<SUBMISSION>
<ACCESSION-NUMBER>0001047469-08-001762
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>10
<PERIOD>20071231
<FILING-DATE>20080227
<DATE-OF-FILING-DATE-CHANGE>20080226
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>THERAVANCE INC
<CIK>0001080014
<ASSIGNED-SIC>2834
<IRS-NUMBER>943265960
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-30319
<FILM-NUMBER>08644228
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>901 GATEWAY BLVD
<CITY>SOUTH SAN FRANCISCO
<STATE>CA
<ZIP>94080
<PHONE>6508086000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>901 GATEWAY BLVD
<CITY>S. SAN FRANCISCO
<STATE>CA
<ZIP>94080
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ADVANCED MEDICINE INC
<DATE-CHANGED>20000302
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2182915z10-k.htm
<DESCRIPTION>10-K
<TEXT>
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<FONT SIZE=3 ><A HREF="#08ZAE43901_1">QuickLinks</A></FONT>
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</FONT> <FONT SIZE=1><I> <hr noshade width=100% align=left size=4>
<hr noshade width=100% align=left size=1>  </I></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=1><B>Washington, D.C. 20549  </B></FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>FORM 10-K  </B></FONT></P>

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<TD WIDTH="10%" ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>(Mark One)</B></FONT></TD>
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2><FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
<TD WIDTH="90%" style="font-family:times;"><BR><FONT SIZE=2><B>ANNUAL REPORT PURSUANT TO SECTION&nbsp;13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF&nbsp;1934</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=1><B>For the fiscal year ended December&nbsp;31, 2007</B></FONT></TD>
</TR>
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<TD COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
or</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="90%" style="font-family:times;"><BR><FONT SIZE=2><B>TRANSITION REPORT PURSUANT TO SECTION&nbsp;13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF&nbsp;1934</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=1><B>For the transition period
from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B> Commission File No.&nbsp;0-30319  </B></FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>THERAVANCE,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=1>(Exact name of registrant as specified in its charter) </FONT></P>

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<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Delaware</B></FONT><FONT SIZE=1><BR>
(State or other jurisdiction of incorporation or organization)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>94-3265960</B></FONT><FONT SIZE=1><BR>
(I.R.S. Employer Identification No.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=1><B>901 Gateway Boulevard,<BR>
South San Francisco, California</B></FONT><FONT SIZE=1><BR>
(Address of principal executive offices)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=1><B>94080</B></FONT><FONT SIZE=1><BR>
(Zip Code)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
Registrant's telephone number, including area code: </FONT><FONT SIZE=1><B>650-808-6000</B></FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>SECURITIES
REGISTERED PURSUANT TO SECTION&nbsp;12(b) OF THE ACT: </FONT></P>

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<TH WIDTH="48%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title of Each Class</B></FONT><HR NOSHADE></TH>
<TH WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="48%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Name of Each Exchange On Which Registered</B></FONT><HR NOSHADE></TH>
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<TD WIDTH="48%" ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1><B>Common Stock $0.01 Par Value</B></FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="48%" ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1><B>Nasdaq Global Market</B></FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>SECURITIES
REGISTERED PURSUANT TO SECTION&nbsp;12(g) OF THE ACT:&nbsp;&nbsp;</FONT><FONT SIZE=1><B>NONE</B></FONT></P>

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<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of the Securities
Act.&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if the registrant is not required to file reports pursuant to Section&nbsp;13 or Section&nbsp;15(d) of the
Act.&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12&nbsp;months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements for the
past 90&nbsp;days.&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation&nbsp;S-K (&sect;&nbsp;229.405) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part&nbsp;III of this
Form&nbsp;10-K or any amendment to this Form&nbsp;10-K.&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and
large accelerated filer" in Rule&nbsp;12b-2 of the Exchange Act (Check One): </FONT></P>

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<TD WIDTH="20%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Large accelerated filer&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Accelerated filer&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Non-accelerated filer&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT><BR></FONT> <FONT SIZE=1>(Do not check if a smaller reporting company)</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Smaller reporting company&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
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<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the Exchange
Act).&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate market value of the voting and non-voting common equity (consisting of Common Stock, $0.01 par value and Class&nbsp;A Common Stock,
$0.01 par value) held by non-affiliates of the registrant based upon the closing price of the Common Stock on the Nasdaq Global Market on June&nbsp;30, 2007 was $991,687,968. Shares of
Common Stock and Class&nbsp;A Common Stock held by each executive officer and director and by each person or group who owns 5% or more of the outstanding Common Stock or Class&nbsp;A Common Stock
at June&nbsp;30, 2007 have been excluded. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction
of the management or policies of the registrant or that such person is controlled by or under common control with the registrant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;15, 2008, there were 51,696,607 shares of the registrant's Common Stock and 9,401,499 shares of the registrant's Class&nbsp;A Common Stock outstanding. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>DOCUMENTS INCORPORATED BY REFERENCE  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Specified
portions of the registrant's definitive Proxy Statement to be issued in conjunction with the registrant's 2008 Annual Meeting of Stockholders, which is expected to be filed
not later than 120&nbsp;days after the registrant's fiscal year ended December&nbsp;31, 2007, are incorporated by reference into Part&nbsp;III of this Annual Report. Except as expressly
incorporated by reference, the registrant's Proxy Statement shall not be deemed to be a part of this Annual Report on Form&nbsp;10-K. </FONT></P>

<P style="font-family:times;"><FONT SIZE=1><hr
noshade width=100% align=left size=1>
<hr noshade width=100% align=left size=4> </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> 2007 Form&nbsp;10-K Annual Report  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="bg43901_table_of_contents"> </A>
<A NAME="toc_bg43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>Table of Contents    <BR>    </B></FONT></P>

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<TD COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>PART I</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;1.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Business</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;1A.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Risk Factors</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
17</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;1B.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Unresolved Staff Comments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
31</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;2.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Properties</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
31</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;3.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Legal Proceedings</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
31</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;4.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Submission of Matters to a Vote of Security Holders</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
31</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2><B>PART II</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;5.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
32</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;6.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Financial Data</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
34</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;7.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Management's Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
36</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;7A.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Quantitative and Qualitative Disclosures About Market Risk</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
48</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;8.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Financial Statements and Supplementary Data</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
49</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;9.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
79</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;9A.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Controls and Procedures</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
79</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;9B.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Other Information</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
82</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2><B>PART III</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;10.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Directors, Executive Officers and Corporate Governance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
82</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;11.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Executive Compensation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
82</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;12.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
82</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;13.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Certain Relationships and Related Transactions, and Director Independence</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
82</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;14.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Principal Accounting Fees and Services</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
82</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2><B>PART IV</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
Item&nbsp;15.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><BR>
Exhibits and Financial Statement Schedules</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
83</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Signatures</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
87</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Exhibits</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
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<BR></FONT><FONT SIZE=2><B>Special Note regarding Forward-Looking Statements    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This Annual Report on Form&nbsp;10-K contains forward-looking statements within the meaning of Section&nbsp;27A of the
Securities Act of 1933, as amended, and Section&nbsp;21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve substantial risks, uncertainties and assumptions.
All statements in this Annual Report on Form&nbsp;10-K, other than statements of historical facts, including statements regarding our strategy, future operations, future financial
position, future revenues, projected costs, prospects, plans, intentions, expectations and objectives could be forward-looking statements. The words "anticipates," "believes," "designed," "estimates,"
"expects," "goal," "intends," "may," "plans," "projects," "pursuing," "will," "would" and similar expressions (including the negatives thereof) are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, expectations or objectives disclosed in our forward-looking statements
and the assumptions underlying our forward-looking statements may prove incorrect. Therefore, you should not place undue reliance on our forward-looking statements. Actual results or events could
differ materially from the plans, intentions, expectations and objectives disclosed in the forward-looking statements that we make. Factors that we believe could cause actual results or events to
differ materially from our forward-looking statements include, but are not limited to, those discussed below in "Risk Factors" in Item&nbsp;1A, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item&nbsp;7 and elsewhere in this Annual Report on Form&nbsp;10-K and the risks discussed in our other filings with the Securities and Exchange
Commission (SEC). Our forward-looking statements in this Annual Report on Form&nbsp;10-K are based on current expectations and we do not assume any obligation to update any
forward-looking statements.</I></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_da43901_2"> </A>
<BR></FONT><FONT SIZE=2><B>PART I    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="da43901_item_1._business"> </A>
<A NAME="toc_da43901_3"> </A>
ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;BUSINESS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Overview  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Theravance is a biopharmaceutical company with a pipeline of internally discovered product candidates. We are focused on the discovery, development and
commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease, bacterial infections and gastrointestinal motility dysfunction. Of our six programs in
development, four are in late stage&#151;our telavancin program focusing on treating serious Gram-positive bacterial infections with Astellas Pharma&nbsp;Inc. (Astellas), our
Horizon program (formerly referred to as Beyond Advair) with GlaxoSmithKline&nbsp;plc (GSK), our Gastrointestinal Motility Dysfunction program, and TD-1792, our investigational
antibiotic for the treatment of serious Gram-positive bacterial infections. By leveraging our proprietary insight of multivalency to drug discovery focused primarily on validated targets,
we are pursuing a next generation strategy designed to discover superior medicines in areas of significant unmet medical need. Our headquarters are located at 901 Gateway Boulevard, South San
Francisco, California 94080. Theravance was incorporated in Delaware in November 1996 under the name Advanced Medicine,&nbsp;Inc. and began operations in May 1997. The Company changed its name to
Theravance,&nbsp;Inc. in April 2002. None of our product candidates have been approved for marketing and sale to patients and we have not received any product revenue to date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
strategy focuses on the discovery, development and commercialization of medicines with superior efficacy, convenience, tolerability and/or safety. By primarily focusing on biological
targets that have been clinically validated either by existing medicines or by potential medicines in late-stage clinical studies, we can leverage years of available knowledge regarding a
target's activity and the animal models used to test potential medicines against such targets. We move a product candidate into development after it demonstrates the potential to be superior to
existing medicines or drug candidates in animal models that we believe correlate to human clinical experience. This strategy of developing the next generation of existing medicines or potential
medicines is designed to reduce technical risk and </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>increase
productivity. We believe that we can enhance the probability of successfully developing and commercializing medicines by identifying at least two structurally different product candidates,
whenever practicable, in each therapeutic program. In total, our research and development expenses, including stock-based compensation expense in 2007 and 2006 associated with the adoption of the
Financial Accounting Standards Board's Statement No.&nbsp;123 (revised 2004), "Share-Based Payment" (SFAS&nbsp;123(R)), incurred for all of our therapeutic programs in 2007, 2006 and 2005 were
$155.3&nbsp;million, $166.6&nbsp;million and $137.9&nbsp;million, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on results from ATLAS 1 and ATLAS 2, our large Phase&nbsp;3 clinical studies with telavancin in complicated skin and skin structure infections (cSSSI), in December 2006 we
submitted our first new drug application (NDA) to the U.S. Food and Drug Administration (FDA) for telavancin for the treatment of cSSSI caused by Gram-positive bacteria, including
methicillin-resistant </FONT><FONT SIZE=2><I>Staphylococcus aureus</I></FONT><FONT SIZE=2> (MRSA). Telavancin is a rapidly bactericidal, injectable antibiotic with a multifunctional mechanism of
action. In October 2007, we announced that the FDA issued an
approvable letter for our NDA filing. On January&nbsp;11, 2008, we announced that the Anti-Infective Drugs Advisory Committee (AIDAC) to the FDA was scheduled to meet to discuss
telavancin for the proposed indication to treat cSSSI on February&nbsp;27, 2008. On February&nbsp;23, 2008, the FDA informed us that the AIDAC meeting was cancelled. On February&nbsp;25, 2008,
the FDA issued a public notice stating that the AIDAC meeting had been cancelled to allow time for the FDA to review and resolve several outstanding issues. The public notice further stated that the
FDA intends to continue evaluating the telavancin NDA and will schedule an AIDAC meeting in the future, as needed. We are planning to meet with the FDA to discuss these issues. Telavancin is also
under review for its safety and efficacy by regulatory authorities in the European Union for the treatment of complicated skin and soft tissue infections and in Canada for the treatment of cSSSI. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007, we announced results from ATTAIN 1 and ATTAIN 2, our large Phase&nbsp;3 clinical studies with telavancin in hospital-acquired pneumonia (HAP). In each study,
telavancin achieved its objective of non-inferiority in the all-treated and clinically evaluable patient populations. Currently, we plan to submit an NDA for the HAP indication
to the FDA in 2008. Our goal is for telavancin to become first-line therapy in treating serious Gram-positive cSSSI and HAP infections. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2005, we entered into a collaboration arrangement with Astellas for the development and commercialization of telavancin. In July 2006, Japan was added to our telavancin
collaboration, thereby giving Astellas worldwide rights to this potential medicine. Through December&nbsp;31, 2007, we have received $158.0&nbsp;million in upfront, milestone and other fees from
Astellas and we are eligible to receive up to $60.0&nbsp;million in remaining milestone payments. If telavancin is commercialized, we will be entitled to receive royalties on global sales of
telavancin ranging, on a percentage basis, from the high teens to the upper twenties depending on sales volume. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2002, we entered into our Horizon collaboration with GSK to develop and commercialize a long-acting beta<SUB>2</SUB> agonist (LABA) product candidate for the
treatment of asthma and chronic obstructive pulmonary disease (COPD). This product candidate is intended to be administered via inhalation once daily both as a single new medicine and as part of a new
combination medicine with an inhaled corticosteroid (ICS). The collaboration intends to develop a new generation product to replace Advair&reg;, which had approximately $7.0&nbsp;billion of
sales for 2007 as reported by GSK in February 2008. Each company contributed four LABA product candidates to the collaboration. In April 2007, the collaboration reported results from the
Phase&nbsp;2b clinical program, in which two LABA product candidates, dosed once daily, achieved clinically significant increases in bronchodilation at least equivalent to that of salmeterol dosed
twice daily. In late December 2007 the lead compound in development, a GSK-discovered compound GW642444 ('444), progressed into a 28-day Phase&nbsp;2b study designed to
enroll 600 patients with asthma and progressed into a 28-day Phase&nbsp;2b study designed to enroll 600 patients with COPD in late February&nbsp;2008. In addition, in a recent 8-week,
650-patient Phase&nbsp;2 study of the lead ICS, GW685698 ('698), both doses studied (200 mcg and 400 mcg) showed </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>improved
lung function dosed once daily compared to placebo, with no adverse effect on cortisol excretion. Based on these results, three 8-week studies with '698 comprising a
Phase&nbsp;2b program designed to enroll a total of 1,800 patients with mild, moderate and severe asthma, began enrolling patients in late December 2007. In parallel, combination studies to enable
Phase&nbsp;3 studies with both '444 and '698 are scheduled to initiate in 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2004, we entered into a strategic alliance agreement with GSK. Under this alliance, GSK received an option to license exclusive development and commercialization rights to
product candidates from all of our full drug discovery programs initiated prior to September&nbsp;1, 2007, on pre-determined terms and on an exclusive, worldwide basis. The remaining
programs that GSK has the right to license are (i)&nbsp;our peripheral Opioid-Induced Bowel Dysfunction (PUMA) program, (ii)&nbsp;our AT1 Receptor&#151;Neprilysin Inhibitor hypertension
(ARNI) program and (iii)&nbsp;our MonoAmine Reuptake Inhibitor chronic pain (MARIN) program. When GSK exercises its option to license any of our programs, we receive an upfront payment, additional
payments upon achievement of future milestones and royalties on any future sales. In addition, GSK funds all of the subsequent development and commercialization costs for product candidates in such
programs. Consistent with our strategy, we will be obligated at our sole cost to discover two structurally different product candidates for any programs that are licensed by GSK under the alliance. To
date, GSK has licensed our two COPD programs under the terms of the strategic alliance, our long-acting muscarinic antagonist (LAMA) program and our bifunctional muscarinic
antagonist&#151;beta<SUB>2</SUB> agonist (MABA) program, and we have discovered and delivered to GSK two structurally different product candidates for both of these programs. In September
2007, we announced that we retained full ownership rights of our Gastrointestinal Motility Dysfunction program as a result of GSK's decision not to exercise its right to license the program under the
strategic alliance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GSK
currently owns all of our Class&nbsp;A common stock, which represents approximately 15.4% of our outstanding stock as of February&nbsp;15, 2008. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Our Programs  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our drug discovery efforts are based on the principles of multivalency. Multivalency involves the simultaneous attachment of a single molecule to multiple binding
sites on one or more biological targets. We have applied our expertise in multivalency to discover product candidates and lead compounds in a wide variety of therapeutic areas. We have conducted
extensive research in both relevant laboratory and animal models to demonstrate that by applying the design principles of multivalency, we can achieve significantly stronger and more selective
attachment of our compounds to a variety of intended biological targets. We believe that medicines that attach more strongly and selectively to their targets will be superior to many medicines by
substantially improving potency, duration of action and/or safety. The table below summarizes the status of our product candidates for internal development or co-development. Prior to
entering into the various phases below, a product candidate undergoes preclinical studies which include formulation development or safety testing in animal models which are required prior to
initiating human clinical studies. </FONT></P>

