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of the Securities and Exchange Regulation S-K.

Contractual Obligations

The following table summarizes our significant contractual obligations, which are comprised of our convertible debt and operating lease obligations as of December 31, 2004, and the effect these significant contractual obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in interest rates primarily from our investments in certain short-term investments. We invest our excess cash in highly liquid short-term investments that are typically held for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Submitted as part of Item 15(a) of this Form 10-K and incorporated herein by reference.

Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES

Controls Evaluation and Related CEO and CFO Certifications

As of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the end of the period covered by this report that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

ITEM 9B. OTHER INFORMATION

On March 30, 2005, Sirna entered into an Addendum to the Employment Letter dated February 11, 2003, as Amended by Letter dated April 14, 2003 (the “Addendum”), with Dr. Nasim Usman, who has stepped down from his position as Sirna’s Senior Vice President and Chief Operating Officer effective as of March 16, 2005 (the “Severance Date”). Dr. Usman’s departure was previously disclosed on Sirna’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2005.

The Addendum provides, in general, for (a) payment of accrued but unpaid salary and vacation time as of the Severance Date; (b) continued vesting of unvested stock options from the Severance Date through the earlier of December 15, 2005 or Dr. Usman obtaining other comparable employment (the “Severance Period”); (c) an extension of the option exercise period for up to three years following the Severance Period; (d) a severance payment equal to the aggregate of (i) Dr. Usman’s 2004 base salary and (ii) $19,050, paid in monthly installments, subject to reduction if Dr. Usman obtains other employment during the Severance Period; (e) the engagement of Dr. Usman as a consultant to the Company for up to three years following the termination of the Severance Period, at an annual rate of $10,000 per year, in addition to symposium fees and reimbursement of reasonable expenses; (f) health care coverage for up to 18 months following the Severance Date; and (g) six months of outplacement assistance, at a cost not to exceed $4,000.

The Addendum further provides for a waiver and release of claims against Sirna by Dr. Usman and a reaffirmance of Dr. Usman’s continuing obligations under previously executed agreements, including confidentiality, assignment of inventions and non-competition, as well as an agreement to arbitrate any disputes arising under the Addendum.

The foregoing is a summary description of certain terms of the Addendum. It is qualified in its entirety by the text of the Addendum, which is attached as an exhibit to this Annual Report on Form 10-K and is incorporated herein by reference. This disclosure is being provided in accordance with the requirements of Item 1.01 of Form 8-K.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by this item is included under “Proposal No. 1: Election of Directors,” “Executive Compensation” and “Compliance with Section 16(a) of the Exchange Act” in our Proxy Statement, to be filed in connection with our 2005 Annual Meeting of Stockholders (the “2005 Proxy Statement”), and is incorporated herein by reference. Information regarding the audit committee of the Company’s board of directors and information regarding an audit committee financial expert is incorporated by reference from information contained under the caption “Audit Committee Report” in the Company’s 2005 Proxy Statement. Information regarding the Company’s code of business conduct and ethics that applies to the Company’s principal executive officer, principal financial officer and controller is incorporated by reference from information contained under the caption “Board of Directors and Committee Meetings—Audit Committee” in the Company’s 2005 Proxy Statement. Information regarding our implementation of procedures for stockholder nominations to our board is incorporated by reference from information contained under the caption “Consideration of Director Nominees—Stockholder Nominees” in the Company’s 2005 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the information under the caption “Executive Compensation” contained in the 2005 Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to the information under the caption “Security Ownership of Certain Beneficial Owners and Management” contained in the 2005 Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the information under the caption “Compensation Committee Interlocks and Insider Participation” and “Certain Transactions” contained in the 2005 Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2004.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to the information under the captions “Report of the Audit Committee,” “Ratification of Selection of Independent Auditors” and “Fees Paid to Ernst & Young” contained in the 2005 Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2004.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) FINANCIAL STATEMENTS

(a)(2) FINANCIAL STATEMENT SCHEDULES

Schedules have been omitted since they are either not required or are not applicable.

(a)(3) EXHIBITS

The information required by this item is set forth on the exhibit index which follows the signature page of this report.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Sirna Therapeutics, Inc.

We have audited the accompanying balance sheets of Sirna Therapeutics, Inc. as of December 31, 2004 and 2003, and the related statements of operations, convertible exchangeable preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sirna Therapeutics, Inc. at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP                    

Denver, Colorado

February 14, 2005

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SIRNA THERAPEUTICS, INC.

BALANCE SHEETS

(in thousands, except for share data)