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<IMG SRC="g512114.jpg" ALT="GRAPHIC" WIDTH="684" HEIGHT="370">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the table above: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Phase&nbsp;1
indicates initial clinical safety testing in healthy volunteers, or studies directed toward understanding the mechanisms of action of the drug.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Phase&nbsp;2
indicates further clinical safety testing and preliminary efficacy testing in a limited patient population.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Phase&nbsp;3
indicates evaluation of clinical efficacy and safety within an expanded patient population.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>NDA
indicates that a new drug application has been submitted to and accepted for filing by the FDA.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>We
consider programs in which at least one compound has successfully completed a Phase&nbsp;2a study showing efficacy and tolerability as having achieved Proof of Concept. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>6</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>"Development
Status" indicates the most advanced stage of development that has been completed or is in process. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Our Relationship with Astellas  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>2005 License, Development and Commercialization Agreement  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2005, we entered into a collaboration arrangement with Astellas for the development and commercialization of telavancin. In July 2006, Japan was added
to our telavancin collaboration, thereby giving Astellas worldwide rights to this potential medicine. Through December&nbsp;31, 2007, we have received $158.0&nbsp;million in upfront, milestone and
other fees from Astellas and we are eligible to receive up to an additional $60.0&nbsp;million in remaining milestone payments related to regulatory filings and approvals in various regions of the
world. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
telavancin is commercialized, we will be entitled to receive royalties on global sales of telavancin that, on a percentage basis, range from the high teens to the upper twenties
depending on sales volume. Under this arrangement, we will be responsible for substantially all costs to develop and obtain U.S. regulatory approval for telavancin for cSSSI and HAP, and Astellas will
be responsible for substantially all costs associated with commercialization and further development of telavancin. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Our Relationship with GlaxoSmithKline  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Horizon Program  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, we entered into our Horizon collaboration with GSK to develop and commercialize a LABA product candidate for the treatment of asthma and COPD.
This product candidate is intended to be administered via inhalation once daily both as a single new medicine and as part of a new combination medicine with an ICS. Each company contributed four LABA
product candidates to the collaboration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Horizon program, in 2002 we received from GSK an upfront payment of $10.0&nbsp;million and sold to an affiliate of GSK shares of our Series&nbsp;E preferred
stock for an aggregate purchase price of $40.0&nbsp;million. In addition, we were eligible to receive up to $495.0&nbsp;million in development, approval, launch, and sales milestones and royalties
on the sales of any product resulting from this program. As of December&nbsp;31, 2007, we have received a total of $60.0&nbsp;million in upfront and development milestone payments. GSK has
determined to focus the collaboration's resources on the development of the lead LABA, GW642444, a GSK-discovered compound, together with the lead ICS. Accordingly, we do not expect to
receive any further milestone payments from the Horizon program. In the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple regions in
the world, we will be obligated to make milestone payments to GSK of up to $220.0&nbsp;million. Based on available information, we do not estimate that a significant portion of these potential
milestone payments to GSK are likely to be made in the next three years. In addition, we are entitled to receive the same royalties on product sales of medicines from the Horizon program, regardless
of whether the product candidate originated with Theravance or with GSK. The royalty structure is downward-tiering and would result in an average percentage royalty rate in the low- to
mid-teens at annual net sales of up to approximately $4.0&nbsp;billion and the average royalty rate would decline to single digits at annual net sales of more than $6.0&nbsp;billion.
Sales of single agent LABA medicines and combination LABA/ICS medicines would be combined for the purposes of this royalty calculation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>2004 Strategic Alliance  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2004, we entered into our strategic alliance with GSK. Under this alliance, GSK received an option to license exclusive development and commercialization
rights to product candidates from all </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>7</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>of
our full drug discovery programs initiated prior to September&nbsp;1, 2007, on pre-determined terms and on an exclusive, worldwide basis. We are obligated to use diligent efforts to
discover and deliver compounds for the alliance and, pursuant to our obligations, we initiated three new full discovery programs between May 2004 and August 2007. These three programs are
(i)&nbsp;our peripheral Opioid-Induced Bowel Dysfunction (PUMA) program, (ii)&nbsp;our AT1 Receptor&#151;Neprilysin Inhibitor hypertension (ARNI) program and (iii)&nbsp;our MonoAmine
Reuptake Inhibitor chronic pain (MARIN) program. GSK has the right to license product candidates from these three programs, and must exercise this right no later than sixty days subsequent to the
"proof-of-concept" stage (generally defined as the successful completion of a Phase&nbsp;2a clinical study showing efficacy and tolerability if the biological target for the
drug has been clinically validated by an existing medicine, and successful completion of a Phase&nbsp;2b clinical study showing efficacy and tolerability if the biological target for the drug has
not been clinically validated by an existing medicine). Under the terms of the strategic alliance, GSK has only one opportunity to license each of our programs. Upon its decision to license a program,
GSK is responsible for funding all future development, manufacturing and commercialization activities for product candidates in that program. In addition, GSK is obligated to use diligent efforts to
develop and commercialize product candidates from any program that it licenses. Consistent with our strategy, we are obligated at our sole cost to discover two structurally different product
candidates for any programs that are licensed by GSK under the alliance. If these programs are successfully advanced through development by GSK, we are entitled to receive clinical, regulatory and
commercial milestone payments and royalties on any sales of medicines developed from these programs. For product candidates licensed to date under this agreement, the royalty structure for a product
containing one of our compounds as a single active ingredient would result in an average percentage royalty rate in the low double digits. If a product is successfully commercialized, in addition to
any royalty revenue that we receive, the total upfront and milestone payments that we could receive in any given program that GSK licenses range from $130.0&nbsp;million to $162.0&nbsp;million for
programs with single-agent medicines and up to $252.0&nbsp;million for programs with both a single-agent and a combination medicine. If GSK chooses not to license a program, we retain all rights to
the program and may continue the program alone or with a third party. To date, GSK has licensed our two COPD programs: LAMA and MABA. We received a $5.0&nbsp;million payment from GSK in connection
with its license of each of our LAMA and MABA programs in August 2004 and March 2005, respectively. GSK has chosen not to license our bacterial infections program, our anesthesia program and our
Gastrointestinal Motility Dysfunction program. There can be no assurance that GSK will license any other programs under the terms of the alliance agreement or at all, which could have an adverse
effect on our business and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the strategic alliance with GSK, we received from GSK a payment of $20.0&nbsp;million. In May 2004, GSK purchased through an affiliate 6,387,096 shares of our
Class&nbsp;A common stock for an aggregate purchase price of $108.9&nbsp;million. Through December&nbsp;31, 2007, we have received $36.0&nbsp;million in upfront and milestone payments from GSK
relating to the strategic alliance agreement. In addition, pursuant to a partial exercise of its rights under the governance agreement, upon the closing of our initial public offering on
October&nbsp;8, 2004, GSK purchased through an affiliate an additional 433,757
shares of Class&nbsp;A common stock. GSK's ownership position of our outstanding stock was approximately 15.4% as of February&nbsp;15, 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the alliance, GSK had the right between June&nbsp;1 and July&nbsp;1, 2007, to elect to acquire (call) half of Theravance's outstanding shares of common stock at $54.25 per
share. On June&nbsp;29, 2007, GSK elected not to exercise the call, which triggered the right of our stockholders to require us to redeem (put) up to 50% of their common stock at $19.375 per share
between August&nbsp;1 and September&nbsp;12, 2007 with funds provided by GSK. One stockholder exercised his put right for one share of common stock. In exchange for GSK providing the funds to pay
the redemption price for the one share of common stock, and pursuant to our certificate of incorporation, we issued to GSK one share of our Class&nbsp;A </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>8</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>common
stock. The common share that we redeemed pursuant to the stockholder's exercise of the put right was retired and cancelled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Our Relationship with AstraZeneca AB  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>2006 License Agreement with AstraZeneca AB  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2006, we entered into a license agreement with AstraZeneca AB (AstraZeneca) pursuant to which we granted an exclusive, worldwide license to AstraZeneca to
develop and commercialize our intravenous anesthetic compound TD-4756. We received a $1.0&nbsp;million upfront payment from AstraZeneca and we are eligible to receive milestone payments
and royalties on global sales. Through December&nbsp;31, 2007, we have fully recognized the upfront payment as revenue ($0.4&nbsp;million and $0.6&nbsp;million in 2007 and 2006, respectively),
due to the completion of our performance obligations under the contract. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Development Programs  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Bacterial Infections  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our bacterial infections program has been dedicated to finding new antibiotics for serious infections due to </FONT><FONT SIZE=2><I>Staphylococcus
aureus</I></FONT><FONT SIZE=2> and other Gram-positive bacteria, including MRSA. Our program resulted in the discovery of telavancin and TD-1792, both investigational
antibiotics for the treatment of serious Gram-positive bacterial infections including resistant pathogens such as MRSA. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Telavancin Status  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telavancin, the lead product candidate in our bacterial infections program targeting resistant Gram-positive pathogens, is a bactericidal,
once-daily injectable antibiotic with a multifunctional mechanism of action. Our goal is for telavancin to become first-line therapy in treating serious
Gram-positive cSSSI and HAP bacterial infections. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on results from ATLAS 1 and ATLAS 2, our large, multi-center, multinational, double-blind, randomized Phase&nbsp;3 clinical studies in which 1,867 patients were enrolled and
treated, 719 of whom were infected with MRSA, in December 2006 we submitted our first NDA to the FDA for telavancin for the treatment of cSSSI caused by Gram-positive bacteria. In October
2007, the FDA issued an approvable letter for our NDA filing. The FDA letter indicated that the telavancin application is approvable, subject to: resolution of current good manufacturing practices
(cGMP) compliance issues not specifically related to telavancin at a third-party manufacturer; and submission of revised labeling or re-analyses of clinical data or additional clinical
data. On January&nbsp;11, 2008, we announced that the Anti-Infective Drugs Advisory Committee (AIDAC) to the FDA was scheduled to meet to discuss telavancin for the proposed indication
to treat cSSSI on February&nbsp;27, 2008. On February&nbsp;23, 2008, the FDA informed us that the AIDAC meeting was cancelled. On February&nbsp;25, 2008, the FDA issued a public notice stating
that the AIDAC meeting had been cancelled to allow time for the FDA to review and resolve several outstanding issues. The public notice further stated that the FDA intends to continue evaluating the
telavancin NDA and will schedule an AIDAC meeting in the future, as needed. We are planning to meet with the FDA to discuss these issues. Telavancin is also under review for its safety and efficacy by
regulatory authorities in the European Union for the treatment of complicated skin and soft tissue infections and in Canada for the treatment of cSSSI. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007 we announced results from ATTAIN 1 and ATTAIN 2, our large, multi-center, multinational, double-blind, randomized Phase&nbsp;3 clinical studies in HAP in which 1,503
patients were enrolled and treated, 464 of whom were infected with MRSA. In each study, telavancin achieved its objective of non-inferiority in the all-treated and clinically
evaluable patient populations. Currently, we plan to submit an NDA for the HAP indication to the FDA in 2008. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>9</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><I> TD-1792 Status  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TD-1792 is an investigational heterodimer antibiotic that combines the antibacterial activities of a glycopeptide and a beta-lactam in one
molecule. The goal of our program with TD-1792 is to develop a next-generation antibiotic for the treatment of serious infections caused by MRSA. In July 2007, we announced
results from an approximately 200-patient study in cSSSI with TD-1792. In September 2007, we announced that we retained full ownership rights of TD-1792 as a result
of Astellas' decision not to exercise its right to license the compound under our telavancin collaboration arrangement. We are currently conducting further studies with TD-1792 to evaluate
the potential of this compound in more serious infections such as bacteremia. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Respiratory  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have three development programs directed toward asthma and/or chronic obstructive pulmonary disease (COPD): our Horizon program with GSK, and our MABA and our
LAMA programs, each of which have been licensed to GSK under our strategic alliance. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Horizon Program with GSK  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The goal of our Horizon program with GSK is to develop and commercialize a LABA product candidate intended for once-daily administration as a single
agent for treatment of COPD or in combination with an ICS for the treatment of asthma and COPD. We believe once-a-day dosing would be a significant convenience and compliance-
enhancing advantage leading to improved overall clinical outcomes in patients with asthma or COPD. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
collaboration intends to develop a new generation product to replace GSK's Advair&reg;, an inhaled combination medicine consisting of a long-acting
beta<SUB>2</SUB> agonist (salmeterol) and an ICS (fluticasone) taken twice daily, which had sales of approximately $7.0&nbsp;billion for 2007 as reported by GSK in February 2008. Each company
contributed four LABA
product candidates to the collaboration. Beta<SUB>2</SUB> agonists are medicines that work by relaxing the muscles that line the bronchial airways, allowing the capacity of the airways to expand
(known as bronchodilation), leading to the relief and/or prevention of many of the symptoms of asthma and COPD. Beta<SUB>2</SUB> agonists, like many other medications to treat asthma and COPD, are
administered by inhalation. Patients typically self-administer these medications by breathing in a measured amount of drug using hand-held devices, such as a metered dose
inhaler (MDI), or a dry powder inhaler (DPI). </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Horizon Status  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2007 the collaboration reported results from the Phase&nbsp;2b clinical program, in which two LABA product candidates, dosed once daily, achieved
clinically significant increases in bronchodilation at least equivalent to that of salmeterol dosed twice daily. Based on these results, in late December 2007 the lead LABA compound in development, a
GSK-discovered compound GW642444 ('444), progressed into a 28-day Phase&nbsp;2b study designed to enroll 600 patients with asthma and progressed into a 28-day Phase&nbsp;2b
study designed to enroll 600 patients with COPD in late February 2008. In addition, in a recent 8-week, 650-patient Phase&nbsp;2 study of the lead ICS, GW685698 ('698), both
doses studied (200 mcg and 400 mcg) showed improved lung function dosed once daily compared to placebo, with no adverse effect on cortisol excretion. Based on these results, three 8-week
studies with '698 comprising a Phase&nbsp;2b program designed to enroll a total of 1,800 patients with mild, moderate and severe asthma, began enrolling patients in late December 2007. In parallel,
combination studies to enable Phase&nbsp;3 studies with both '444 and '698 are scheduled to initiate in 2008. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>10</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Bifunctional Muscarinic Antagonist-Beta<SUB>2</SUB> Agonist (MABA)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our MABA program, we are developing with GSK a long-acting inhaled bronchodilator that is bifunctional, meaning that one small molecule functions
both as a muscarinic antagonist and as a beta<SUB>2</SUB> receptor agonist. By combining bifunctional activity and high lung selectivity, we intend to develop a medicine with greater efficacy than
single-mechanism bronchodilators (such as tiotropium or salmeterol) and with equal or better tolerability. This bifunctional bronchodilator could potentially then serve as a basis for improved "triple
therapy" through co-formulation with another inhaled respiratory compound into a single product that could potentially deliver three complementary therapeutic effects for patients with
respiratory disease. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GSK
is obligated to fund all development, manufacturing and commercialization activities for product candidates in this program. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> MABA Status  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The first compound in the MABA program, GSK961081, successfully completed single- and multiple-dose Phase&nbsp;1 studies in healthy volunteers and
commenced a Phase&nbsp;2 study in late October 2007. We expect to complete and report results from this study in late 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Long-Acting Muscarinic Antagonist (LAMA)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inhaled muscarinic antagonists are frequently used as bronchodilators for COPD. Inhaled muscarinic antagonists work by inhibiting muscarinic receptors in the
bronchial airways, which leads to muscle relaxation and improved lung function. We are developing with GSK an inhaled LAMA designed to produce a prolonged blockade of the relevant receptor
sub-types while also being highly lung-selective, which means that lower concentrations of drug should get into the systemic circulation. Higher lung selectivity should result
in improved tolerability. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GSK
is obligated to fund all development, manufacturing and commercialization activities for product candidates in this program. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> LAMA status  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The investigational inhaled bronchodilator GSK1160724 commenced a Phase&nbsp;1 study in December 2007. We expect to complete and report results from this study
in 2008. GSK currently has at least one competing LAMA product candidate that is further advanced in development than our LAMA product candidate, which is the second LAMA compound we delivered to GSK
under this program. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Gastrointestinal (GI) Motility Dysfunction  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Gastrointestinal (GI) Motility Dysfunction program is dedicated to finding new medicines for GI motility disorders such as chronic idiopathic constipation
(CIC), constipation-predominant irritable bowel syndrome (C-IBS), functional dyspepsia and delayed gastric emptying. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
lead compound in this area is TD-5108, a highly selective 5-HT4 receptor agonist. We believe that the high degree of selectivity of TD-5108
provides the potential for it to become a next-generation medicine for the treatment of severe constipation and possibly C-IBS. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> TD-5108 Status  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2007 we announced results from our approximately 400-patient ACCORD Phase&nbsp;2 clinical study in chronic constipation with
TD-5108. In September 2007, we announced that we retained full ownership rights of our GI Motility Dysfunction program as a result of GSK's decision not to exercise its right to license
the program under the strategic alliance. At our end-of-Phase&nbsp;2 meeting with the FDA for TD-5108 in late 2007, the FDA confirmed that the TD-5108
data package from the ACCORD study was adequate to progress TD-5108 into Phase&nbsp;3 efficacy and safety studies in patients </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>with
CIC. The FDA also indicated that the size of the clinical program should be consistent with the International Conference on Harmonisation (ICH) guidelines for the development of drugs for chronic
use. We recently completed enrollment in a thorough QTc study on this compound. Our preliminary review of the electrocardiogram data from the study suggests that such data is unreliable due to
problems with the conduct of the study, not with the intrinsic properties of TD-5108. We believe that lack of assay sensitivity in the active control arm of the study (moxifloxacin)
renders the results uninterpretable, and that the study will need to be repeated in order to generate scientifically valid results. We currently intend to initiate a repeat of the study later this
year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Research Programs  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently we have three full discovery programs: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our
Peripheral Opioid-Induced Bowel Dysfunction (or PUMA) Program aims to generate a once-daily oral treatment to prevent bowel dysfunction in patients treated
with opioid agonists. The Investigational New Drug (IND) application for the lead compound in the PUMA Program was submitted to the FDA on February&nbsp;26, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our
AT1 Receptor&#151;Neprilysin Inhibitor (or ARNI) Program seeks to produce an effective monotherapy for hypertension. The ARNI Program is in discovery stage.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our
MonoAmine Reuptake Inhibitor (or MARIN) Program is attempting to identify an efficacious oral treatment of chronic pain. The MARIN Program is in discovery stage. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Multivalency  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our proprietary approach combines chemistry and biology to efficiently discover new product candidates using our expertise in multivalency. Multivalency refers to
the simultaneous attachment of a single molecule to multiple binding sites on one or more biological targets. When compared to monovalency, whereby a molecule attaches to only one binding site,
multivalency can significantly increase a compound's potency, duration of action and/or selectivity. Multivalent compounds generally consist of several individual small molecules, at least one of
which is biologically active when bound to its target, joined by linking components. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
approach is based on an integration of the following insights: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Many
targets have multiple binding sites and/or exist in clusters with similar or different targets;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Biological
targets with multiple binding sites and/or those that exist in clusters lend themselves to multivalent drug design;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Molecules
that simultaneously attach to multiple binding sites can exhibit considerably greater potency, duration of action and/or selectivity than molecules that attach to
only one binding site; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Greater
potency, duration of action and/or selectivity provides the basis for superior therapeutic effects, including enhanced convenience, tolerability and/or safety
compared to conventional drugs. </FONT></DD></DL>
</UL>
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<P style="font-family:times;"><FONT SIZE=2><B>Our Strategy  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. The key elements of our
strategy are to: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Apply our expertise in multivalency primarily to validated targets to efficiently discover and develop superior medicines in areas of
significant unmet medical need.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We intend to continue to concentrate our efforts on discovering and developing product candidates where: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>existing
drugs have levels of efficacy, convenience, tolerability and/or safety that are insufficient to meet an important medical need; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we
believe our expertise in multivalency can be applied to create superior product candidates that are more potent, longer acting and/or more selective than currently
available medicines; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>there
are established animal models that can be used to provide us with evidence as to whether our product candidates have the potential to provide superior therapeutic
benefits relative to current medicines; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>there
is a relatively large commercial opportunity. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identify two structurally different product candidates in each therapeutic program whenever
practicable.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We believe that we can increase the likelihood of successfully bringing superior medicines to market by identifying, whenever practicable, two product
candidates for development in each program. Our second product candidates are typically in a different structural class from the first product candidate. Applying this strategy can reduce our
dependence on any one product candidate and provide us with the potential opportunity to commercialize two compounds in a given area. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Partner with global pharmaceutical companies.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our strategy is to seek collaborations with leading
global pharmaceutical companies to accelerate development and commercialization of our product candidates
at the strategically appropriate time. Our Horizon program and our strategic alliance with GSK, and our telavancin collaboration with Astellas, are examples of these types of partnerships. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leverage the extensive experience of our people.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have an experienced senior management team with
many years of experience discovering, developing and commercializing new medicines with companies such as Bristol-Myers Squibb Company, Merck&nbsp;&amp;&nbsp;Co., Millennium
Pharmaceuticals,&nbsp;Inc., Pfizer Inc, Gilead Sciences,&nbsp;Inc. and ICOS Corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Improve, expand and protect our technical capabilities.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have created a substantial body of
know-how and trade secrets in the application of our multivalent approach to drug discovery. We believe this is a significant asset that distinguishes us from our competitors. We expect to
continue to make substantial investments in multivalency and other technologies to maintain what we believe are our competitive advantages in drug discovery. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Manufacturing  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently rely on a number of third parties, including contract manufacturing organizations and our collaborative partners, to produce our compounds.
Manufacturing of compounds in our Horizon, LAMA and MABA programs is handled by GSK. Additionally, GSK will be responsible for the manufacturing of any additional product candidates associated with
the programs that it licenses under the strategic alliance agreement. For telavancin, we are responsible for the manufacture of active pharmaceutical ingredient (API) and drug product for the first
six months of commercialization if telavancin is approved for sale by regulatory authorities. The October 2007 FDA approvable letter regarding telavancin indicated that our third-party manufacturer
for telavancin drug product would have to resolve cGMP compliance issues not specifically related to telavancin prior to the approval of telavancin. This supplier subsequently received a warning
letter from the FDA related to these issues and, to date, the supplier has been unable to reach formal resolution of these issues with the FDA. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>13</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Astellas
is responsible for manufacturing API and drug product for commercial sale or any further development thereafter. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that we have in-house expertise to manage a network of third-party manufacturers. We believe that we will be able to continue to negotiate third party
manufacturing arrangements on commercially reasonable terms and that it will not be necessary for us to develop internal manufacturing capacity in order to successfully commercialize our products.
However, if we are unable to obtain contract manufacturing, or obtain such manufacturing on commercially reasonable terms, or if manufacturing is interrupted at one of our suppliers, whether due to
regulatory or other reasons, we may not be able to develop or commercialize our products as planned. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Government Regulation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The development and commercialization of our product candidates and our ongoing research are subject to extensive regulation by governmental authorities in the
United States and other countries. Before marketing in the United States, any medicine we develop must undergo rigorous preclinical studies and clinical studies and an extensive regulatory approval
process implemented by the FDA under the Federal Food, Drug, and Cosmetic Act. Outside the United States, our ability to market a product depends upon receiving a marketing authorization from the
appropriate regulatory authorities. The requirements governing the conduct of clinical studies, marketing authorization, pricing and reimbursement vary widely from country to country. In any country,
however, we will be permitted to commercialize our medicines only if the appropriate regulatory authority is satisfied that we have presented adequate evidence of the safety, quality and efficacy of
our medicines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before
commencing clinical studies in humans in the United States, we must submit to the FDA an Investigational New Drug application that includes, among other things, the results of
preclinical studies. If the FDA approves the Investigational New Drug application, clinical studies are usually carried out in three phases and must be conducted under FDA oversight. These phases
generally include the following: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Phase&nbsp;1.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The product candidate is introduced into healthy human volunteers and is tested for
safety, dose tolerance and pharmacokinetics. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Phase&nbsp;2.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The product candidate is introduced into a limited patient population to assess the
efficacy of the drug in specific, targeted indications, assess dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Phase&nbsp;3.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If a compound is found to be potentially effective and to have an acceptable safety
profile in Phase&nbsp;2 evaluations, the clinical study will be expanded to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
results of product development, preclinical studies and clinical studies must be submitted to the FDA as part of a new drug application, or NDA. The NDA also must contain extensive
manufacturing information. NDAs for new chemical entities are subject to timelines governed by the Prescription Drug User Fee Act (PDUFA) which requires FDA action within six months of acceptance for
filing for applications that are granted priority review and ten months for applications that receive standard review. At the end of the applicable period, FDA must take action stating that the
application is (i)&nbsp;approved, (ii)&nbsp;approvable, or (iii)&nbsp;not approvable. Once approved, the FDA may withdraw the product approval if compliance with pre- and
post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require post-marketing studies,
referred to as Phase&nbsp;4 studies, to monitor the effect
of approved products, and may limit further marketing of the product based on the results of these post-marketing studies. The FDA has broad post-market regulatory and
enforcement powers, including the ability to suspend or delay issuance of approvals, seize or recall products, withdraw approvals, enjoin violations, and institute criminal prosecution. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>14</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we obtain regulatory approval for a medicine, this clearance will be limited to those diseases and conditions for which the medicine is effective, as demonstrated through clinical
studies. Even if this regulatory approval is obtained, a marketed medicine, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA.
Discovery of previously unknown problems with a medicine, manufacturer or facility may result in restrictions on the medicine or manufacturer, including costly recalls or withdrawal of the medicine
from the market. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous
substances in connection with our research. In each of these areas, as above, the FDA and other regulatory authorities have broad regulatory and enforcement powers, including the ability to suspend or
delay issuance of approvals, seize or recall products, withdraw approvals, enjoin violations, and institute criminal prosecution, any one or more of which could have a material adverse effect upon our
business, financial condition and results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outside
the United States our ability to market our products will also depend on receiving marketing authorizations from the appropriate regulatory authorities. The regulatory approval
process in other countries includes all of the risks associated with FDA approval described above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Patents and Proprietary Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will be able to protect our technology from unauthorized use by third parties only to the extent that our technology is covered by valid and enforceable
patents or is effectively maintained as trade secrets. Our success in the future will depend in part on obtaining patent protection for our product candidates. Accordingly, patents and other
proprietary rights are essential elements of our business. Our policy is to seek in the United States and selected foreign countries patent protection for novel technologies and compositions of matter
that are commercially important to the development of our business. For proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other
elements of our drug discovery process that involve proprietary know-how and technology that is not covered by patent applications, we rely on trade secret protection and confidentiality
agreements to protect our interests. We require all of our employees, consultants and advisors to enter into confidentiality agreements. Where it is necessary to
share our proprietary information or data with outside parties, our policy is to make available only that information and data required to accomplish the desired purpose and only pursuant to a duty of
confidentiality on the part of those parties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, we own 111 issued United States patents and 377 granted foreign patents. In addition, we have 141 United States patent applications pending and 788
foreign patent applications pending. The claims in these various patents and patent applications are directed to compositions of matter, including claims covering product candidates, lead compounds
and key intermediates, pharmaceutical compositions, methods of use and processes for making our compounds along with methods of design, synthesis, selection and use relevant to multivalency in general
and to our research and development programs in particular. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;United
States issued patents and foreign patents generally expire 20&nbsp;years after filing. The patent rights relating to telavancin owned by us and licensed to Astellas currently
consist of United States patents that expire between 2019 and 2024, additional pending United States patent applications and counterpart patents and patent applications in a number of jurisdictions,
including Europe. Nevertheless, issued patents can be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products and threaten
our ability to commercialize our product candidates. Our patent position, similar to other companies in our industry, is generally uncertain and involves complex legal and factual questions. To
maintain our proprietary position we will need to obtain effective claims and enforce these claims once granted. It is possible that, before any of our products can be commercialized, any related
patent may expire or remain in </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>force
only for a short period following commercialization, thereby reducing any advantage of the patent. Also, we do not know whether any of our patent applications will result in any issued patents
or, if issued, whether the scope of the issued claims will be sufficient to protect our proprietary position. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have entered into a License Agreement with Janssen Pharmaceutical pursuant to which we have licensed rights under certain patents owned by Janssen covering an excipient used in the
formulation of telavancin. We believe that the general and financial terms of the agreement with Janssen are ordinary course terms. Pursuant to the terms of this license agreement, we are obligated to
pay royalties and milestone payments to Janssen based on any commercial sales of telavancin. Astellas has agreed to assume responsibility for these payments under the terms of our license agreement
with them. The license is terminable by us upon prior written notice to Janssen or upon an uncured breach or a liquidation event of one of the parties. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Competition  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. To the extent that we are
able to develop medicines, they are likely to compete with existing drugs that have long histories of effective and safe use and with new therapeutic agents. We expect that any medicines that we
commercialize with our collaborative partners or on our own will compete with existing, market-leading medicines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater
commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>discover
and develop medicines that are superior to other products in the market;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>attract
qualified scientific, product development and commercial personnel;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>obtain
patent and/or other proprietary protection for our medicines and technologies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>obtain
required regulatory approvals; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>successfully
collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telavancin.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that, if approved, telavancin will compete with vancomycin, a generic drug that is manufactured by
a variety of companies, as well as other drugs targeted at Gram-positive bacterial infections. Currently marketed products include but are not limited to daptomycin (marketed by Cubist
Pharmaceuticals,&nbsp;Inc.), linezolid (marketed by Pfizer Inc) and tigecycline (marketed by Wyeth). In addition, NDAs for two additional compounds, dalbavancin (marketed by Pfizer Inc; received an
approvable letter from the FDA in June 2006) and ceftobiprole (developed by Basilea Pharmaceuticals and marketed by Johnson&nbsp;&amp; Johnson; NDA submitted in May
2007) are currently being reviewed by the FDA. Additional compounds in late-stage development that represent potential competition for telavancin include, but are not limited to:
oritavancin (being developed by Targanta Therapeutics), iclaprim (being developed by Arpida&nbsp;Ltd), and ceftaroline (being developed by Forest Laboratories). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Horizon Program with GSK.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that, if approved, any product from our Horizon program with GSK will compete with a
number of approved bronchodilator drugs and drug candidates under development that are designed to treat asthma and COPD. These include but are not limited to salmeterol and fluticasone (marketed by
GSK), formoterol and budesonide (marketed by Novartis and AstraZeneca), and tiotropium (marketed by Boehringer Ingelheim and Pfizer Inc). Indacaterol as a single agent and in combination with an ICS
(mometasone), is being developed by Novartis and Schering-Plough. In addition, indacaterol combined with a muscarinic antagonist is being developed by </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>16</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Novartis.
New combinations of formoterol with ciclesonide, fluticasone or mometasone are being developed by Sanofi-Aventis, Abbott (with SkyePharma), and Novartis (with Schering-Plough) respectively.
All of these efforts represent potential competition for any product from our Horizon program. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, as the principles of multivalent medicine design become more widely known and appreciated based on patent and scientific publications and regulatory filings, we expect the
field to become highly competitive. Pharmaceutical companies, biotechnology companies and academic and research institutions may seek to develop product candidates based upon the principles underlying
our multivalent technologies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Employees  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, we had 311 full-time employees, over 252 of which were primarily engaged in research and development activities. None
of our employees are represented by a labor union. We consider our employee relations to be good. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Available Information  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Internet address is </FONT><FONT SIZE=2><I>www.theravance.com</I></FONT><FONT SIZE=2>. Our investor relations website is located at </FONT> <FONT
SIZE=2><I>http://ir.theravance.com</I></FONT><FONT SIZE=2>. We make available free of charge on our investors relations website under "SEC Filings" our Annual Reports on
Form&nbsp;10-K, Quarterly Reports on Form&nbsp;10-Q, Current Reports on Form&nbsp;8-K, our directors' and officers'
Section&nbsp;16 Reports and any amendments to those reports as soon as reasonably practicable after filing or furnishing such materials to the U.S. Securities and Exchange Commission (SEC). The
information found on our website is not part of this or any other report that we file with or furnish to the SEC. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dc43901_item_1a._risk_factors"> </A>
<A NAME="toc_dc43901_1"> </A>
ITEM 1A.&nbsp;&nbsp;&nbsp;&nbsp;RISK FACTORS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the other information in this Annual Report on Form&nbsp;10-K, the following risk factors should be considered carefully in
evaluating our business and us. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Risks Related to our Business  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If telavancin is not approved by regulatory agencies, including the U.S. Food and Drug Administration, our business will be adversely affected and the price of our securities
will decline.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telavancin is the first product candidate for which we submitted a new drug application (NDA) to the U.S. Food and Drug Administration (FDA). On
October&nbsp;19, 2007 we received an approvable letter from the FDA indicating that our telavancin NDA is approvable, subject to: resolution of current good manufacturing practices (cGMP) compliance
issues not specifically related to telavancin at our third-party manufacturer; and submission of revised labeling or re-analyses of clinical data or additional clinical data. Although we
believe that no additional clinical studies will need to be initiated to respond to the approvable letter, there can be no assurance that we will be able to respond fully or adequately to the FDA's
requests using currently existing clinical data, that our third-party manufacturer will successfully resolve the cGMP issues that the FDA noted, or that the FDA will approve the current telavancin NDA
on the basis of existing preclinical and clinical data or at all. If we are required to undertake additional clinical trials or to identify and qualify a new contract manufacturer for telavancin, we
would incur significant additional cost and regulatory action on our NDA would be materially delayed. On January&nbsp;11, 2008, we announced that the Anti-Infective Drugs Advisory
Committee (AIDAC) to the FDA was scheduled to meet to discuss telavancin for the proposed indication to treat complicated skin and skin structure infections (cSSSI) on February&nbsp;27, 2008, and on
February&nbsp;23, 2008, the FDA informed us that the AIDAC meeting was cancelled. On February&nbsp;25, 2008, the FDA issued a public notice stating that the AIDAC meeting had been cancelled to
allow time </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>17</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>for
the FDA to review and resolve several outstanding issues. The public notice further stated that the FDA intends to continue evaluating the telavancin NDA and will schedule an AIDAC meeting in the
future, as needed. We are planning to meet with the FDA to discuss these issues. Any adverse developments or results or perceived adverse developments or results with respect to our telavancin NDA
and, if rescheduled, the AIDAC meeting could adversely affect the prospects of telavancin and would cause the price of our securities to fall. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telavancin
is also under review by European Union and Canadian regulatory agencies. If the regulatory authorities require additional clinical data, or the labeling for telavancin that is
ultimately approved by regulatory authorities materially limits the targeted patient population, our business will be harmed and the price of our securities will fall. Furthermore, if our third party
manufacturer's cGMP issues are not satisfactorily resolved or regulatory action on telavancin is otherwise delayed for a lengthy period, or if a regulatory authority does not approve telavancin, our
business will be harmed and the price of our securities will fall. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, in 2008 we plan to submit an NDA to the FDA for the additional indication of hospital-acquired pneumonia (HAP) for telavancin. Regulatory action with respect to this
application could take a significant amount of time and could require that we undertake additional studies. Any adverse developments or results or perceived adverse developments or results with
respect to our efforts to obtain approval of telavancin for this indication will cause the price of our securities to fall. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If our product candidates, in particular telavancin, are determined to be unsafe or ineffective in humans, our business will be adversely affected and the price of our
securities will decline.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never commercialized any of our product candidates. We are uncertain whether any of our compounds or product candidates will prove effective and safe in
humans or meet applicable regulatory standards. In addition, our approach to applying our expertise in multivalency to drug discovery may not result in the creation of successful medicines. The risk
of failure for our compounds and product candidates is high. For example, in late 2005 we discontinued our overactive bladder program based upon the results of our Phase&nbsp;1 studies with compound
TD-6301, and GSK discontinued development of TD-5742, the first LAMA compound licensed from us, based on the results of Phase&nbsp;1 studies. To date, the data supporting our
drug discovery and development programs is derived solely from laboratory experiments, preclinical studies and clinical studies. A number of other compounds remain in the lead identification, lead
optimization, preclinical testing or early clinical testing stages. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several
recent, well-publicized safety-related product withdrawals, suspensions, post-approval labeling revisions to include black-box warnings and
changes in approved indications, as well as growing public and governmental scrutiny of safety issues, have created an increasingly conservative regulatory environment. Therefore, there is a risk that
the FDA may implement new standards or change their interpretation of existing requirements for demonstrating that a product candidate is safe and effective, which could cause non-approval
or delays in its approval of product candidates, including telavancin. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive
regulatory approval. If we are unable to discover and develop medicines that are effective and safe in humans, our business will fail. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Any failure of a product candidate in clinical studies or any delay in commencing or completing clinical studies for our product candidates would harm our business and cause
our stock price to decline.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our product candidates must undergo extensive preclinical and clinical studies as a condition to regulatory approval. Preclinical and clinical studies are
expensive and take many years to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>complete.
The commencement and completion of clinical studies for our product candidates may be delayed by many factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>poor
effectiveness of product candidates during clinical studies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>adverse
events, safety issues or side effects relating to the product candidates or their formulation into medicines;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our
inability or the inability of our collaborators or licensees to manufacture or obtain from third parties materials sufficient for use in preclinical and clinical
studies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>governmental
or regulatory delays and changes in regulatory requirements, policy and guidelines;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>failure
of our partners to advance our product candidates through clinical development;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>unreliable
results from clinical studies, which we recently experienced with our thorough QTc study on TD-5108;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>inability
to raise additional capital in sufficient amounts to continue our development programs, which are very expensive;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>inability
to enter into corporate partnering arrangements relating to the development and commercialization of our later-stage programs;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>delays
in patient enrollment, which we experienced in our Phase&nbsp;3 HAP program for telavancin, and variability in the number and types of patients available for
clinical studies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulty
in maintaining contact with patients after treatment, resulting in incomplete data;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
regional disturbance where we are enrolling patients in our clinical trials, such as a pandemic, terrorist activities or war, or a natural disaster; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>varying
interpretation of data by the FDA and similar foreign regulatory agencies. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
our product candidates fail to demonstrate safety and effectiveness in clinical trials, or if our clinical trials are materially delayed, our business and financial condition will be
adversely affected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If our product candidates that we develop on our own or through collaborative partners are not approved by regulatory agencies, including the FDA, we will be unable to
commercialize them.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FDA must approve any new medicine before it can be marketed and sold in the United States. We must provide the FDA and similar foreign regulatory authorities
with data from preclinical and clinical studies that demonstrate that our product candidates are safe and effective for a defined indication before they can be approved for commercial distribution. We
will not obtain this approval for a product candidate unless and until the FDA approves a NDA. In order to market our medicines in the European Union and other foreign jurisdictions, we must obtain
separate regulatory approvals in each country. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required
to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by
regulatory authorities in other foreign countries or by the FDA. Conversely, failure to obtain approval in one or more jurisdictions may make approval in other jurisdictions more difficult. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clinical
studies involving our product candidates may reveal that those candidates are ineffective, inferior to existing approved medicines, unacceptably toxic or have other unacceptable
side effects. In addition, the results of preclinical studies do not necessarily predict clinical success, and larger and later-stage clinical studies may not produce the same results as earlier-stage
clinical studies. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>19</FONT></P>

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Frequently, product candidates that have shown promising results in early preclinical or clinical studies have subsequently suffered significant setbacks or failed in later clinical
studies. In addition, clinical studies of potential products often reveal that it is not possible or practical to continue development efforts for these product candidates. If our clinical studies are
substantially delayed or fail to prove the safety and effectiveness of our product candidates, we may not receive regulatory approval of any of our product candidates and our business and financial
condition will be materially harmed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>We rely on a number of manufacturers for our product candidates and we rely on a single manufacturer for supply of telavancin, and our business will be seriously harmed if
these manufacturers are not able to satisfy our demand and alternative sources are not available.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have limited in-house production capabilities and depend entirely on a number of third-party active pharmaceutical ingredient (API) and drug
product manufacturers. We may not have long-term agreements with these third parties and our agreements with these parties may be terminable at will by either party at any time. If, for
any reason, these third parties are unable or unwilling to perform, we may not be able to locate alternative manufacturers or enter into favorable agreements with them. Any inability to acquire
sufficient quantities of API and drug product in a timely manner from these third parties could delay clinical studies, prevent us from developing our product candidates in a
cost-effective manner or on a timely basis, and adversely affect the commercial introduction of any approved products. In addition, manufacturers of our API and drug product are subject to
the FDA's cGMP regulations and similar foreign standards and we do not have control over compliance with these regulations by our manufacturers. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are in the process of having telavancin API and drug product manufactured for us in order to meet our obligations to Astellas in connection with commercial launch in the event
telavancin is approved for sale by regulatory authorities. We have a single source of supply of telavancin API and a single source of supply of telavancin drug product. If we are unable to have
telavancin manufactured in a timely manner, or if Astellas is unable to arrange for the expanded commercial manufacture of telavancin, the commercial introduction of telavancin, if approved, would be
adversely affected. During a mid-2007 audit of our supplier for telavancin drug product, a district office of the FDA noted deficiencies, not specifically related to the manufacture of
telavancin drug product, with the supplier's quality and laboratory systems at the plant where telavancin is manufactured. Although the supplier reported to us that it had responded to all noted
deficiencies and had obtained verbal acknowledgment from the FDA's district office that it was in compliance, on November&nbsp;16, 2007 the supplier received a warning letter from the FDA related to
these issues and, to date, the supplier has been unable to reach formal resolution of these issues with the FDA. On October&nbsp;19, 2007 we received an approvable letter from the FDA indicating
that the telavancin NDA is approvable subject to, among
other things, resolution of these cGMP compliance issues at our supplier. It is impossible to predict the amount of time it will take for the supplier and the FDA to resolve these compliance issues,
and any material delay will harm our business and cause the price of our securities to fall. In addition, if this manufacturer is unable to resolve its issues with the FDA, we might be required to
identify and qualify an alternative manufacturer for telavancin, which would involve significant costs and material delays. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
manufacturing strategy presents the following additional risks: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>because
of the complex nature of our compounds, our manufacturers may not be able to successfully manufacture our APIs and/or drug products in a cost effective and/or timely
manner and changing manufacturers for our APIs or drug products could involve lengthy technology transfer and validation activities for the new manufacturer;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
processes required to manufacture certain of our APIs and drug products are specialized and available only from a limited number of third-party manufacturers; </FONT></DD></DL>
</UL>
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<UL>
</UL>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>some
of the manufacturing processes for our APIs and drug products have not been scaled to quantities needed for continued clinical studies or commercial sales, and delays
in scale-up to commercial quantities could delay clinical studies, regulatory submissions and commercialization of our product candidates; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>because
some of the third-party manufacturers are located outside of the U.S., there may be difficulties in importing our APIs and drug products or their components into the
U.S. as a result of, among other things, FDA import inspections, incomplete or inaccurate import documentation or defective packaging. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we are using a single source for the supply of our APIs and a single source for the supply of drug product for TD-1792, our investigational heterodimer
antibiotic, as well as for TD-5108 in our GI Motility Dysfunction program. If any supplier fails to continue to produce supplies for our development activities for these compounds in
acceptable quantity and/or quality, our clinical studies could be delayed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If approved, telavancin may not be accepted by physicians, patients, third party payors, or the medical community in general.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If approved by the relevant regulatory agencies, the commercial success of telavancin will depend upon its acceptance by physicians, patients, third party payors
and the medical community in general. We cannot be sure that telavancin will be accepted by these parties even if it is approved by the relevant regulatory authorities. If approved, telavancin will
compete with vancomycin, a relatively inexpensive generic drug that is manufactured by a variety of companies, a number of existing anti-infectives manufactured and marketed by major
pharmaceutical companies and others, and potentially against new anti-infectives that are not yet on the market. Even if the medical community accepts that telavancin is safe and
efficacious for its approved indications, physicians may choose to restrict the use of telavancin. If we and our partner, Astellas, are unable to demonstrate to physicians that, based on experience,
clinical data, side-effect profiles and other factors, telavancin is preferable to vancomycin and other existing or subsequently-developed anti-infective drugs, we may never
generate meaningful revenue from telavancin. The degree of market acceptance of telavancin, if approved by the relevant regulatory agencies, will depend on a number of factors, including, but not
limited to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
demonstration of the clinical efficacy and safety of telavancin;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
labeling for telavancin that ultimately is approved by regulatory authorities;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
advantages and disadvantages of telavancin compared to alternative therapies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our
and Astellas' ability to educate the medical community about the safety and effectiveness of telavancin;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
reimbursement policies of government and third party payors; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
market price of telavancin relative to competing therapies. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Even if our product candidates receive regulatory approval, commercialization of such products may be adversely affected by regulatory actions.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even if we receive regulatory approval, this approval may include limitations on the indicated uses for which we can market our medicines or the patient
population that may utilize our medicines, which may limit the market for our medicines or put us at a competitive disadvantage relative to alternative therapies. Further, if we obtain regulatory
approval, a marketed medicine and its manufacturer are subject to continual review, including review and approval of the manufacturing facilities. Discovery of previously unknown problems with a
medicine may result in restrictions on its permissible uses, or on the manufacturer, including withdrawal of the medicine from the market. The FDA and similar foreign </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>21</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>regulatory
authorities may also implement new standards, or change their interpretation and enforcement of existing standards and requirements for the manufacture, packaging or testing of products at
any time. If we are unable to comply, we may be subject to regulatory or civil actions or penalties that could significantly and adversely affect our business. Any failure to maintain regulatory
approval will limit our ability to commercialize our product candidates, which would materially and adversely affect our business and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>We have incurred operating losses in each year since our inception and expect to continue to incur substantial losses for the foreseeable future.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been engaged in discovering and developing compounds and product candidates since mid-1997. We have not generated any product revenue to date.
We may never generate revenue from selling medicines or achieve profitability. As of December&nbsp;31, 2007, we had an accumulated deficit of approximately $937.8&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to incur substantial expenses as we continue our drug discovery and development efforts, particularly to the extent we advance our product candidates into and through clinical
studies, which are very expensive. As a result, we expect to continue to incur substantial losses for the foreseeable future. We are uncertain when or if we will be able to achieve or sustain
profitability. Failure to become and remain profitable would adversely affect the price of our securities and our ability to raise capital and continue operations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>If we fail to obtain the capital necessary to fund our operations, we may be unable to develop our product candidates and we could be forced to share our rights to
commercialize our product candidates with third parties on terms that may not be favorable to us.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We need large amounts of capital to support our research and development efforts. If we are unable to secure capital to fund our operations we will not be able to
continue our discovery and development efforts and we might have to enter into strategic collaborations that could require us to share commercial rights to our medicines to a greater extent than we
currently intend. Based on our current operating plans, we believe that our cash and cash equivalents and marketable securities will be sufficient to meet our anticipated operating needs for at least
the next twelve months. We are likely to require additional capital to fund operating needs thereafter. In addition, in the event that a LABA product candidate discovered by GSK is successfully
developed and commercially launched in multiple regions in the world, we are obligated to pay GSK milestone payments of up to an aggregate of $220.0&nbsp;million under our Horizon program (formerly
referred to as Beyond Advair). The current lead LABA candidate, GW642444, is a GSK-discovered compound and GSK has determined to focus the collaboration's LABA development resources on the
development of this compound only. If this GSK-discovered compound is advanced through regulatory approval, we would not be entitled to any further milestone payments from GSK with regard
to the Horizon program. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital in
sufficient amounts or on terms acceptable to us, we will be prevented from continuing our discovery and development efforts and exploiting other corporate opportunities. This could harm our business,
prospects and financial condition and cause the price of our securities to fall. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If our partners do not satisfy their obligations under our agreements with them, we will be unable to develop our partnered product candidates as planned.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into our collaboration agreement for the Horizon program with GSK in November 2002, our strategic alliance agreement with GSK in March 2004, and our
telavancin development and commercialization agreement with Astellas in November 2005. In connection with these agreements, we have granted to these parties certain rights regarding the use of our
patents and technology with </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>22</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>respect
to compounds in our development programs, including development and marketing rights. Under our GSK agreements, GSK has full responsibility for development and commercialization of any product
candidates in the programs that it has in-licensed, including Horizon, LAMA and MABA. Any future milestone payments or royalties to us from these programs will depend on the extent to
which GSK advances the product candidate through development and commercial launch. In connection with our Astellas telavancin agreement, Astellas is responsible for the commercialization of
telavancin and any royalties to us from this program will depend upon Astellas' ability to launch and sell the medicine if it is approved. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
partners might not fulfill all of their obligations under these agreements. In that event, we may be unable to assume the development and commercialization of the product candidates
covered by the agreements or enter into alternative arrangements with a third party to develop and commercialize such product candidates. In addition, with the exception of product candidates in our
Horizon program, our partners generally are not restricted from developing and commercializing their own products and product candidates that compete with those licensed from us. For example, GSK
currently has at least one competing LAMA product candidate that is further advanced in development than our LAMA product candidate which they licensed from us. If a partner elected to promote its own
products and product candidates in preference to those licensed from us, future payments to us could be reduced and our business and financial condition would be materially and adversely affected.
Accordingly, our ability to receive any revenue from the product candidates covered by these agreements is dependent on the efforts of the partner. We could also become involved in disputes with a
partner, which could lead to delays in or termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. If a partner terminates
or breaches its agreements with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing our product candidates would be
materially and adversely affected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, while our strategic alliance with GSK sets forth pre-agreed upfront payments, development obligations, milestone payments and royalty rates under which GSK may
obtain exclusive rights to develop and commercialize our product candidates, GSK may in the future seek to negotiate more favorable terms on a project-by-project basis. To
date, GSK has licensed our LAMA program and our MABA program under the terms of the strategic alliance agreement and has chosen not to license our bacterial infections program, our anesthesia program
and our GI Motility Dysfunction program. There can be no assurance that GSK will license any other development program under the terms of the strategic alliance agreement, or at all. GSK's failure to
license our development programs could adversely affect the perceived prospects of the product candidates that are the subject of these development programs, which could negatively affect both our
ability to enter into collaborations for these product candidates with third parties and the price of our securities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Our relationship with GSK may have a negative effect on our ability to enter into relationships with third parties.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, GSK beneficially owned approximately 15.4% of our outstanding capital stock. Pursuant to our strategic alliance with GSK, GSK has
the right to license exclusive development and commercialization rights to our product candidates arising from (i)&nbsp;our peripheral Opioid-Induced Bowel Dysfunction (PUMA) program,
(ii)&nbsp;our AT1 Receptor&#151;Neprilysin Inhibitor hypertension (ARNI) program and (iii)&nbsp;our MonoAmine Reuptake Inhibitor chronic pain (MARIN) program. Because GSK may license these
three development programs at any time prior to successful completion of a Phase&nbsp;2 proof-of-concept study, we may be unable to collaborate with other partners with
respect to these programs until we have expended substantial resources to advance them through clinical studies. We may not have sufficient funds to pursue such programs in the event GSK does not
license them at an early stage. Pharmaceutical companies other than GSK that may be interested in developing </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>23</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>products
with us may be less inclined to do so because of our relationship with GSK, or because of the perception that development programs that GSK does not license pursuant to our strategic alliance
agreement are not promising programs. If our ability to work with present or future strategic partners or collaborators is adversely affected as a result of our strategic alliance with GSK, our
business prospects may be limited and our financial condition may be adversely affected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If we are unable to enter into future collaboration arrangements or if any such collaborations with third parties are unsuccessful, our profitability may be delayed or reduced.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have entered into collaborations with GSK for the Horizon, LAMA and MABA programs and with Astellas for telavancin, and we have licensed our
anesthesia compound to AstraZeneca AB (AstraZeneca). Each of TD-5108 and TD-1792 has successfully completed a Phase&nbsp;2 proof-of-concept study and
we currently intend to pursue collaboration arrangements for the development and commercialization of these compounds. Collaborations with third parties regarding these programs or our other programs
may require us to relinquish material rights, including revenue from commercialization of our medicines, on terms that are less attractive than our current arrangements. These collaboration
arrangements are complex and time-consuming to negotiate, and if we are unable to reach agreements with third-party collaborators, we may fail to meet our business objectives and our
financial condition may be adversely affected. We face significant competition in seeking third-party collaborators and may be unable to find third parties to pursue product collaborations on a timely
basis or on acceptable terms. Furthermore, for any collaboration, we may not be able to control the amount of time and resources that our partners devote to our product candidates and our partners may
choose to pursue alternative products. Our inability to successfully collaborate with third parties would increase our development costs and could limit the likelihood of successful commercialization
of our product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>We depend on third parties in the conduct of our clinical studies for our product candidates.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on independent clinical investigators, contract research organizations and other third party service providers in the conduct of our preclinical and
clinical studies for our product candidates. We rely heavily on these parties for execution of our preclinical and clinical studies, and control only certain aspects of their activities. Nevertheless,
we are responsible for ensuring that our clinical studies are conducted in accordance with good clinical practices (GCPs) and other regulations as required by the FDA and foreign regulatory agencies,
and the applicable protocol. Failure by these parties to comply with applicable regulations, GCPs and protocols in conducting studies of our product candidates can delay our development programs. For
example, in December 2007 we completed enrollment in our thorough QTc study on TD-5108, the lead compound in our GI Motility Dysfunction program. Our preliminary review of the
electrocardiogram data from the study suggests that such data is unreliable due to problems with the conduct of the study, not with the intrinsic properties of TD-5108. We believe that
lack of assay sensitivity in the active control arm of the study (moxifloxacin) renders the results uninterpretable, and that the study will need to be repeated in order to generate scientifically
valid results. We currently intend to initiate a repeat of the study later this year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
FDA enforces good clinical practices and other regulations through periodic inspections of trial sponsors, clinical research organizations (CROs), principal investigators and trial
sites. For example, in connection with the FDA's review of our telavancin NDA for the treatment of cSSSI, the FDA conducted inspections of Theravance and certain of our study sites and clinical
investigators and a CRO. If we or any of the third parties on which we have relied to conduct our clinical studies are determined to have failed to comply with GCPs, the study protocol or applicable
regulations, the clinical data generated in our studies may be deemed unreliable and we or the FDA may decide to conduct additional audits or require additional clinical studies, which could delay our
development programs. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>24</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>We face substantial competition from companies with more resources and experience than we have, which may result in others discovering, developing, receiving approval for or
commercializing products before or more successfully than we do.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to succeed in the future depends on our ability to demonstrate and maintain a competitive advantage with respect to our approach to the discovery and
development of medicines. Our objective is to discover, develop and commercialize new small molecule medicines with superior efficacy, convenience, tolerability and/or safety. Because our strategy is
to develop new product candidates primarily for biological targets that have been validated by existing medicines or potential medicines in late stage clinical studies, to the extent that we are able
to develop medicines, they are likely to compete with existing drugs that have long histories of effective and safe use. We expect that any medicines that we commercialize with our collaborative
partners or on our own will compete with existing or future market-leading medicines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater
commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>discover
and develop medicines that are superior to other products in the market;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>attract
qualified scientific, product development and commercial personnel;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>obtain
patent and/or other proprietary protection for our medicines and technologies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>obtain
required regulatory approvals; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>successfully
collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Established
pharmaceutical companies may invest heavily to quickly discover and develop or in-license novel compounds that could make our product candidates obsolete.
Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do. We are also aware of other
companies that are engaged in the discovery of medicines that would compete with the product candidates that we are developing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
new medicine that competes with a generic market leading medicine must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety in order to overcome
severe price competition and be commercially successful. If approved, telavancin must demonstrate these advantages, as it will compete with vancomycin, a relatively inexpensive generic drug that is
manufactured by a number of companies, and a number of existing anti-infectives marketed by major pharmaceutical companies. If we are not able to compete effectively against our current
and future competitors, our business will not grow and our financial condition and operations will suffer. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
the principles of multivalency become more widely known, we expect to face increasing competition from companies and other organizations that pursue the same or similar approaches.
Novel therapies, such as gene therapy or effective vaccines for infectious diseases, may emerge that will make both conventional and multivalent medicine discovery efforts obsolete or less
competitive. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>We have no experience selling or distributing products and no internal capability to do so.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, our strategy is to engage pharmaceutical or other healthcare companies with an existing sales and marketing organization and distribution system to
market, sell and distribute our products. We may not be able to establish these sales and distribution relationships on acceptable terms, or at all. If we receive regulatory approval to commence
commercial sales of any of our product candidates that </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>25</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>are
not covered by our current agreements with GSK, Astellas or AstraZeneca, we will have to establish a sales and marketing organization with appropriate technical expertise and supporting
distribution capability. At present, we have no sales personnel and a limited number of marketing personnel. Factors that may inhibit our efforts to commercialize our products without strategic
partners or licensees include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our
inability to recruit and retain adequate numbers of effective sales and marketing personnel;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>unforeseen
costs and expenses associated with creating an independent sales and marketing organization. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have
difficulty commercializing our product candidates, which would adversely affect our business and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If we lose key scientists or management personnel, or if we fail to recruit additional highly skilled personnel, it will impair our ability to discover, develop and
commercialize product candidates.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are highly dependent on principal members of our management team and scientific staff, including our Chairman of the board of directors, P. Roy Vagelos, our
Chief Executive Officer, Rick E Winningham, and our Senior Vice President of Development, Michael Kitt. These executives each have significant pharmaceutical industry experience. The unexpected loss
of Dr.&nbsp;Vagelos, Mr.&nbsp;Winningham or Dr.&nbsp;Kitt could impair our ability to discover, develop and market new medicines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
scientific team has expertise in many different aspects of drug discovery and development. Our company is located in northern California, which is headquarters to many other
biopharmaceutical companies and many academic and research institutions. There is currently a shortage of experienced scientists, which is likely to continue, and competition for skilled personnel in
our market is very intense. Competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. In addition, none of our employees have
employment commitments for any fixed period of time and could leave our employment at will. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we fail to identify, attract and retain qualified personnel, we may be unable to continue our development and commercialization activities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Our principal facility is located near known earthquake fault zones, and the occurrence of an earthquake, extremist attack or other catastrophic disaster could cause damage to
our facilities and equipment, which could require us to cease or curtail operations.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal facility is located in the San Francisco Bay Area near known earthquake fault zones and therefore is vulnerable to damage from earthquakes. In
October 1989, a major earthquake struck this area and caused significant property damage and a number of fatalities. We are also vulnerable to damage from other types of disasters, including power
loss, attacks from extremist organizations, fire, floods, communications failures and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. In
addition, the unique nature of our research activities and of much of our equipment could make it difficult for us to recover from this type of disaster. We currently may not have adequate insurance
to cover our losses resulting from disasters or other similar significant business interruptions and we do not plan to purchase additional insurance to cover such </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>26</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>losses
due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Risks Related to our Alliance with GSK  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>GSK's ownership of a significant percentage of our stock and its right to membership on our board of directors may create conflicts of interest, and may inhibit our
management's ability to continue to operate our business in the manner in which it is currently being operated.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, GSK beneficially owned approximately 15.4% of our outstanding capital stock, and GSK has the right to maintain its percentage
ownership of our capital stock. In addition, GSK currently has the right to designate one member to our board of directors. There are currently no GSK designated directors on our board of directors.
Further, pursuant to our certificate of incorporation, we renounce our interest in and waive any claim that a corporate or business opportunity taken by GSK constituted a corporate opportunity of ours
unless such corporate or business opportunity is expressly offered to one of our directors who is a director, officer or employee of GSK, primarily in his or her capacity as one of our directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>GSK's rights under the strategic alliance and governance agreements may deter or prevent efforts by other companies to acquire us, which could prevent our stockholders from
realizing a control premium.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our governance agreement with GSK requires us to exempt GSK from our stockholder rights plan, affords GSK certain rights to offer to acquire us in the event third
parties seek to acquire our stock and contains other provisions that could deter or prevent another company from seeking to acquire us. For example, GSK may offer to acquire 100% of our outstanding
stock from stockholders in certain circumstances, such as if we are faced with a hostile acquisition offer or if our board of directors acts in a manner to facilitate a change in control of us with a
party other than GSK. In addition, pursuant to our strategic alliance agreement with GSK, GSK has the right to license (i)&nbsp;our PUMA program, (ii)&nbsp;our ARNI program and (iii)&nbsp;our
MARIN program. As a result of these rights, other companies may be less inclined to pursue an acquisition of us and therefore we may not have the opportunity to be acquired in a transaction that
stockholders might otherwise deem favorable, including transactions in which our stockholders might realize a substantial premium for their shares. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>After September 2008, GSK could sell or transfer a substantial number of shares of our common stock, which could depress the price of our securities or result in a change in
control of our company.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in September 2008, GSK may sell or transfer our common stock either pursuant to a public offering registered under the Securities Act of 1933, as
amended (the "1933 Act"), or pursuant to Rule&nbsp;144 of the 1933 Act. In addition, beginning in September 2012, GSK will have no restrictions on its ability to sell or transfer our common stock on
the open market, in privately negotiated transactions or otherwise, and these sales or transfers could create substantial declines in the price of our securities or, if these sales or transfers were
made to a single buyer or group of buyers, could contribute to a transfer of control of our company to a third party. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Risks Related to Legal and Regulatory Uncertainty  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our
market.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely upon a combination of patents, patent applications, trade secret protection and confidentiality agreements to protect the intellectual property related to
our technologies. Any involuntary disclosure to or misappropriation by third parties of this proprietary information could enable competitors to quickly duplicate or surpass our technological
achievements, thus eroding our </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>27</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>competitive
position in our market. The status of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and is very uncertain. As of December&nbsp;31,
2007, we owned 111 issued United States patents and 377 granted foreign patents, as well as additional pending United States and foreign patent applications. Our patent applications may be challenged
or fail to result in issued patents and our existing or future patents may be invalidated or be too narrow to prevent third parties from developing or designing around these patents. If the
sufficiency of the breadth or strength of protection provided by our patents with respect to a product candidate is threatened, it could dissuade companies from collaborating with us to develop, and
threaten our ability to commercialize, the product candidate. Further, if we encounter delays in our clinical trials or in obtaining regulatory approval of our product candidates, the patent lives of
the related product candidates would be reduced. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, for processes for which patents are
difficult to enforce
and for any other elements of our drug discovery and development processes that involve proprietary know-how, information and technology that is not covered by patent applications.
Although we require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information and technology to enter into confidentiality
agreements, we cannot be certain that this know-how, information and technology will not be disclosed or that competitors will not otherwise gain access to our trade secrets or
independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United
States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure
of the intellectual property related to our technologies to third parties, we will not be able to establish or, if established, maintain a competitive advantage in our market, which could materially
adversely affect our business, financial condition and results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Litigation or third-party claims of intellectual property infringement would require us to divert resources and may prevent or delay our drug discovery and development efforts.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our commercial success depends in part on our not infringing the patents and proprietary rights of third parties. Third parties may assert that we are employing
their proprietary technology without authorization. There are third party patents that may cover materials or methods for treatment related to our product candidates. At present we are not aware of
any patent claims with merit that would adversely and materially affect our ability to develop our product candidates, but nevertheless the possibility of third party allegations cannot be ruled out.
In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Furthermore, parties making claims against us may obtain injunctive or
other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay
substantial damages, obtain one or more licenses from third parties or pay royalties. In addition, even in the absence of litigation, we may need to obtain licenses from third parties to advance our
research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at
all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. In addition, in the future we could be
required to initiate litigation to enforce our proprietary rights against infringement by third parties. Prosecution of these claims to enforce our rights against others would involve substantial
litigation expenses and divert substantial employee resources from our </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>28</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>business.
If we fail to effectively enforce our proprietary rights against others, our business will be harmed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our medicines.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The risk that we may be sued on product liability claims is inherent in the development of pharmaceutical products. These lawsuits may divert our management from
pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo
further commercialization of those products. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
we maintain general liability and product liability insurance, this insurance may not fully cover potential liabilities. In addition, inability to obtain or maintain sufficient
insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercial production and sale of our products, which could
adversely affect our business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Government restrictions on pricing and reimbursement, as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate
revenues.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care costs to contain or reduce costs of
health care may adversely affect one or more of the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our
ability to set a price we believe is fair for our potential medicines;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our
ability to generate revenues and achieve profitability; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
availability of capital. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the United States, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the MMA) will likely result in decreased reimbursement for prescription drugs, which may
intensify industry-wide pressure to reduce prescription drug prices. This could harm our ability to market our potential medicines and generate revenues. The MMA, associated cost
containment measures that health care payors and providers are instituting and the effect of probable further health
care reform could significantly reduce potential revenues from the sale of any product candidates approved in the future. In addition, in certain foreign markets, the pricing of prescription drugs is
subject to government control and reimbursement may in some cases be unavailable. We believe that pricing pressures at the state and federal level, as well as internationally, will continue and may
increase, which may make it difficult for us to sell our potential medicines that may be approved in the future at a price acceptable to us or our collaborators. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If we use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development activities involve the controlled use of potentially hazardous substances, including chemical, biological and radioactive materials.
In addition, our operations produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may
incur significant additional costs to comply with these and other applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of
contamination or injury resulting from hazardous materials and we may incur liability as a result of any such contamination or injury. In the event of an accident, we could be held liable for damages
or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from hazardous materials. Compliance with applicable environmental laws and
regulations is expensive, and current or </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>29</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>future
environmental regulations may impair our research, development and production efforts, which could harm our business. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>General Company Related Risks  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The price of our securities may be extremely volatile and purchasers of our securities could incur substantial losses.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The price of our securities may be extremely volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies. The following factors, in addition to the other risk factors described in this section, may also
have a significant impact on the market price of our securities: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
adverse developments or perceived adverse developments with respect to our telavancin NDA, our response to the FDA's approvable letter or, if rescheduled, our meeting
with the Anti-Infective Drugs Advisory Committee to the FDA;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
delay in the commercial distribution of telavancin if our NDA is approved by the FDA;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
delay in filing our telavancin NDA for the HAP indication with the FDA and any adverse development or perceived adverse development with respect to the FDA's review of
the NDA, including without limitation the FDA's issuance of a "refusal to file" letter or a request for additional information;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
adverse developments or results or perceived adverse developments or results with respect to the Horizon program;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
extent to which GSK advances (or does not advance) our product candidates through development into commercialization;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
adverse developments or perceived adverse developments with respect to our relationship with GSK or Astellas;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
adverse developments or results or perceived adverse developments or results with respect to our GI Motility Dysfunction program or TD-1792;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>announcements
regarding GSK's decisions whether or not to license any of our development programs;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>announcements
regarding GSK or Astellas generally;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>announcements
of patent issuances or denials, technological innovations or new commercial products by us or our competitors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>developments
concerning any collaboration we may undertake with companies other than GSK or Astellas;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>publicity
regarding actual or potential testing or study results or the outcome of regulatory review relating to products under development by us, our partners or our
competitors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>regulatory
developments in the United States and foreign countries;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>economic
and other external factors beyond our control; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sales
of stock by us or by our stockholders, including sales by certain of our executive officers and directors pursuant to written pre-determined selling plans
under Rule&nbsp;10b5-1 of the Securities Exchange Act of 1934, some of which plans are currently in effect and others of which may be entered into. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>30</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Concentration of ownership will limit your ability to influence corporate matters.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, GSK beneficially owned approximately 15.4% of our outstanding capital stock and our directors, executive officers and investors
affiliated with these individuals beneficially owned approximately 14.0% of our outstanding capital stock. These stockholders could substantially control the outcome of actions taken by us that
require stockholder approval. In addition, pursuant to our
governance agreement with GSK, GSK currently has the right to nominate one member of our board of directors. For these reasons, GSK could have substantial influence in the election of our directors,
delay or prevent a transaction in which stockholders might receive a premium over the prevailing market price for their shares and have significant control over changes in our business. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Anti-takeover provisions in our charter and bylaws, in our rights agreement and in Delaware law could prevent or delay a change in control of our company.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable,
including transactions in which you might otherwise receive a premium for your shares. These provisions include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>requiring
supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>restricting
the ability of stockholders to call special meetings of stockholders;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>prohibiting
stockholder action by written consent; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>establishing
advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder
meetings. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, our board of directors has adopted a rights agreement that may prevent or delay a change in control of us. Further, some provisions of Delaware law may also discourage,
delay or prevent someone from acquiring us or merging with us. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dg43901_item_1b._unresolved_staff_comments"> </A>
<A NAME="toc_dg43901_1"> </A>
ITEM 1B.&nbsp;&nbsp;&nbsp;&nbsp;UNRESOLVED STAFF COMMENTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dg43901_item_2._properties"> </A>
<A NAME="toc_dg43901_2"> </A>
ITEM 2.&nbsp;&nbsp;&nbsp;&nbsp;PROPERTIES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our headquarters are located in South San Francisco, California, and consist of two leased buildings of approximately 110,000 and 60,000 square feet,
respectively. The leases expire in March 2012 and may be extended for two additional five-year periods. The current annual rental expense under these leases is approximately
$6.1&nbsp;million, subject to annual increases. We may require additional space as our business expands. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dg43901_item_3._legal_proceedings"> </A>
<A NAME="toc_dg43901_3"> </A>
ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp;LEGAL PROCEEDINGS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dg43901_item_4._submission_of___dg402384"> </A>
<A NAME="toc_dg43901_4"> </A>
ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp;SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>31</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_di43901_1_32"> </A>

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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="di43901_part_ii"> </A>
<A NAME="toc_di43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART II    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="di43901_item_5._market_for_registrant___ite04666"> </A>
<A NAME="toc_di43901_2"> </A>
ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp;MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock has been traded on the Nasdaq Global Market under the symbol "THRX" since October&nbsp;5, 2004. The following table sets forth the high and low
closing prices of the Company's Common Stock on a per share basis for the periods indicated and as reported on the Nasdaq Global Market: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="72%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Calendar Quarter<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><B>2007</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36.74</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29.22</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36.81</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.74</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33.13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.44</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.99</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.33</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><B>2006</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29.88</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.43</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29.90</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.06</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.02</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.40</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32.66</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.38</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of February&nbsp;15, 2008, there were 271 stockholders of record of our common stock. There is no established public trading market for our Class&nbsp;A common
stock, all of which is owned by GSK. We did not make any unregistered sales of equity securities during the fourth quarter of 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Dividend Policy  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently intend to retain any future earnings to finance our research and development efforts. We have never declared or paid cash dividends and do not intend
to declare or pay cash dividends on our common stock or Class&nbsp;A common stock in the foreseeable future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Equity Compensation Plans  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides certain information with respect to all of our equity compensation plans in effect as of December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ROWSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
securities to<BR>
be issued upon<BR>
exercise<BR>
of outstanding<BR>
options,<BR>
warrants and<BR>
rights</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted-<BR>
average<BR>
exercise price of<BR>
outstanding<BR>
options, warrants<BR>
and rights</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of securities<BR>
remaining available for<BR>
future issuance under<BR>
equity compensation plans<BR>
(excluding securities<BR>
reflected in column (a))</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ROWSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Plan Category<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(b)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(c)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Equity compensation plans approved by security holders</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,480,669</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(2)</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,074,079</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(3)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Equity compensation plans not approved by security holders</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="38%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,480,669</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(2)</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,074,079</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(3)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
11,435,786 shares issuable upon exercise of outstanding options and 2,044,883 shares issuable upon vesting of outstanding restricted stock units.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Does
not take into account outstanding restricted stock units as these awards have no exercise price.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
480,929 shares of common stock available under our Employee Stock Purchase Plan, including 300,000 shares approved by the Compensation Committee of our board of directors on
December&nbsp;11, 2007 and subject to stockholders' approval at the annual stockholders' meeting in April 2008. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>32</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_di43901_1_33"> </A>

<P style="font-family:times;"><FONT SIZE=2><I>Stock Performance Graph  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The graph set forth below compares the cumulative total stockholder return on our common stock for the period commencing on October&nbsp;5, 2004 and ending on
December&nbsp;31, 2007, with the cumulative total return of (i)&nbsp;the Nasdaq Composite Index and (ii)&nbsp;the AMEX Biotechnology Index, over the same period. This graph assumes the
investment of $100.00 on October&nbsp;5, 2004 in our common stock and $100.00 on September&nbsp;30, 2004 in the Nasdaq Composite Index and the AMEX Biotechnology Index, and assumes the
reinvestment of dividends, if any, although dividends have never been declared on our common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
comparisons shown in the graph below are based upon historical data. The Company cautions that the stock price performance shown in the graph below is not necessarily indicative of,
nor is it intended to forecast, the potential future performance of our common stock. Information used in the graph was obtained from Research Data Group,&nbsp;Inc., a source believed to be
reliable, but the Company is not responsible for any errors or omissions in such information. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
anything to the contrary set forth in any of the Company's previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, that might incorporate this Annual Report on Form&nbsp;10-K or future filings made by the Company under those statutes, this Stock Performance Graph section shall not
be deemed filed with the United States Securities and Exchange Commission and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by the
Company under those statutes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>COMPARISON OF 39 MONTH CUMULATIVE TOTAL RETURN*  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Among Theravance, Inc., The NASDAQ Composite Index  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> And The AMEX Biotechnology Index  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g46719.jpg" ALT="Graphic" WIDTH="400" HEIGHT="378">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>*
$100 invested on 10/5/04 in stock or 9/30/04 in index-including reinvestment of dividends.<BR>
Fiscal year ending December&nbsp;31. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>33</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_dk43901_1_34"> </A>

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 </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dk43901_item_6._selected_financial_data"> </A>
<A NAME="toc_dk43901_1"> </A>
ITEM 6.&nbsp;&nbsp;&nbsp;&nbsp;SELECTED FINANCIAL DATA    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables reflect selected consolidated summary financial data for each of the last five fiscal years and are derived from our audited financial
statements. This data should be read in conjunction with Item&nbsp;8, "Financial Statements and Supplementary Data," and with Item&nbsp;7, Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Annual Report on Form&nbsp;10-K. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands, except per share data)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>CONSOLIDATED STATEMENT OF OPERATIONS DATA:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,002</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,587</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,054</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,940</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,605</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Operating expenses:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>Research and development(1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>155,254</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>166,564</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>137,936</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>91,627</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63,004</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>General and administrative(1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,313</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32,193</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,674</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,708</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,067</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>190,567</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>198,757</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>161,610</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>115,335</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76,071</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(168,565</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(179,170</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(149,556</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(106,395</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(72,466</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest and other income, net(2)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,661</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,319</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,687</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,326</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,242</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest expense(2)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(93</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(193</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(295</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(585</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,359</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(159,997</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(166,044</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(143,164</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(102,654</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(70,583</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic and diluted net loss per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.64</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.81</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.69</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10.37</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Shares used in computing net loss per common share(3)(4)(5)(6)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60,498</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,013</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,270</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,283</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,809</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><BR><FONT SIZE=2><B>CONSOLIDATED BALANCE SHEET DATA:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash, cash equivalents and marketable securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>129,272</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>235,570</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>200,009</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>257,141</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>89,152</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>78,554</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>147,582</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>118,677</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>231,661</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>71,208</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>161,983</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>262,424</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>224,835</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>286,022</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125,449</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Long-term liabilities(7)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>172,714</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>139,505</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>117,078</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,717</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37,494</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Convertible preferred stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>367,358</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(937,809</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(777,812</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(611,768</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(468,604</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(365,950</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total stockholders' equity (net capital deficiency)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(66,264</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63,310</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,584</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>190,367</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(299,566</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Stock-based
compensation, consisting of stock-based compensation expense under SFAS&nbsp;123(R), the amortization of deferred stock-based compensation and the value of options
issued to non-employees for services rendered, is allocated as follows (in thousands): </FONT></DD></DL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="43%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="43%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,133</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,635</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,259</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,631</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,300</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>General and administrative</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,361</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,196</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,364</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,890</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>914</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Total stock-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,494</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,831</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,623</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,521</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,214</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Interest
and other income, net, includes investment management fees that were reclassified from interest expense as follows (in thousands): </FONT></DD></DL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Interest and other income, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>270</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>331</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>281</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>238</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>131</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>34</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_dk43901_1_35"> </A>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>In
May 2004, all shares of convertible preferred stock were converted into common stock.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>In
May 2004, GSK, through an affiliate, purchased approximately 6.4&nbsp;million shares of Class&nbsp;A common stock for $108.9&nbsp;million.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>On
October&nbsp;5, 2004, the Company completed its initial public offering with the sale of 7,072,500 shares of common stock. Net proceeds, after underwriters' commissions and
offering expenses, totaled $102.1&nbsp;million. Contemporaneously with the closing of its initial public offering, the Company sold 433,757 shares of its Class&nbsp;A common stock to an affiliate
of GSK in a private transaction for total proceeds of $6.9&nbsp;million.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>In
February 2006, the Company completed its secondary offering with the sale of 5,200,000 shares of common stock. Net proceeds, after underwriters' commission and offering expenses,
totaled $139.9&nbsp;million.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Long-term
liabilities includes the long-term portion of deferred revenue as follows (in thousands): </FONT></DD></DL>
<BR>

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<TR VALIGN="BOTTOM">
<TH WIDTH="37%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>166,136</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134,383</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>111,251</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,339</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>30,965</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>35</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="dm43901_item_7._management_s_discussio__ite03668"> </A>
<A NAME="toc_dm43901_1"> </A>
ITEM 7.&nbsp;&nbsp;&nbsp;&nbsp;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Management's Discussion and Analysis (MD&amp;A) is intended to facilitate an understanding of our business and results of operations. You
should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included in Item&nbsp;8,
"Financial Statements and Supplementary Data" in this Annual Report on Form&nbsp;10-K. The information contained in this discussion and analysis or set forth elsewhere in this Annual
Report on Form&nbsp;10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements within the meaning of Section&nbsp;27A of
the Securities Act of 1933, as amended, and Section&nbsp;21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and
uncertainties. You should review the section entitled "Risk Factors" in Item&nbsp;1A of Part&nbsp;I above for a discussion of important factors that could cause actual results to differ materially
from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Executive Summary  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Theravance is a biopharmaceutical company with a pipeline of internally discovered product candidates. Theravance is focused on the discovery, development and
commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease, bacterial infections and gastrointestinal motility dysfunction. Of our six programs in
development, four are in late stage&#151;our telavancin program focusing on treating serious Gram-positive bacterial infections with Astellas, our Horizon program (formerly referred
to as Beyond Advair) with GSK, our Gastrointestinal Motility Dysfunction program and TD-1792, our investigational antibiotic for the treatment of serious Gram-positive
bacterial infections. By leveraging our proprietary insight of multivalency to drug discovery focused primarily on validated targets, we are pursuing a next generation strategy designed to discover
superior medicines in areas of significant unmet medical need. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
commenced operations in 1997, and as of December&nbsp;31, 2007, we had an accumulated deficit of $937.8&nbsp;million. In December 2006, we submitted our first NDA to the FDA for
telavancin for the
treatment of complicated skin and skin structure infections (cSSSI). In October 2007, we announced that the FDA issued an approvable letter for our NDA and in January 2008, we announced that the
Anti-Infective Drugs Advisory Committee (AIDAC) to the FDA was scheduled to meet to discuss telavancin for the proposed indication to treat cSSSI on February&nbsp;27, 2008. On
February&nbsp;23, 2008, the FDA informed us that the AIDAC meeting was cancelled. On February&nbsp;25, 2008, the FDA issued a public notice stating that the AIDAC meeting had been cancelled to
allow time for the FDA to review and resolve several outstanding issues. The public notice further stated that the FDA intends to continue evaluating the telavancin NDA and will schedule an AIDAC
meeting in the future, as needed. We are planning to meet with the FDA to discuss these issues. None of our product candidates have been approved for marketing and sale to patients and we have not
received any product revenue to date. Most of our spending to date has been for research and development activities and general and administrative expenses. We expect to incur substantial losses for
at least the next several years as we continue to invest in research and development. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
net loss for the year ended December&nbsp;31, 2007 was $160.0&nbsp;million compared to $166.0&nbsp;million in 2006, a decrease of $6.0&nbsp;million. This decrease was
primarily due to lower research and development costs. Research and development spending for the year ended December&nbsp;31, 2007 decreased to $155.3&nbsp;million compared to
$166.6&nbsp;million in 2006. This decrease was primarily driven by lower external research and development costs due to the completion of patient enrollment in our Phase&nbsp;3 cSSSI studies for
telavancin in 2006. Cash, cash equivalents, and short-term investments totaled $129.3&nbsp;million at December&nbsp;31, 2007, a decrease of $37.2&nbsp;million during the fourth
quarter 2007 and a decrease of $106.3&nbsp;million since December&nbsp;31, 2006. On January&nbsp;23, 2008, we announced the closing of a </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>36</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>convertible
subordinated notes offering with net proceeds to us of approximately $166.7&nbsp;million which are not reflected in the December&nbsp;31, 2007 cash, cash equivalents, and marketable
securities balance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Critical Accounting Policies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenue and expenses during the reporting periods. We
periodically evaluate our material estimates and judgments based on the terms of underlying agreements, the expected course of development, historical experience and other factors that we believe are
reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
our significant accounting policies are more fully described in Note&nbsp;1 to our consolidated financial statements contained in Item&nbsp;8, "Financial Statements and
Supplementary Data" in this Annual Report on Form&nbsp;10-K, we believe that the following accounting policies relating
to revenue recognition, preclinical study and clinical study expenses, share-based payment charges, bonus accruals and the capitalization of inventory costs are most critical in fully understanding
and evaluating our reported financial results. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Revenue Recognition  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our agreements with GSK, Astellas and AstraZeneca, we recognize revenue from non-refundable, upfront fees and development milestone
payments ratably over the term of our performance under the agreements. These advance payments are recorded as deferred revenue pending recognition and are classified as a short or
long-term liability on the balance sheet. When the period of deferral cannot be specifically identified from the agreement, management estimates the period based upon provisions contained
within the agreement and other relevant facts. We periodically review the estimated performance period, which could impact the deferral period and, therefore, the timing and the amount of revenue
recognized. Significant milestones in the development process typically include initiation or completion of various phases of clinical studies and approvals by regulatory agencies. We have made
various changes to our performance periods under our agreements based upon updated product development timelines. During 2007, we revised the performance periods related to our agreement with Astellas
based on the progress of telavancin. We do not expect that these revisions will have a material impact on the timing of revenue recognized under this agreement in future years. It is possible that
future adjustments will be made if actual conditions differ from our current plan and development assumptions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have been reimbursed by GSK and Astellas for certain external development costs under their respective collaboration agreements. Such reimbursements have been reflected as a reduction
of research and development expense and not as revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Preclinical Study and Clinical Study Expenses  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A substantial portion of our preclinical studies and all of our clinical studies have been performed by third-party contract research organizations (CROs). Some
CROs bill monthly for services performed, while others bill based upon milestones achieved. We review the activities performed under the significant contracts each quarter. For preclinical studies,
the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical study expenses, the significant factors used in
estimating accruals include the number of patients enrolled and percentage of work completed to date. Vendor confirmations are obtained for contracts </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>37</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>with
longer duration when necessary to validate our estimate of expenses. Our estimates are highly dependent upon the timeliness and accuracy of the data provided by our CROs regarding the status of
each program and total program spending and adjustments are made when deemed necessary. To date, we have not recorded any material adjustments as a result of changes to our estimates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Fair Value of Share-based Payment Awards  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the fair value method of accounting for share-based compensation arrangements in accordance with Financial Accounting Standards Board Statement
No.&nbsp;123(R), Share-based Payment (SFAS123(R)). We adopted SFAS&nbsp;123(R) on January&nbsp;1, 2006 using the modified prospective method of transition. Under this method, compensation
expense is recognized beginning with the effective date of adoption of SFAS&nbsp;123(R) for all share-based payments (i)&nbsp;granted after the effective date of adoption and (ii)&nbsp;granted
prior to the effective date of adoption and that remained unvested on the date of adoption. Share-based compensation arrangements covered by SFAS&nbsp;123(R) currently include stock options granted,
restricted shares issued and performance-contingent restricted stock unit awards (RSUs) granted under the 2004 Equity Incentive Plan, as amended, and purchases of common stock by our employees at a
discount to the market price during offering periods under our Employee Stock Purchase Plan (ESPP). The estimated fair value of stock options and restricted shares under SFAS&nbsp;123(R) is expensed
on a straight-line basis over the vesting term of the grant and the fair value of RSUs is expensed during the term of the award when we determine that it is probable that certain
performance conditions will be met. Compensation expense for purchases under the ESPP is recognized based on the estimated fair value of the common stock during each offering period and the percentage
of the purchase discount. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
conjunction with the adoption of SFAS&nbsp;123(R), we changed our method of expensing the value of stock-based compensation from the accelerated method to the
straight-line single-option method. Compensation expense for all share-based payment awards granted prior to January&nbsp;1, 2006 will continue to be recognized using the accelerated
expense attribution method over the vesting period while the compensation expense for all share-based payment awards granted on or subsequent to January&nbsp;1, 2006 is recognized using the
straight-line single-option method. Stock-based compensation expense for stock options has been reduced for estimated forfeitures so that
compensation expense is based on options ultimately expected to vest. SFAS&nbsp;123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Our estimated annual forfeiture rate for stock options is 3.6%, based on our historical forfeiture experience. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Bonus Accruals  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have short- and long-term bonus programs for eligible employees. Bonuses are determined based on various criteria, including the achievement of
corporate, departmental and individual goals. Bonus accruals are estimated based on various factors, including target bonus percentages per level of employee and probability of achieving the goals
upon which bonuses are based. Management periodically reviews the progress made towards the goals under the bonus programs. As bonus accruals are dependent upon management's judgments of the
likelihood of achieving the various goals, in some cases over a period of time in excess of twelve months, it is possible for bonus expense to vary significantly in future periods if changes occur in
those management estimates. In September 2007, we achieved the last clinical milestone under a long-term bonus plan established in 2004 for eligible non-officer employees. This
achievement resulted in a cumulative increase in bonus expense and liability of $8.5&nbsp;million, which included the effect of a change in estimate of $7.1&nbsp;million recorded in the second
quarter of 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>38</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><I>Inventory  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory is stated at the lower of cost or market and is included with prepaid and other current assets. Inventory at December&nbsp;31, 2007 consists of
$4.4&nbsp;million of commercial launch supplies of our product candidate telavancin which is currently under regulatory review. Under our 2005 License, Development and Commercialization Agreement
with Astellas, we are responsible to deliver to Astellas approximately six months of first commercial sale stock (as defined) in preparation for the regulatory approval and commercialization of
telavancin. If our product candidate is approved by the FDA, the inventory costs incurred would be reimbursed through a milestone payment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the regulatory approval of telavancin is substantially delayed or denied by the necessary regulatory bodies, or if new information becomes available that suggests that our telavancin
inventory will not be realisable, we may be required to expense a portion or all of the capitalized inventory costs. A portion of the amount that may be expensed would be eligible for reimbursement
through alternative arrangements with Astellas under terms of our collaboration agreement. During 2007, we expensed
approximately $0.9&nbsp;million of inventory capitalized during the fiscal year as we determined these inventories were not realisable for commercial launch supplies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Collaboration Arrangements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>2005 License, Development and Commercialization Agreement with Astellas  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2005, we entered into a collaboration arrangement with Astellas for the development and commercialization of telavancin. In July 2006, Japan was added
to our telavancin collaboration, thereby giving Astellas worldwide rights to this potential medicine. Through December&nbsp;31, 2007, we have received $158.0&nbsp;million in upfront, milestone and
other fees from Astellas and we are eligible to receive up to an additional $60.0&nbsp;million in remaining milestone payments related to regulatory filings and approvals in various regions of the
world. We recorded the payments as deferred revenue to be amortized ratably over our estimated period of performance (development and commercialization period). We recognized $10.3&nbsp;million,
$6.5&nbsp;million and $0.4&nbsp;million in revenue under this agreement in 2007, 2006 and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
telavancin is commercialized, we will be entitled to receive royalties on global sales of telavancin by Astellas that, on a percentage basis, range from the high teens to the upper
twenties depending on sales volume. Under this arrangement, we will be responsible for substantially all costs to develop and obtain U.S. regulatory approval for telavancin for cSSSI and HAP, and
Astellas will be responsible for substantially all other costs associated with commercialization and further development of telavancin. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the license rights to telavancin, Astellas had an option to license TD-1792, our investigational antibiotic, for further development and commercialization on
substantially the same terms under which Astellas licensed telavancin. In September 2007, we announced that we retained full ownership rights of TD-1792 as a result of Astellas' decision
not to exercise its right to license the compound. We are currently reviewing plans for the future development of TD-1792. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Horizon Program with GSK  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, we entered into our Horizon collaboration with GSK to develop and commercialize a long-acting beta<SUB>2</SUB> agonist (LABA)
product candidate for the treatment of asthma and
chronic obstructive pulmonary disease (COPD). This product candidate is intended to be administered via inhalation once daily both as a single new medicine and as part of a new combination medicine
with an inhaled corticosteroid (ICS). Each company contributed four LABA product candidates to the collaboration. The lead LABA, GW642444, and the lead ICS, GW685698, entered into large
Phase&nbsp;2b studies in December 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>39</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Horizon program, in 2002 we received from GSK an upfront payment of $10.0&nbsp;million and sold to an affiliate of GSK shares of our Series&nbsp;E Preferred
Stock for an aggregate purchase price of $40.0&nbsp;million. In addition, we were eligible to receive up to $495.0&nbsp;million in development, approval, launch, and sales milestones and royalties
on the sales of any product resulting from this program. As of December&nbsp;31, 2007, we have received a total of $60.0&nbsp;million in upfront and development milestone payments. GSK has
determined to focus the collaboration's resources on the development of the lead LABA, GW642444, a GSK-discovered compound, together with the lead ICS. Accordingly, we do not expect to
receive any further milestone payments from the Horizon program. In the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple regions in
the world, we will be obligated to make milestone payments to GSK of up to $220.0&nbsp;million. Based on available information, we do not estimate that a significant portion of these potential
milestone payments to GSK are likely to be made in the next three years. In addition, we are entitled to receive the same royalties on product sales of medicines from the Horizon program, regardless
of whether the product candidate originated with Theravance or with GSK. The royalty structure is downward-tiering and would result in an average percentage royalty rate in the low- to
mid-teens at annual net sales of up to approximately $4.0&nbsp;billion and the average royalty rate would decline to single digits at annual net sales of more than $6.0&nbsp;billion.
Sales of single agent LABA medicines and combination LABA/ICS medicines would be combined for the purposes of this royalty calculation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recorded the initial cash payment and subsequent milestone payments as deferred revenue to be amortized ratably over our estimated period of performance (the product development
period). Collaboration revenue from GSK was $6.8&nbsp;million, $7.8&nbsp;million and $7.6&nbsp;million in 2007, 2006 and 2005, respectively. Additionally, as an offset to research and
development expense for certain costs related to the collaboration that were reimbursable by GSK, we accrued reimbursements of $0.3&nbsp;million in 2005; there were none in 2007 and 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>2004 Strategic Alliance with GSK  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2004, we entered into our strategic alliance with GSK. Under this alliance, GSK received an option to license exclusive development and commercialization
rights to product candidates from all of our full drug discovery programs initiated prior to September&nbsp;1, 2007, on pre-determined terms and on an exclusive, worldwide basis. We are
obligated to use diligent efforts to discover and deliver compounds for the alliance and, pursuant to our obligations, we initiated three new full discovery programs between May 2004 and August 2007.
These three programs are (i)&nbsp;our peripheral Opioid-Induced Bowel Dysfunction (PUMA) program, (ii)&nbsp;our AT1 Receptor&#151;Neprilysin Inhibitor hypertension (ARNI) program and
(iii)&nbsp;our MonoAmine Reuptake Inhibitor chronic pain (MARIN) program. GSK has the right to license product candidates from these three programs, and must exercise this right no later than sixty
days subsequent to the "proof-of-concept" stage (generally defined as the successful completion of a Phase&nbsp;2a clinical study showing efficacy and tolerability if the
biological target for the drug has been clinically validated by an existing medicine, and successful completion of a Phase&nbsp;2b clinical study showing efficacy and tolerability if the biological
target for the drug has not been clinically validated by an existing medicine). Under the terms of the strategic alliance, GSK has only one opportunity to license each of our programs. Upon its
decision to license a program, GSK is responsible for funding all future development, manufacturing and commercialization activities for product candidates in that program. In addition, GSK is
obligated to use diligent efforts to develop and commercialize product candidates from any program that it licenses. Consistent with our strategy, we are obligated at our sole cost to discover two
structurally different product candidates for any programs that are licensed by GSK under the alliance. If these programs are successfully advanced through development by GSK, we are entitled to
receive clinical, regulatory and commercial milestone payments and royalties on any sales of medicines developed from these programs. For product candidates licensed to date under this agreement, the
royalty structure for a product containing one of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>40</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>our
compounds as a single active ingredient would result in an average percentage royalty rate in the low double digits. If a product is successfully commercialized, in addition to any royalty revenue
that we receive, the total upfront and milestone payments that we could receive in any given program that GSK licenses range from $130.0&nbsp;million to $162.0&nbsp;million for programs with
single-agent medicines and up to $252.0&nbsp;million for programs with both a single-agent and a combination medicine. If GSK chooses not to license a program, we retain all rights to the program
and may continue the program alone or with a third party. To date, GSK has licensed our two COPD programs: long-acting muscarinic antagonist (LAMA) and muscarinic
antagonist-beta<SUB>2</SUB> agonist (MABA). We received a $5.0&nbsp;million payment from GSK in connection with its license of each of our LAMA and MABA programs in August 2004 and
March 2005, respectively. GSK has chosen not to license our bacterial infections program, our anesthesia program and our Gastrointestinal Motility Dysfunction program. There can be no assurance that
GSK will license any other programs under the terms of the alliance agreement or at all, which could have an adverse effect on our business and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the alliance, GSK had the right between June&nbsp;1 and July&nbsp;1, 2007, to elect to acquire (call) half of Theravance's outstanding shares of common stock at $54.25 per
share. On June&nbsp;29, 2007, GSK elected not to exercise the call, which triggered the right of our stockholders to require us to redeem (put) up to 50% of their common stock at $19.375 per share
between August&nbsp;1 and September&nbsp;12, 2007 with
funds provided by GSK. One stockholder exercised his put right for one share of common stock. In exchange for GSK providing the funds to pay the redemption price for the one share of common stock, and
pursuant to our certificate of incorporation, we issued to GSK one share of our Class&nbsp;A common stock. The common share that we redeemed pursuant to the stockholder's exercise of the put right
was retired and cancelled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the strategic alliance with GSK, we received from GSK an upfront payment of $20.0&nbsp;million. The upfront payment is being amortized over the initial performance
period during which GSK may exercise its right to license certain of our programs under the agreement, which we currently estimate to be through September 2011. In connection with the strategic
alliance, we recognized $2.7&nbsp;million in revenue for each of the years ending December&nbsp;31, 2007, 2006 and 2005. In addition, in May 2004, GSK purchased through an affiliate 6,387,096
shares of our Class&nbsp;A common stock for an aggregate purchase price of $108.9&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
December&nbsp;31, 2007, we have received $36.0&nbsp;million in upfront and milestone payments from GSK relating to the strategic alliance agreement. In addition, pursuant to
a partial exercise of its rights under the governance agreement, upon the closing of our initial public offering on October&nbsp;8, 2004, GSK purchased through an affiliate an additional 433,757
shares of Class&nbsp;A common stock for $6.9&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August 2004, GSK exercised its right to license our LAMA program pursuant to the terms of the strategic alliance. We received a $5.0&nbsp;million payment from GSK in connection with
its licensing of our LAMA program. Through December&nbsp;31, 2007, we received a milestone payment from GSK of $3.0&nbsp;million related to clinical progress of our candidate. These payments are
being amortized ratably over the estimated period of performance (the product development period). We recognized $0.8&nbsp;million, $1.0&nbsp;million and $0.9&nbsp;million in revenue related to
the LAMA program in 2007, 2006 and 2005, respectively. Additionally, as an offset to research and development expense for certain costs related to the LAMA program that were reimbursable by GSK, we
accrued reimbursements of $70,000, $0.4&nbsp;million and $0.5&nbsp;million in 2007, 2006 and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2005, GSK exercised its right to license our MABA program pursuant to the terms of the strategic alliance. We received a $5.0&nbsp;million payment from GSK in connection with
the license of our MABA program. Through December&nbsp;31, 2007, we received a milestone payment from GSK of $3.0&nbsp;million related to clinical progress of our candidate. These payments are
being amortized ratably over the estimated period of performance (the product development period). We recognized $1.0&nbsp;million, $0.9&nbsp;million and $0.5&nbsp;million in revenue related to
the MABA program in 2007, 2006 and 2005, respectively. Additionally, as an offset to research and development expense for certain costs related to the MABA program that were reimbursable by GSK, we
accrued reimbursements of $2.9&nbsp;million in 2005; there were none in 2007 and 2006. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>41</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Results of Operations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B><I>Revenue</I></B></FONT><FONT SIZE=2> We recognized revenue of $22.0&nbsp;million, $19.6&nbsp;million and $12.1&nbsp;million in 2007, 2006
and 2005, respectively, from the amortization of upfront and milestone payments from GSK related to our Horizon collaboration and strategic alliance agreements and from Astellas related to our
telavancin collaboration. The table below reflects the upfront and milestone payments received from GSK under the Horizon program and strategic alliance agreements, from Astellas under the telavancin
collaboration and from AstraZeneca under our license agreement through December&nbsp;31, 2007 (in millions). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Agreements/Programs<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="23%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Signed<BR>
Agreement/Licensed<BR>
Program</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Upfront and<BR>
Milestone<BR>
Payments</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><I>GSK Collaborations</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Horizon program</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2002</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Strategic Alliance agreement execution</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Strategic Alliance&#151;LAMA license</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Strategic Alliance&#151;MABA license</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><I>Astellas License agreement</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>158.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><I>AstraZeneca License agreement execution</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>255.0</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="23%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upfront
fees and milestone payments received have been deferred and are being amortized ratably into revenue over the applicable estimated performance period with end dates ranging
between 2011 and 2020. Revenue in 2008 is expected to be comprised of the ongoing amortization of deferred revenue that relates to the $255.0&nbsp;million of upfront and milestone payments received
through December&nbsp;31, 2007, under our agreements with GSK and Astellas, and to any additional upfront or milestone payments earned under current or new agreements with GSK, Astellas or other
partners. We periodically review the estimated performance periods of our contracts and as such, during 2007, we revised the performance periods related to our agreement with Astellas based on the
progress of telavancin. We do not expect that this will have a material impact on future revenue recognized under this agreement. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Research&nbsp;&amp; Development  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses (in millions, except percentages): </FONT></P>

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<TH WIDTH="35%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Change<BR>
2007/2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Change<BR>
2006/2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="35%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>$</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>$</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>External research and development</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>78.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(25.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(27</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Employee-related</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Stock-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>282</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Facilities, depreciation and other allocated</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Total research and development expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>155.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>166.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>137.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses decreased in 2007 compared to 2006 primarily as a result of lower external research and development expenses, offset by higher employee-related expenses
and higher facilities-related costs. The lower external development costs were primarily a result of our completion of patient enrollment in our Phase&nbsp;3 cSSSI studies for telavancin in 2006,
offset by increased external research and development costs associated with our Phase&nbsp;3 HAP studies for </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>42</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>

<!-- ZEQ.=1,SEQ=42,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=791861,FOLIO='42',FILE='DISK106:[08ZAE1.08ZAE43901]DO43901A.;13',USER='GMEDINA',CD='26-FEB-2008;17:20' -->
<A NAME="page_do43901_1_43"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>telavancin
and our two Phase&nbsp;2 clinical studies for TD-5108, our GI motility dysfunction compound, and TD-1792, our investigational antibiotic, in 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses increased in 2006 compared to 2005 primarily as a result of higher external research and development expenses, higher stock-based compensation expenses
associated with the implementation of SFAS&nbsp;123(R) and higher facilities-related costs. The higher external development costs were primarily related to increased clinical services and contract
manufacturing activities supporting our two Phase&nbsp;3 clinical programs for telavancin, as well as a Phase&nbsp;2 clinical study for TD-5108 and other various development and
discovery programs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee-related
expenses increased in 2007 compared to 2006 primarily due to higher costs of non-officer incentive programs and increased headcount to support our clinical
research programs. We have short- and long-term bonus programs in place for eligible non-officer employees related to the achievement of certain clinical milestones. In
September 2007, we achieved the last clinical milestone under a long-term bonus plan established in 2004 for eligible non-officer employees. This achievement resulted in a
cumulative increase in bonus expense and liability of $8.5&nbsp;million in 2007, which included the effect of a change in estimate of $7.1&nbsp;million recorded in the second quarter of 2007. As
of December&nbsp;31, 2007, we had fully expensed our bonus liability of approximately $12.4&nbsp;million relating to this long-term bonus program, which ended in September 2007, of
which $8.3&nbsp;million remaining is scheduled to be paid to the eligible employees in December of 2008 and 2009. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee-related
expenses increased in 2006 from 2005 due to higher salary and benefits costs in 2006 partially offset by lower recruiting and relocation costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Facilities,
depreciation and other allocated expenses increased in 2007 from 2006 and in 2006 from 2005 due primarily to higher supplies and materials costs used to support our clinical
programs, as well as higher facilities-related expenses. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2007, we granted performance-contingent restricted stock unit awards (RSUs) to certain employees, the vesting of which is tied to the successful achievement of certain clinical
development milestones during 2008 and 2009, as well as a requirement for continued employment through 2009 and 2010. Expense associated with RSUs will be recognized, if at all, during 2008 through
2009, depending on the probability of meeting the performance milestones. The maximum potential expense associated with these RSUs could be up to approximately $38.3&nbsp;million, if all of the
milestones are successfully
achieved on time. As of December&nbsp;31, 2007, the Company had determined that none of the requisite performance milestones were probable and as a result, no compensation expense has been
recognized. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
stock-based compensation expense for 2007 and 2006 consisted of stock-based compensation expense related to employee stock options, employee stock purchases and the value of
options issued to non-employees for services rendered. For the year ended December&nbsp;31, 2007, the fair value of options vested was significantly higher when compared to 2006 due to
the number of options that vested at the expiration of the put period in September 2007. Stock-based compensation expense recognized for 2005 consisted of the amortization expense of deferred
stock-based compensation related to employees and the value of stock options granted to non-employees. In accordance with the modified-prospective-transition method, the research and
development expenses for 2005 have not been restated to reflect, and do not include, the impact of SFAS&nbsp;123(R). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses for 2008 are expected to be driven largely by costs associated with the preparation and submission of our telavancin NDA for HAP, our ongoing
development efforts in our GI program and with TD-1792, our investigational antibiotic, as well as costs associated with our drug discovery programs. Under our agreement with Astellas, we
are responsible for completion of the cSSSI and HAP telavancin Phase&nbsp;3 programs, publication of the results of these studies, preparation and submission of a NDA to the FDA for the cSSSI
indication and subsequently for the HAP indication, and manufacture of approximately six months of first commercial sale stock for launch. The </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>43</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=43,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=762760,FOLIO='43',FILE='DISK106:[08ZAE1.08ZAE43901]DO43901A.;13',USER='GMEDINA',CD='26-FEB-2008;17:20' -->
<A NAME="page_do43901_1_44"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>telavancin
cSSSI NDA remains under regulatory review and we plan to submit our telavancin NDA for HAP in 2008. We are reliant on the efforts of third parties, including contract research
organizations, consultants and contract manufacturing organizations for the completion of these obligations. While we cannot predict the time frame in which all of these responsibilities will be
completed, we anticipate that our aggregate external costs associated with our obligations with regard to telavancin described above, will be towards the upper end of the range of
$150.0&nbsp;million to $155.0&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
external research and development expenses in 2008 are expected to be driven by our ongoing development efforts with TD-5108 in our GI program, with
TD-1792, and with our discovery programs. In the fourth quarter of 2007, we completed enrollment in a thorough QTc study for our TD-5108 compound. Our preliminary review of
electrocardiogram data from the study suggests that such data is unreliable due to problems with the conduct of the study, not with the intrinsic properties of TD-5108. As a result, the
study will need to be repeated in order to generate scientifically valid results. We currently intend to initiate a repeat of the study later in 2008. Actual expenses for our various programs may vary
considerably based upon the timing of program initiation, study enrollment rates and the timing and structure of any collaboration in which a partner may incur a portion of these expenses. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have not provided program costs in detail because we do not track, and have not tracked, all of the individual components (specifically the internal cost components) of our research
and development
expenses on a program basis. We do not have the systems and processes in place to accurately capture these costs on a program basis. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> General and administrative  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses (in millions, except percentages): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Change<BR>
2007/2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Change<BR>
2006/2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>$</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>$</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Total general and administrative</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
and administrative expenses increased in 2007 from 2006 primarily due to an increase of $1.7&nbsp;million in external consulting expenses related to telavancin marketing
preparations and costs associated with preparation for the call and the put rights under the strategic alliance with GSK, as well as an increase of $1.6&nbsp;million in employee-related costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
and administrative expenses increased in 2006 from 2005 due primarily to an increase in stock-based compensation expense of $6.8&nbsp;million, as well as higher costs for
external consulting, employee-related expenses and facilities costs of $1.7&nbsp;million. External consulting costs increased by $0.6&nbsp;million in
2006 compared to 2005, due primarily to the use of outside consultants to assist us in preparing the telavancin cSSSI NDA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total general and administrative stock-based compensation expense recognized for 2007 and 2006 was $9.4&nbsp;million and $9.2&nbsp;million, respectively, consisting of
stock-based compensation expense related to: employee stock options; employee stock purchases; the value of options issued to non-employees for services rendered; and stock-based
compensation expense related to restricted stock. Stock-based compensation expense for 2005 was $2.4&nbsp;million, consisting of the amortization of deferred stock-based compensation related to
employees, the value of stock options granted to non-employees and stock-based compensation expense related to restricted stock. In accordance with the modified-prospective transition
method, the general and administrative expenses for 2005 have not been restated to reflect, and do not include, the impact of SFAS&nbsp;123(R). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2007, we granted RSUs to certain employees, the vesting of which is tied to the successful achievement of certain clinical development milestones during 2008 and 2009, as well as
a requirement </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>44</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>for
continued employment through 2009 and 2010. Expense associated with RSUs will be recognized, if at all, during 2008 through 2009, depending on the probability of meeting the performance
milestones. The maximum potential expense associated with these RSUs could be up to approximately $28.0&nbsp;million, if all of the milestones are successfully achieved on time. As of
December&nbsp;31, 2007, the Company had determined that none of the requisite performance milestones were probable and as a result, no compensation expense has been recognized. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
anticipate general and administrative expenses will increase in 2008 and subsequent years to support our discovery and development efforts and commercial development activities. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and other income, net</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest and other income, net, on cash and investments decreased to
$8.7&nbsp;million in 2007 from $13.3&nbsp;million in 2006 primarily due to lower interest income earned on lower average cash balances in 2007. In addition, a $1.1&nbsp;million impairment charge
was recorded during the fourth quarter of 2007 for an other-than-temporary decline in the fair value of a structured investment vehicle (SIV) security as a result of the
deterioration of the SIV financial market and evidence indicating that the security's carrying value was not recoverable within a reasonable period of time. This SIV investment was subsequently sold
on February&nbsp;11, 2008 for the revised carrying basis that was determined at the end of 2007. Interest and other income, net, increased to $13.3&nbsp;million in 2006 from $6.7&nbsp;million in
2005 due to higher average cash balances in 2006 which included proceeds from the closing of our public offering in February 2006. Interest and other income, net, includes interest income earned on
cash and marketable securities, investment management fees on investments, net realized gains on marketable securities and net sublease income on facilities. In order to conform to the current period
presentation, investment management fees of approximately $0.3&nbsp;million for each of the years ending 2007, 2006 and 2005 were netted against interest and other income. This reclassification had
no impact on previously reported amounts of net loss or stockholders' equity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest expense includes interest expense on capital lease and debt arrangements.
Interest expense decreased to $93,000 in 2007 from $193,000 while interest expense decreased to $193,000 in 2006 from $295,000 in 2005, in both cases due to declining capital lease and debt balances. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Income Taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007, we had net operating loss carryforwards for federal income taxes of $637.8&nbsp;million and federal research and development tax
credit carryforwards of $30.7&nbsp;million. Our utilization of the net operating loss and tax credit carryforwards may be subject to annual limitations due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits prior to utilization. We recorded a
valuation allowance to offset in full the benefit related to our deferred tax assets because realization of these benefits is uncertain. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
adopted FIN&nbsp;48 effective January&nbsp;1, 2007. The adoption of FIN&nbsp;48 did not result in an adjustment to the beginning balance of our accumulated deficit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the implementation of FIN&nbsp;48, we increased our unrecognized tax benefits by $6.5&nbsp;million. We had unrecognized tax benefits of $26.7&nbsp;million and
$33.2&nbsp;million as of January&nbsp;1, 2007 and December&nbsp;31, 2007, respectively. If we are eventually able to recognize these uncertain positions, $33.2&nbsp;million of the unrecognized
benefit would reduce our effective tax rate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007 and December&nbsp;31, 2006, we had $129.3&nbsp;million and $235.6&nbsp;million in cash, cash equivalents and marketable
securities, respectively, excluding $3.8&nbsp;million and $3.9&nbsp;million in restricted cash and cash equivalents at December&nbsp;31, 2007 and December&nbsp;31, 2006, respectively, that was
pledged as collateral for certain of our leased facilities and equipment. During 2007, we received </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>45</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>payments
of $57.0&nbsp;million from Astellas primarily as a result of achieving certain clinical milestones under the terms of our collaboration agreement with Astellas. In addition, in January
2008, we raised proceeds of $166.7&nbsp;million, net of issuance costs, upon the closing of an underwritten public offering of $172.5&nbsp;million aggregate principal amount of unsecured 3%
convertible subordinated notes due 2015. The notes are convertible into shares of the Company's common stock at an initial conversion rate of 38.6548 shares per $1,000 principal amount of the notes,
subject to adjustment in certain circumstances, which represents an initial conversion price of approximately $25.87 per share. In February 2006, we raised proceeds of $139.9&nbsp;million, net of
issuance costs, upon the closing of an underwritten public offering of 5.2&nbsp;million shares of common stock at a price per share of $28.50. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to incur substantial expenses as we continue our drug discovery and development efforts, particularly to the extent we advance our product candidates into clinical studies,
which are very expensive. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that our cash, cash equivalents and marketable securities will be sufficient to meet our anticipated operating needs for at least the next twelve months based upon current
operating and spending assumptions. Each of TD-5108 and TD-1792 has successfully completed a Phase&nbsp;2 proof-of-concept study and we may pursue
collaboration arrangements for the development and commercialization of these compounds. If we are unable to enter into such collaboration arrangements, or if those agreements require that we assume
future development responsibilities, then our operating expenses will increase significantly. As a result, we may raise additional funds in advance of actual cash needs if we choose to expand more
rapidly than we presently anticipate, or if our operating costs exceed our expectations. We cannot guarantee that future financing will be available in amounts or on terms acceptable to us, if at all. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Cash Flows  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities was $104.4&nbsp;million and $104.8&nbsp;million in 2007 and 2006, respectively. Net cash used in operating activities
was $104.8&nbsp;million and $58.6&nbsp;million in 2006 and 2005, respectively. This increase in cash used in operations of $46.2&nbsp;million was primarily due to an increase in research and
development expenses, partially offset by cash receipts of $36.0&nbsp;million from Astellas. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investing
activities provided cash of $110.6&nbsp;million and used cash of $18.6&nbsp;million in 2007 and 2006, respectively. The increase in 2007 primarily results from an increase
in proceeds from net sales and maturities of marketable securities. Investing activities used cash of $18.6&nbsp;million and provided cash of $3.3&nbsp;million in 2006 and 2005, respectively. The
increase in 2006 primarily results from increased purchases of marketable securities and increased capital expenditures compared to 2005. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financing
activities provided cash of $7.8&nbsp;million and $146.0&nbsp;million in 2007 and 2006, respectively. The cash provided by financing activities during 2007 was primarily
due to proceeds received from the issuance of common shares under our employee stock plans, while the cash provided by financing activities during 2006 was substantially higher due primarily to
proceeds, net of issuance costs, of approximately $139.8&nbsp;million received from our public offering of common stock in February 2006. Financing activities provided cash of $146.0&nbsp;million
and $3.7&nbsp;million in 2006 and 2005, respectively. The increase in cash provided by financing activities was primarily due to our public offering in February 2006. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>46</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Contractual Obligations and Commitments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our major outstanding contractual obligations relate to our note payable, operating leases and fixed purchase commitments under contract research, development and
clinical supply agreements. These contractual obligations as of December&nbsp;31, 2007, are as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="49%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Less than<BR>
1&nbsp;year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>1-3<BR>
years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>4-5<BR>
years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>After<BR>
5&nbsp;years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Note payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Operating leases</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Purchase obligations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
current annual rental expense under our combined operating leases for our Company's headquarters is approximately $6.1&nbsp;million, subject to annual increases. As security for
our performance under the operating leases, we have issued letters of credit totaling $3.8&nbsp;million, collateralized by an equal amount of restricted cash. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to our Horizon collaboration with GSK, in the event that a LABA product candidate discovered by GSK is successfully developed and commercially launched in multiple regions in
the world, we will be obligated to make milestone payments to GSK of up to an aggregate of $220.0&nbsp;million. The current lead LABA candidate, GW642444, is a GSK-discovered compound.
Based on available information, we do not estimate that any significant portion of these potential milestone payments to GSK is likely to be made in the next three years. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Recent Accounting Pronouncements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2007, the Emerging Issues Task Force (EITF) ratified a consensus on EITF Issue No.&nbsp;07-1 (EITF&nbsp;07-1), "Accounting
for Collaborative Arrangements", which requires participants in a collaboration to make separate disclosures regarding the nature and purpose of an arrangement, their rights and obligations under the
arrangement, the accounting policy for the arrangement and the income statement classification and amounts arising from the arrangement between participants for each period an income statement is
presented. EITF&nbsp;07-1 is effective for us beginning in the first quarter of fiscal year 2009. We are currently evaluating the impact
of the provisions of EITF&nbsp;07-1 on our financial position, results of operations and cash flows and therefore, the impact of the adoption is unknown at this time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2007, the EITF ratified a consensus on EITF Issue No.&nbsp;07-3 (EITF&nbsp;07-3), "Accounting for Non-Refundable Advance Payments for
Goods or Services to Be Used in Future Research and Development Activities", which concluded that non-refundable advance payments for goods or services for use in research and development
activities should be deferred and capitalized. EITF&nbsp;07-3 is effective for us beginning in the first quarter of fiscal year 2008. We are currently evaluating the impact of the
provisions of EITF&nbsp;07-3 on our financial position, results of operations and cash flows and therefore, the impact of the adoption is unknown at this time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued SFAS No.&nbsp;157, "Fair Value Measurements" (SFAS&nbsp;157). SFAS&nbsp;157 defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS&nbsp;157 is effective for us beginning in the first quarter of fiscal year
2008. We are currently evaluating the impact of the provisions of SFAS&nbsp;157 on our financial position, results of operations and cash flows and therefore, the impact of the adoption is unknown
at this time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
July 2006, the FASB issued Financial Interpretation No. (FIN) 48, "Accounting for Uncertainty in Income Taxes" (FIN&nbsp;48) as an interpretation of SFAS No.&nbsp;109, "Accounting
for Income Taxes" </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>47</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>(SFAS&nbsp;109)
and in May 2007, the FASB issued FASB Staff Position FIN&nbsp;48-1, "Definition of </FONT><FONT SIZE=2><I>Settlement</I></FONT><FONT SIZE=2> in FASB Interpretation
No.&nbsp;48". FIN&nbsp;48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS&nbsp;109 and prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN&nbsp;48 also provides
guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted FIN&nbsp;48 effective January&nbsp;1, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="do43901_item_7a._quantitative_and_qual__ite02669"> </A>
<A NAME="toc_do43901_1"> </A>
ITEM 7A.&nbsp;&nbsp;&nbsp;&nbsp;QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to market risk, including changes to interest rates which are confined to our cash, cash equivalents, restricted cash and marketable securities. We
have invested primarily in money market funds, federal agency notes, corporate debt securities and U.S. treasury notes. To reduce the volatility relating to these exposures, we have put investment and
risk management policies and procedures in place. The securities in our investment portfolio are not leveraged, are classified as available-for-sale and, due to their very
short-term nature,
are subject to minimal interest rate risk. We currently do not engage in hedging activities. Because of the short-term maturities of our investments, we do not believe that an increase in
market rates would have any significant negative impact on the realized value of our investment portfolio. Our outstanding note payable has a fixed interest rate and therefore, we have no exposure to
interest rate fluctuations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most
of our transactions are conducted in U.S. dollars, although we do conduct some preclinical and clinical studies, and manufacture some active pharmaceutical ingredient with vendors
located outside the United States. Some of these expenses are paid in U.S. dollars, and some are paid in the local foreign currency. If the exchange rate undergoes a change of 10%, we do not believe
that it would have a material impact on our results of operations or cash flows. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>48</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_fa43901_1_49"> </A>

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<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fa43901_item_8._financial_statements_and_supplementary_data"> </A>
<A NAME="toc_fa43901_1"> </A>
ITEM 8.&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    <BR>    </B></FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="94%" style="font-family:times;"><FONT SIZE=2>Consolidated Balance Sheets at December&nbsp;31, 2007 and December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="94%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Operations for each of the three years in the period ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
51</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="94%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Stockholders' Equity (net capital deficiency) for each of the three years in the period ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
52</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="94%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows for each of the three years in the period ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
53</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="94%" style="font-family:times;"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
54</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="94%" style="font-family:times;"><FONT SIZE=2><BR>
Report of Independent Registered Public Accounting Firm</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
78</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>49</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fc43901_1_50"> </A>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fc43901_theravance,_inc._consolidated___the03128"> </A>
<A NAME="toc_fc43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.    <BR>    <BR>    Consolidated Balance Sheets    <BR>    <BR>    (in thousands, except per share amounts)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="86%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Assets</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current assets:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>86,433</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72,388</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Marketable securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40,383</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>128,692</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Receivable from related party</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>316</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>608</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Notes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>223</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,142</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid and other current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,732</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,361</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134,087</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>207,191</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Marketable securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,456</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34,490</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Restricted cash</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,810</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,860</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20,091</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,101</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Notes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,539</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,782</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>161,983</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>262,424</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Liabilities and stockholders' equity (net capital deficiency)</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,957</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,011</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued personnel-related expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,841</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,316</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued clinical and development expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,318</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,608</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,797</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,314</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current portion of note payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>101</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>87</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current portion of deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,519</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,273</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,533</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,609</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred rent</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,003</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,298</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Note payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>435</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>538</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>166,136</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134,383</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other long term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,140</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,286</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Commitments and Contingencies (Notes&nbsp;3, 7 and 8)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Stockholders' equity (net capital deficiency):</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Preferred stock, $0.01 par value, 230 shares authorized, no shares issued and outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Common stock, $0.01 par value; 200,000 shares authorized, issuable in series; 51,684 and 50,746 shares issued and outstanding at December&nbsp;31, 2007 and December&nbsp;31, 2006, respectively</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>516</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>507</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Class&nbsp;A Common Stock, $0.01 par value, 30,000 shares authorized, 9,402 issued and outstanding at December&nbsp;31, 2007 and December&nbsp;31, 2006.&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>870,878</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>840,498</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Notes receivable from stockholders</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accumulated other comprehensive income</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(937,809</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(777,812</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total stockholders' equity (net capital deficiency)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(66,264</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63,310</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total liabilities and stockholders' equity (net capital deficiency)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>161,983</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>262,424</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>50</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=50,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=877111,FOLIO='50',FILE='DISK106:[08ZAE1.08ZAE43901]FC43901A.;6',USER='GMEDINA',CD='22-FEB-2008;22:59' -->
<A NAME="page_fc43901_1_51"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Consolidated Balance Sheets </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (in thousands, except per share amounts) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fc43901_theravance,_inc._consolidated___the03612"> </A>
<A NAME="toc_fc43901_2"> </A>
<BR></FONT><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.    <BR>    <BR>    Consolidated Statements of Operations    <BR>    <BR>    (in thousands, except per share amounts)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Revenue (includes amounts from GSK, a related party, of $11,297, $12,565 and $11,685 in 2007, 2006 and 2005, respectively)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,002</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,587</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,054</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Operating expenses:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>155,254</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>166,564</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>137,936</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>General and administrative</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,313</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32,193</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,674</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>190,567</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>198,757</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>161,610</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(168,565</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(179,170</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(149,556</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest and other income, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,661</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,319</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,687</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(93</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(193</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(295</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(159,997</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(166,044</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(143,164</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic and diluted net loss per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.64</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.81</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.69</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Shares used in computing net loss per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60,498</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,013</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,270</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>51</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=51,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=668349,FOLIO='51',FILE='DISK106:[08ZAE1.08ZAE43901]FC43901B.;2',USER='GMEDINA',CD='22-FEB-2008;22:59' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fe43901_1_52"> </A>

<!-- COMMAND=ADD_BASECOLOR,"Black" -->


<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->

 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fe43901_theravance,_inc._consolidated___the03863"> </A>
<A NAME="toc_fe43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.    <BR>    <BR>    Consolidated Statements of Stockholders' Equity (net capital deficiency)    <BR>    <BR>    (in thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Class&nbsp;A<BR>
Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Notes<BR>
Receivable<BR>
from<BR>
Stockholders</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated<BR>
Other<BR>
Comprehensive<BR>
Income (Loss)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total<BR>
Stockholders'<BR>
Equity<BR>
(Net Capital Deficiency)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Additional<BR>
Paid-In<BR>
Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Deferred<BR>
Stock-Based<BR>
Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated<BR>
Deficit</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1><I>Balance at December&nbsp;31, 2004</I></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>43,522</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>435</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9,402</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>94</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>669,698</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(495</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(10,079</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(682</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(468,604</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>190,367</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Common stock issuances from employee stock option and purchase plans, net of repurchases, restricted stock award and net of unvested stock options exercised early</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>945</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,067</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,076</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Exercise of warrants to purchase shares of common stock</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Forgiveness and repayments of notes receivable</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>478</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>478</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Stock-based compensation related to grants of stock options to nonemployees</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>927</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>927</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Reversal of deferred stock-based compensation related to employee terminations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1,314</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>807</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(507</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Amortization of deferred stock-based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,203</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,203</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Deferred stock-based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>896</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(896</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Comprehensive loss:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>Net loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(143,164</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(143,164</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>Net unrealized gain on marketable securities</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>179</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>179</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Total comprehensive loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(142,985</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1><I>Balance at December&nbsp;31, 2005</I></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>44,475</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>444</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9,402</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>94</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>676,299</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(4,965</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(503</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(611,768</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>59,584</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Common stock issuances from employee stock option and purchase, net of repurchases and early exercised stock vested</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,071</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>11</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7,522</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7,533</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Issuance of common stock for cash in secondary stock offering, net of expenses of $0.1&nbsp;million</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,200</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>52</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>139,811</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>139,863</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>FAS&nbsp;123(R) employee stock-based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19,433</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19,433</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Forgiveness and repayments of notes receivable</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Stock-based compensation related to grants of stock options to nonemployees</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2,104</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2,104</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Amortization of deferred stock-based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>294</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>294</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Reversal of deferred stock-based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(4,965</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,965</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Comprehensive loss:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>Net loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(166,044</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(166,044</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>Net unrealized gain on marketable securities</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>529</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>529</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Total comprehensive loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(165,515</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1><I>Balance at December&nbsp;31, 2006</I></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>50,746</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>507</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9,402</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>94</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>840,498</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>26</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(777,812</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>63,310</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Common stock issuances from employee stock option and purchase plans, net of repurchases, restricted stock awards and early exercised stock vested</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>892</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7,924</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7,933</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>FAS&nbsp;123(R) employee stock-based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>22,494</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>22,494</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Forgiveness and repayments of notes receivable</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(35</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Comprehensive loss:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>Net loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(159,997</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(159,997</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>Net unrealized gain on marketable securities</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>31</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>31</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Total comprehensive loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(159,966</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1><I>Balance at December&nbsp;31, 2007</I></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>51,638</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>516</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9,402</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>94</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>870,878</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>57</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(937,809</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(66,264</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>52</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=52,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=676700,FOLIO='52',FILE='DISK106:[08ZAE1.08ZAE43901]FE43901A.;14',USER='GMEDINA',CD='26-FEB-2008;02:59' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ff43901_1_53"> </A>

<!-- COMMAND=ADD_BASECOLOR,"Black" -->


<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->

 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ff43901_theravance,_inc._consolidated___the02569"> </A>
<A NAME="toc_ff43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.    <BR>    <BR>    Consolidated Statements of Cash Flows    <BR>    <BR>    (in thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Cash flows provided by (used in) operating activities</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(159,997</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(166,044</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(143,164</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Adjustments to reconcile net loss to net cash used in operating activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,058</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,198</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,107</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,494</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,831</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,623</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other-than-temporary impairment loss on marketable<BR>
&nbsp;&nbsp;&nbsp;&nbsp;security</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,140</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Forgiveness of notes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>179</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Change in accrued interest receivable on marketable<BR>
&nbsp;&nbsp;&nbsp;&nbsp;securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(610</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>709</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>403</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Changes in operating assets and liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Receivables, prepaid and other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(177</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,374</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Accounts payable and accrued liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,383</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,203</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,664</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Accrued personnel-related expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,525</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,275</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(475</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Deferred rent</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(295</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(240</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>138</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34,999</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,411</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60,947</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Other liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,871</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(199</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,559</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash used in operating activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(104,372</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(104,791</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(58,645</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Cash flows provided by (used in) investing activities</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Purchases of property and equipment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,818</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5,708</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,443</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Purchases of marketable securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(93,329</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(190,974</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(152,260</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Maturities of marketable securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>121,804</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>124,715</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>89,330</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Sales of marketable securities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90,760</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,828</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68,617</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Restricted cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>677</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Additions to notes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(250</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(850</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(160</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Decrease in notes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,375</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>407</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>578</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash provided by (used in) investing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>110,592</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(18,582</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,339</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Cash flows provided by (used in) financing activities</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Payments on notes payables and capital leases</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(88</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,250</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,525</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net proceeds from issuances of common stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,913</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>147,224</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,207</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,825</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>145,974</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,682</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,045</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,601</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(51,624</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72,388</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,787</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>101,411</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at end of period</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>86,433</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72,388</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,787</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Supplemental Disclosures of Cash Flow Information</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash paid for interest</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>86</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>309</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Non-cash investing and financing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Addition to (reversal of) deferred stock-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4,965</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>896</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>53</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fg43901_1_54"> </A>

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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->

 </FONT> <FONT SIZE=2><B>THERAVANCE,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Description of Operations and Principles of Consolidation  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Theravance,&nbsp;Inc. (the Company or Theravance) is a biopharmaceutical company with a pipeline of internally discovered product candidates. Theravance is
focused on the discovery, development and commercialization of small molecule medicines across a number of therapeutic areas including respiratory disease, bacterial infections and gastrointestinal
motility dysfunction. Of the Company's six programs in development, four are in late stage&#151;its telavancin program focusing on treating serious Gram-positive bacterial
infections with Astellas Pharma&nbsp;Inc. (Astellas), its Horizon program (formerly referred to as Beyond Advair) with GlaxoSmithKline&nbsp;plc (GSK), its Gastrointestinal Motility Dysfunction
program and TD-1792, its investigational antibiotic for the treatment of serious Gram-positive bacterial infections. By leveraging the Company's proprietary insight of
multivalency to drug discovery focused primarily on validated targets, Theravance is pursuing a next generation strategy designed to discover superior medicines in areas of significant unmet medical
need. The Company was incorporated in November 1996 in Delaware under the name Advanced Medicine,&nbsp;Inc. and began operations in May 1997. The Company changed its name to Theravance,&nbsp;Inc.
in April 2002. In December 2006, the Company submitted its first new drug application (NDA) to the U.S. Food and Drug Administration (FDA) for telavancin for the treatment of complicated skin and skin
structure infections (cSSSI) caused by Gram-positive bacteria, including methicillin-resistant </FONT><FONT SIZE=2><I>Staphylococcus aureus</I></FONT><FONT SIZE=2> (MRSA). In October
2007, the Company announced that the FDA issued an approvable letter for its NDA, and in January 2008, the Company announced that the Anti-Infective Drugs Advisory Committee (AIDAC) to the
FDA was scheduled to meet to discuss telavancin for the proposed indication to treat cSSSI on February&nbsp;27, 2008. On February&nbsp;23, 2008, the FDA informed the Company that the AIDAC meeting
was cancelled. On February&nbsp;25, 2008, the FDA issued a public notice stating that the AIDAC meeting had been cancelled to allow time for the FDA to review and resolve several outstanding issues.
The public notice further stated that the FDA intends to continue evaluating the telavancin NDA and will schedule an AIDAC meeting in the future, as needed. The Company is planning to meet with the
FDA to discuss these issues. None of the Company's product candidates have been approved by regulatory agencies and the Company has not received any product revenue to date. The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Use of Management's Estimates  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Cash and Cash Equivalents  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company considers all highly liquid investments purchased with a maturity of three months or less on the date of purchase to be cash equivalents. Cash
equivalents are carried at cost, which approximates fair value. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
certain lease agreements and letters of credit, the Company has used cash and cash equivalents as collateral. There was $3.8&nbsp;million and $3.9&nbsp;million of restricted
cash related to such agreements at December&nbsp;31, 2007 and 2006, respectively. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>54</FONT></P>

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<A NAME="page_fg43901_1_55"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Marketable Securities  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company classifies its marketable securities as available-for-sale and has the ability and the intent of holding these securities for
a period of time sufficient to allow for any anticipated recovery in market value. Available-for-sale securities are carried at estimated fair value, with the unrealized gains
and losses reported in stockholders' equity (net capital deficiency) and included in accumulated other comprehensive income. The cost of securities in this category is adjusted for amortization of
premiums and accretion of discounts from the date of purchase to maturity. Such amortization is included in interest and other income. Realized gains and losses and declines in value judged to be
other than temporary on available-for-sale securities are also included in interest and other income. The cost of securities sold is based on the specific-identification
method. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Other-than-Temporary Impairment Assessment  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining
whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and
near-term prospects of the investee, credit quality and the Company's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in
market value. If the Company determines an investment impairment is other-than-temporary, the investment is written down with a charge recorded in interest and other income, net. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Fair Value of Financial Instruments  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments include cash and cash equivalents, marketable securities, receivable from related party, accounts payable and accrued liabilities.
Marketable securities are carried at fair value. Cash and cash equivalents, receivable from related party, accounts payable and accrued liabilities are carried at cost. The Company believes cost
approximates fair value due to the relatively short maturities of these instruments. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Inventory  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory is stated at the lower of cost or market and is included with prepaid and other current assets. Inventory consists of $4.4&nbsp;million of commercial
launch supplies of the Company's product candidate telavancin which is currently under regulatory review. Under the Company's 2005 License, Development and Commercialization Agreement with Astellas,
the Company is responsible to deliver to Astellas approximately six months of first commercial sale stock (as defined) in preparation for the regulatory approval and commercialization of telavancin.
If the Company's product candidate is approved by the FDA, the inventory costs incurred would be reimbursed through a milestone payment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the regulatory approval of telavancin is substantially delayed or denied by the necessary regulatory bodies, or if new information becomes available that suggests that the telavancin
inventory will not be realisable, it may be required to expense a portion or all of the capitalized inventory costs. A portion of the amount that may be expensed would be eligible for reimbursement
through alternative arrangements with Astellas under terms of the Company's collaboration agreement. During 2007, the Company expensed approximately $0.9&nbsp;million of inventory capitalized during
the fiscal year as it was determined these inventories were not realisable for commercial launch supplies. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>55</FONT></P>

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<A NAME="page_fg43901_1_56"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Revenue Recognition  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognizes revenue in accordance with the criteria outlined in Staff Accounting Bulletin No.&nbsp;101 (SAB&nbsp;101,) "Revenue Recognition in
Financial Statements", as amended by SAB&nbsp;104 and Emerging Issues Task Force (EITF) Issue 00-21 "Revenue Arrangements with Multiple
Deliverables" (EITF&nbsp;00-21). Under EITF&nbsp;00-21, the Company has determined that the deliverables under its various collaboration agreements do not meet the criteria
required for separate accounting units for the purposes of revenue recognition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Company's agreements with GSK and Astellas, the Company recognizes revenue from non-refundable, upfront fees and development milestone payments ratably
over the term of its performance under the agreements. These upfront or milestone payments received, pending recognition as revenue, are recorded as deferred revenue and are classified as a
short-term or long-term liability on the balance sheet to be amortized over the period of deferral. Deferred revenue that is classified as short-term or
long-term liabilities are amortized to revenue and are not settled with cash. When the period of deferral cannot be specifically identified from the agreement, management estimates the
period based upon the terms of the agreement and other relevant facts. The Company periodically reviews the estimated performance periods of its contracts based on the progress of its programs. During
the third and fourth quarters of 2007, the Company revised the performance period related to the Company's agreement with Astellas based on the progress of regulatory review of the telavancin NDA. The
Company expects that the revision of the performance period under this agreement will not have a material impact on the timing of revenue recognized in future years. In addition, the Company has been
reimbursed by GSK and Astellas for certain external development costs under their respective collaboration agreements. Such reimbursements have been reflected as a reduction of research and
development expense and not as revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Property and Equipment  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, equipment and leasehold improvements are stated at cost and depreciated using the straight-line method as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="63%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Shorter of remaining lease terms or useful life</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="48%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Equipment, furniture and fixtures</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>5-7&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="48%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Software and computer equipment</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>3&nbsp;years</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><I>Capitalized Software  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company capitalizes certain costs related to direct material and service costs for software obtained for internal use in accordance with Statement of Position
98-1 </FONT><FONT SIZE=2><I>Accounting for the Costs of Computer Software Developed or Obtained for Internal Use</I></FONT><FONT SIZE=2>. Capitalized software costs are depreciated over
3&nbsp;years. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Impairment of Long-Lived Assets  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets include property and equipment. The carrying value of long-lived assets is reviewed for impairment whenever events or
changes in circumstances indicate that the asset may not be recoverable. An impairment loss is recognized when the total of estimated future cash flows </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>56</FONT></P>

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<A NAME="page_fg43901_1_57"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>expected
to result from the use of the asset and its eventual disposition are less than its carrying amount. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Concentration of Credit Risks and Other Uncertainties  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company invests in a variety of financial instruments and, by its policy, limits the amount of credit exposure with any one issuer, industry or geographic
area. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is substantially dependent on third-party vendors and clinical research organizations for clinical studies related to its drug discovery and development efforts, as well as
suppliers for the manufacture of its active pharmaceutical ingredient (API) and drug product. The Company may be unable to retain alternative providers on reasonable terms, if at all. If the Company
loses its relationship with any one or more of these providers, it could experience a significant delay in both identifying another comparable provider and then contracting for its services. Even if
the Company locates an alternative provider, it is likely that this provider will need additional time to respond to the Company's needs and may not provide the same type or level of service as the
original provider. For example, due to the complex nature of the Company's compounds, changing manufacturers for APIs or drug products could involve lengthy technology transfer and validation
activities for the new manufacturer. The occurrence of any of these events may delay the development or commercialization of the Company's product candidates and have a material adverse effect on the
consolidated results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future
financing may not be available in amounts or on terms acceptable to the Company, if at all. The Company will require significant additional capital to fully implement its business
plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Related Parties  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's related parties are its directors, executive officers and GSK. Transactions with executive officers and directors include notes receivable,
described below. Transactions with GSK are described in Note&nbsp;3. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Robert
V. Gunderson, Jr. is a director of the Company. The Company has engaged Gunderson Dettmer Stough Villeneuve Franklin&nbsp;&amp; Hachigian,&nbsp;LLP, of which Mr.&nbsp;Gunderson
is a partner, as its primary legal counsel. Fees are incurred in the ordinary course of business, and were $0.6&nbsp;million, $0.5&nbsp;million and $0.5&nbsp;million the years ended
December&nbsp;31, 2007, 2006 and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Notes Receivable  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has provided loans to its officers and employees primarily to assist them with the purchase of a primary residence, which collateralizes the resulting
loans. The Company has also allowed certain option holders to exercise their options by executing stock purchase agreements and full recourse notes payable to the Company. The balance of these notes
receivable is included in stockholders' equity (net capital deficiency) on the consolidated balance sheets. The loans issued for the exercise of stock options are dated prior to November 2001 and thus
are not subject to variable accounting as required under EITF&nbsp;00-23 "Issues Related to the Accounting for Stock Compensation under APB No.&nbsp;25 and FASB Interpretation 44." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
receivable related to the notes was $26,000, $24,000 and $25,000 at December&nbsp;31, 2007, 2006 and 2005, respectively, and is included in other current assets. The Company
accrues interest on </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>57</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fg43901_1_58"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>the
notes at rates ranging up to 8%. The outstanding loans have maturity dates ranging from April 2008 through 2012. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Bonus Accruals  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has short-and long-term bonus programs for eligible employees. Bonuses are determined based on various criteria, including the
achievement of corporate, departmental and individual goals. Bonus accruals are estimated based on various factors, including target bonus percentages per level of employee and probability of
achieving the goals upon which bonuses are based. The Company's management periodically reviews the progress made towards the goals under the bonus programs. As bonus accruals are dependent upon
management's judgments of the likelihood of achieving the various goals, in some cases over a period of time in excess of twelve months, it is possible for bonus expense to vary significantly in
future periods if changes occur in those management estimates. During the year ended December&nbsp;31, 2007, the Company recorded an increase in bonus expense and liability for eligible
non-officer employees of $8.5&nbsp;million, which included the effect of a change in estimate of $7.1&nbsp;million, related to the achievement of the last clinical milestone under a
long-term bonus plan established in 2004. As of December&nbsp;31, 2007, the Company had fully expensed its bonus liability of approximately $12.4&nbsp;million relating to its
long-term bonus program, which ended in September 2007, of which the $8.3&nbsp;million remaining is scheduled to be paid to eligible employees in December of 2008 and 2009. Bonus expense
for the Company's short-term bonus program was $4.9&nbsp;million, $5.9&nbsp;million and $6.6&nbsp;million for the years ended December&nbsp;31, 2007, 2006 and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Deferred Rent  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred rent consists of the difference between cash payments and the recognition of rent expense on a straight-line basis for the buildings the
Company occupies. Rent expense is being recognized ratably over the life of the leases. Because the Company's operating leases provide for rent increases over the terms of the leases, average annual
rent during the terms exceed the Company's actual cash rent payments of the first 5.5&nbsp;years of the leases. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Research and Development Costs  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs are expensed as incurred. Research and development costs consist of salaries and benefits, laboratory supplies and facility costs,
as well as fees paid to third parties that conduct certain research and development activities on behalf of the Company, net of certain external development costs reimbursed by GSK. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Preclinical Study and Clinical Study Expenses  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of the Company's preclinical studies and all of its clinical studies have been performed by third-party contract research organizations (CROs). Some CROs
bill monthly for services performed, while others bill based upon milestones achieved. The Company reviews the activities performed under the significant contracts each quarter. For preclinical
studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical study expenses, the significant factors
used in estimating accruals include the number of patients enrolled and percentage of work completed to date. Vendor confirmations are obtained for contracts </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>58</FONT></P>

<HR NOSHADE>
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<A NAME="page_fg43901_1_59"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>with
longer duration when necessary to validate the Company's estimate of expenses. The Company's estimates are highly dependent upon the timeliness and accuracy of the data provided by its CROs
regarding the status of each program and total program spending and adjustments are made when deemed necessary. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Fair Value of Share-based Payment Awards  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company uses the fair value method of accounting for share-based compensation arrangements in accordance with Financial Accounting Standards Board Statement
No.&nbsp;123(R), Share-based Payment (SFAS123(R)). The Company adopted SFAS&nbsp;123(R) on January&nbsp;1, 2006 using the modified prospective method of transition. Under this method,
compensation expense is recognized beginning with the effective date of adoption of SFAS&nbsp;123(R) for all share-based payments (i)&nbsp;granted after the effective date of adoption and
(ii)&nbsp;granted prior to the effective date of adoption and that remained unvested on the date of adoption. Share-based compensation arrangements covered by SFAS&nbsp;123(R) currently include
stock options granted, restricted shares issued and performance-contingent restricted stock unit awards (RSUs) granted under the 2004 Equity Incentive Plan, as amended, and purchases of common stock
by the Company's employees at a discount to the market price during offering periods under the Company's Employee Stock Purchase Plan (ESPP). The estimated fair value of stock options and restricted
shares under SFAS&nbsp;123(R) is expensed on a straight-line basis over the vesting term of the grant and the fair value of RSUs is expensed during the term of the award when the Company
determines that it is probable that certain performance milestones will be met. Compensation expense for purchases under the ESPP is recognized based on the estimated fair value of the common stock
during each offering period and the percentage of the purchase discount. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
conjunction with the adoption of SFAS&nbsp;123(R), the Company changed its method of expensing the value of stock-based compensation from the accelerated method to the
straight-line single-option method. Compensation expense for all share-based payment awards granted prior to January&nbsp;1, 2006 will continue to be recognized using the accelerated
expense attribution method over the vesting period while the compensation expense for all share-based payment awards granted on or subsequent to January&nbsp;1, 2006 is recognized using the
straight-line single-option method. Stock-based compensation expense for stock options has been reduced for estimated forfeitures so that
compensation expense is based on options ultimately expected to vest. SFAS&nbsp;123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. The Company's estimated annual forfeiture rate for stock options is 3.6%, based on its historical forfeiture experience. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Pro forma Information under SFAS&nbsp;123 for Periods Prior to Fiscal 2006  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the pro forma effect on net loss and net loss per common share if the fair value recognition provisions of SFAS&nbsp;123, Accounting
for Stock-Based Compensation, had been applied to stock-based employee compensation (in thousands, except per share amounts) for the year ended December&nbsp;31, 2005. For purposes of pro forma
disclosures, pursuant to SFAS No.&nbsp;123 as amended by SFAS No.&nbsp;148, Accounting for Stock-Based Compensation-Transition and Disclosure, the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>59</FONT></P>

<HR NOSHADE>
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<A NAME="page_fg43901_1_60"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Company
amortized the estimated fair value of stock-based employee compensation to expense over the vesting period of the options using the accelerated expense attribution method: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, 2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net loss, as reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(143,164</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Add: Employee stock-based compensation calculated using the intrinsic value method</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,455</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Less: Total employee stock-based compensation calculated using the fair value method</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(16,296</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Pro forma net loss</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(155,005</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Net loss per common share, as reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.69</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Net loss per common share, pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.91</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
foregoing pro forma information regarding net loss and net loss per common share has been determined as if the Company had accounted for its employee stock options and employee stock
purchase plan issuances under the fair value method using the Black-Scholes option valuation model. As the Company's common stock had only recently become publicly traded when these estimates were
made, certain assumptions regarding stock price volatility and expected life of the award were estimated by considering volatility and expected life assumptions used by similar entities within the
Company's industry. In particular, prior to 2006, the volatility estimate of 70% is significantly higher than the Company's actual stock price volatility, which was approximately 30% since the
Company's October 2004 initial public offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Segment Reporting  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;131, "Disclosure about Segments of an Enterprise and Related Information", establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services, geographic areas and major customers. The Company has determined that it operates in only one segment which is the research and
development of human therapeutics. Revenues are primarily generated from the Company's collaborations with GSK and Astellas, located in the United Kingdom and Japan, respectively. All
long-lived assets are maintained in the United States. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Comprehensive Income or Loss  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive income or loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and
losses on the Company's available-for-sale securities. Comprehensive income or loss for the years ended December&nbsp;31, 2007, 2006 and 2005 has been presented in the
Company's Consolidated Statements of Stockholders' Equity (net capital deficiency). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Income Taxes  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>60</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>will
be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Recent Accounting Pronouncements  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2007, the Emerging Issues Task Force (EITF) ratified a consensus on EITF Issue No.&nbsp;07-1 (EITF&nbsp;07-1), "Accounting
for Collaborative Arrangements", which requires participants in a collaboration to make separate disclosures regarding the nature and purpose of an arrangement, their rights and obligations under the
arrangement, the accounting policy for the arrangement and the income statement classification and amounts arising from the arrangement between participants for each period an income statement is
presented. EITF&nbsp;07-1 is effective for the Company beginning in the first quarter of fiscal year 2009. The Company is currently evaluating the impact of the provisions of
EITF&nbsp;07-1 on its financial position, results of operations and cash flows and therefore, the impact of the adoption is unknown at this time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2007, the EITF ratified a consensus on EITF Issue No.&nbsp;07-3 (EITF&nbsp;07-3), "Accounting for Non-Refundable Advance Payments for
Goods or Services to Be Used in Future Research and Development Activities", which concluded that non-refundable advance payments for goods or services for use in research and development
activities should be deferred and capitalized. EITF&nbsp;07-3 is effective for the Company beginning in the first quarter of fiscal year 2008. The Company is currently evaluating the
impact of the provisions of EITF&nbsp;07-3 on its financial position, results of operations and cash flows and therefore, the impact of the adoption is unknown at this time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued SFAS No.&nbsp;157, "Fair Value Measurements" (SFAS&nbsp;157). SFAS&nbsp;157 defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS&nbsp;157 is effective for the Company beginning in the first quarter of
fiscal year 2008. The Company is currently evaluating the impact of the provisions of SFAS&nbsp;157 on its financial position, results of operations and cash flows and therefore, the impact of the
adoption is unknown at this time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
July 2006, the FASB issued Financial Interpretation No. (FIN) 48, "Accounting for Uncertainty in Income Taxes" (FIN&nbsp;48) as an interpretation of SFAS No.&nbsp;109, "Accounting
for Income Taxes" (SFAS&nbsp;109) and in May 2007, the FASB issued FASB Staff Position FIN&nbsp;48-1, "Definition of </FONT><FONT SIZE=2><I>Settlement</I></FONT><FONT SIZE=2> in FASB
Interpretation No.&nbsp;48". FIN&nbsp;48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS&nbsp;109 and
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN&nbsp;48 also
provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN&nbsp;48 effective January&nbsp;1,
2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Reclassification of Prior Year Amounts  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain prior year amounts for stock-based compensation expenses, interest and other income, net, interest expense and notes receivable have been reclassified to
conform to the current period's presentation. These reclassifications had no impact on previously reported net loss or stockholders' equity (net capital deficiency). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>61</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;Net Loss per Share  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic net loss per common share (Basic EPS) is computed by dividing net loss by the weighted-average number of common shares outstanding, less shares subject to
repurchase. Diluted net loss per common share (Diluted EPS) is computed by dividing net loss by the weighted-average number of common shares outstanding, less shares subject to repurchase, plus
dilutive potential common shares and shares subject to repurchase. At December&nbsp;31, 2007, potential common shares consist of approximately 11,436,000 shares issuable upon the exercise of stock
options, and approximately 2,045,000 shares issuable under performance-contingent restricted stock unit awards. At December&nbsp;31, 2006, potential common shares consist of approximately 10,389,000
shares issuable upon the exercise of stock options and 18,000 shares issuable upon the exercise of a warrant. The outstanding warrant was not exercised as of its expiration date of October&nbsp;5,
2007 and therefore no stock was issued under the warrant.
Diluted EPS is identical to Basic EPS for all periods presented since potential common shares are excluded from the calculation, as their effect is anti-dilutive. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="55%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="55%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="55%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(In thousands, except for per share amounts)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><B>Basic and diluted:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(159,997</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(166,044</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(143,164</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Weighted average shares of common stock outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60,642</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,187</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,512</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Less: weighted average shares subject to repurchase</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(144</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(174</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(242</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Weighted average shares used in computing basic and diluted net loss per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60,498</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,013</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,270</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Basic and diluted net loss per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.64</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.81</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.69</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;Collaboration Agreements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>2005 License, Development and Commercialization Agreement with Astellas  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2005, the Company entered into a collaboration arrangement with Astellas for the development and commercialization of telavancin. In July 2006, Japan
was added to the collaboration, thereby giving Astellas worldwide rights to this potential medicine. Through December&nbsp;31, 2007, the Company has received $158.0&nbsp;million in upfront,
milestone and other fees from Astellas and the Company is eligible to receive up to an additional $60.0&nbsp;million in remaining milestone payments related to regulatory filings and approvals in
various regions of the world. The Company recorded the payments as deferred revenue to be amortized ratably over its estimated period of performance (development and commercialization period). The
Company recognized $10.3&nbsp;million, $6.5&nbsp;million and $0.4&nbsp;million in revenue under this agreement in 2007, 2006 and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
telavancin is commercialized, the Company will be entitled to receive royalties on global sales of telavancin by Astellas that, on a percentage basis, range from the high teens to the
upper twenties depending on sales volume. Under this arrangement, the Company will be responsible for substantially all costs to develop and obtain U.S. regulatory approval for telavancin for cSSSI
and HAP, and Astellas will be responsible for substantially all other costs associated with commercialization and further development of telavancin. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>62</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->

 </FONT> <FONT SIZE=2><B>THERAVANCE,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;Collaboration Agreements (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the license rights to telavancin, Astellas had an option to license TD-1792, the Company's investigational antibiotic, for further development and
commercialization on substantially the same terms under which Astellas licensed telavancin. In September 2007, the Company announced that it retained full ownership rights of
TD-1792 as a result of Astellas' decision not to exercise its right to license the compound. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Horizon Program with GSK  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, the Company entered into its Horizon collaboration with GSK to develop and commercialize a long-acting beta<SUB>2</SUB> agonist
(LABA) product candidate for the treatment of asthma and chronic obstructive pulmonary disease (COPD). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Horizon program, in 2002 the Company received from GSK an upfront payment of $10.0&nbsp;million and sold to an affiliate of GSK shares of the Company's
Series&nbsp;E Preferred Stock for an aggregate purchase price of $40.0&nbsp;million. In addition, the Company is eligible to receive up to $495.0&nbsp;million in development, approval, launch
and sales milestones and royalties on the sales of any product resulting from this program. As of December&nbsp;31, 2007, the Company has received a total of $60.0&nbsp;million in upfront and
development milestone payments. GSK has determined to focus the collaboration's resources on the development of the lead LABA, GW642444, a GSK-discovered compound, together with the lead
ICS. Accordingly, the Company does not expect to receive any further milestone payments from the Horizon program. In the event that a LABA product candidate discovered by GSK is successfully developed
and commercially launched in multiple regions in the world, the Company would be obligated to make milestone payments to GSK of up to $220.0&nbsp;million. In addition, the Company is entitled to
receive the same royalties on product sales of medicines from the Horizon program, regardless of whether the product candidate originated with Theravance or with GSK. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recorded the initial cash payment and subsequent milestone payments as deferred revenue to be amortized ratably over its estimated period of performance (the product
development period). Collaboration revenue from GSK was $6.8&nbsp;million, $7.8&nbsp;million and $7.6&nbsp;million in 2007, 2006 and 2005, respectively. Additionally, the Company accrued
reimbursements of $0.3&nbsp;million in 2005 compared to none in 2007 and 2006 as an offset to research and development expense for certain costs related to the collaboration that were reimbursable
by GSK. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>2004 Strategic Alliance with GSK  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2004, the Company entered into its strategic alliance with GSK. Under this alliance, GSK received an option to license exclusive development and
commercialization rights to product candidates from all of the Company's full drug discovery programs initiated prior to September&nbsp;1, 2007, on pre-determined terms and on an
exclusive, worldwide basis. The Company is obligated to use diligent efforts to discover and deliver compounds for the alliance. Under the terms of the strategic alliance, GSK has only one opportunity
to license each of the Company's programs. Upon GSK's decision to license a program, GSK is responsible for funding all future development, manufacturing and commercialization activities for product
candidates in that program. In addition, GSK is obligated to use diligent efforts to develop and commercialize product candidates from any program that it licenses. Consistent with the Company's
strategy, it is obligated at its sole cost to discover two structurally different product candidates for any programs that are licensed by GSK under the alliance. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>63</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;Collaboration Agreements (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>If
these programs are successfully advanced through development by GSK, the Company is entitled to receive clinical, regulatory and commercial milestone payments and royalties on any sales of
medicines developed from these programs. For product candidates licensed to date under this agreement, the royalty structure for a product containing one of its compounds as a single active ingredient
would result in an average percentage royalty rate in the low double digits. If a product is successfully commercialized, in addition to any royalty revenue that the Company receives, the total
upfront and milestone payments that it could receive in any given program that GSK licenses range from $130.0&nbsp;million to $162.0&nbsp;million for programs with single-agent medicines and up to
$252.0&nbsp;million for programs with both a single-agent and a combination medicine. If GSK chooses not to license a program, the Company retains all rights to the program and may continue the
program alone or with a third party. To date, GSK has licensed the Company's two COPD programs: long-acting muscarinic antagonist (LAMA) and muscarinic
antagonist-beta<SUB>2</SUB> agonist (MABA). The Company received a $5.0&nbsp;million payment from GSK in connection with its license of each of the Company's LAMA and MABA programs in
August 2004 and March 2005, respectively. GSK has chosen not to license the Company's bacterial infections program, anesthesia program or Gastrointestinal Motility Dysfunction program. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the alliance, GSK had the right between June&nbsp;1 and July&nbsp;1, 2007, to elect to acquire (call) half of Theravance's outstanding shares of common stock at $54.25 per
share. On June&nbsp;29, 2007, GSK elected not to exercise the call, which triggered the right of the Company's stockholders to require it to redeem (put) up to 50% of their common stock at $19.375
per share between August&nbsp;1 and September&nbsp;12, 2007 with funds provided by GSK. One stockholder exercised his put right for one share of common stock. In exchange for GSK providing the
funds to pay the redemption price for the one share of common stock, and pursuant to the Company's certificate of incorporation, the Company issued to GSK one share of its Class&nbsp;A common stock.
The common share that the Company redeemed pursuant to the stockholder's exercise of the put right was retired and cancelled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the strategic alliance with GSK, the Company received from GSK a payment of $20.0&nbsp;million. This payment is being amortized over the initial performance period
during which GSK
may exercise its right to license certain of the Company's programs under the agreement, which it currently estimates to be through September 2011. In connection with the strategic alliance, the
Company recognized $2.7&nbsp;million in revenue for each of the years ending December&nbsp;31, 2007, 2006 and 2005. In addition, in May 2004, GSK purchased through an affiliate 6,387,096 shares of
the Company's Class&nbsp;A common stock for an aggregate purchase price of $108.9&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
December&nbsp;31, 2007, the Company has received $36.0&nbsp;million in upfront and milestone payments from GSK relating to the strategic alliance agreement. In addition,
pursuant to a partial exercise of its rights under the governance agreement, upon the closing of the Company's initial public offering on October&nbsp;8, 2004, GSK purchased through an affiliate an
additional 433,757 shares of Class&nbsp;A common stock. GSK's ownership position of the Company's outstanding stock was approximately 15.4% as of December&nbsp;31, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August 2004, GSK exercised its right to license the Company's LAMA program pursuant to the terms of the strategic alliance. The Company received a $5.0&nbsp;million payment from GSK
in connection with its licensing of the Company's LAMA program. Through December&nbsp;31, 2007, the Company received a milestone payment from GSK of $3.0&nbsp;million related to clinical progress
of the Company's product candidate. These payments are being amortized ratably over the estimated period of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>64</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;Collaboration Agreements (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>performance
(the product development period). The Company recognized $0.8&nbsp;million, $1.0&nbsp;million and $0.9&nbsp;million in revenue related to the LAMA program in 2007, 2006 and 2005,
respectively. Additionally, the Company accrued reimbursements of $70,000, $0.4&nbsp;million and $0.5&nbsp;million in 2007, 2006 and 2005, respectively, as an offset to research and development
expense for certain costs related to the LAMA program that were reimbursable by GSK. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2005, GSK exercised its right to license the Company's MABA program pursuant to the terms of the strategic alliance. The Company received a $5.0&nbsp;million payment from GSK
in connection with the license of the Company's MABA program. Through December&nbsp;31, 2007, the Company received a milestone payment from GSK of $3.0&nbsp;million related to clinical progress of
its candidate. These payments are being amortized ratably over the estimated period of performance (the product development period). The Company recognized $1.0&nbsp;million, $0.9&nbsp;million and
$0.5&nbsp;million in revenue related to the MABA program in 2007, 2006 and 2005, respectively. Additionally, the Company accrued reimbursements of $2.9&nbsp;million in 2005 compared to none in
2007 and 2006 as an offset to research and development expense for certain costs related to the MABA program that were reimbursable by GSK. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;Marketable Securities  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company invests in a variety of highly liquid investment-grade securities. The following is a summary of the Company's
available-for-sale securities at December&nbsp;31, 2007 and December&nbsp;31, 2006 (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="22%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="22%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amortized<BR>
Cost</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
Gains</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated<BR>
Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amortized<BR>
Cost</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
Gains</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated<BR>
Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>U.S. government agencies</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>74,161</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>39</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>74,200</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>70,060</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(60</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>70,038</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>U.S. corporate notes</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>21,489</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>20</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>21,507</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>49,219</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>49,224</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>U.S. commercial paper</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>24,836</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>24,836</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>66,343</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>66,343</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Asset-backed securities</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>42,077</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>66</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(23</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>42,120</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Certificates of deposit</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>60</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>60</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,910</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,910</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Money market funds</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12,479</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12,479</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9,795</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9,795</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Total</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>133,025</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>59</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>133,082</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>239,404</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>114</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(88</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>239,430</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Less amounts classified as cash and cash equivalents</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(86,433</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(86,433</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(72,388</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(72,388</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Less amounts classified as restricted cash</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,810</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,810</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,860</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,860</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>Amounts classified as marketable securities</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>42,782</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>59</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>42,839</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>163,156</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>114</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(88</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>163,182</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimated fair value amounts have been determined by the Company using available market information. At December&nbsp;31, 2007,
approximately 88% of marketable securities have contractual maturities within twelve months and 12% of marketable securities have contractual maturities between twelve and twenty-four
months. Average duration of available-for-sale securities was approximately two months at December&nbsp;31, 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>65</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=65,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=107188,FOLIO='65',FILE='DISK106:[08ZAE1.08ZAE43901]FI43901A.;9',USER='GMEDINA',CD='26-FEB-2008;17:24' -->
<A NAME="page_fi43901_1_66"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;Marketable Securities (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table provides the net realized gains (losses) on available-for-sale securities for the periods presented (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Realized gains</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>224</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>298</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Realized losses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,188</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(80</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Net realized gains (losses)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(964</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>284</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(80</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the year ended December&nbsp;31, 2007, the Company realized $67,000 in gains and $11,000 in losses that were previously classified as unrealized gains and losses in accumulated
other comprehensive income at December&nbsp;31, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table provides the breakdown of the marketable securities with unrealized losses at December&nbsp;31, 2007 (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="28%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>In loss position for<BR>
less than 12<BR>
months</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>In loss position for<BR>
more than 12<BR>
months</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="28%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross<BR>
Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2>U.S. corporate notes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,492</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,492</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fourth quarter of 2007, the Company recorded an impairment charge of $1.1&nbsp;million related to the decline in fair value of a structured investment vehicle (SIV) security
as a result of the deterioration of the SIV financial market and evidence indicating that the security's carrying value was not recoverable within a reasonable period of time. The Company has
determined that the gross unrealized losses on its remaining outstanding marketable securities at December&nbsp;31, 2007 are temporary in nature. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;Property and Equipment  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment consists of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Computer equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,407</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,664</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Software</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,518</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,503</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Furniture and fixtures</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,423</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,407</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Laboratory equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27,028</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,254</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,107</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,636</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,483</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44,464</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Less accumulated depreciation and amortization</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,392</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,363</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20,091</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,101</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>66</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=66,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=110951,FOLIO='66',FILE='DISK106:[08ZAE1.08ZAE43901]FI43901A.;9',USER='GMEDINA',CD='26-FEB-2008;17:24' -->
<A NAME="page_fi43901_1_67"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;Property and Equipment (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
expense was $4.1&nbsp;million, $4.2&nbsp;million and $4.1&nbsp;million for the years ended December&nbsp;31, 2007, 2006 and 2005, respectively. The change in
accumulated depreciation is net of asset retirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>6.&nbsp;&nbsp;&nbsp;&nbsp;Long-Term Obligations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Note Payable  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Note payable is as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Note payable to lessor</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>536</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>625</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Company's lease agreement for its 60,000 square foot facility in South San Francisco, California (see Note&nbsp;7), the Company received approximately
$0.9&nbsp;million in July 2002 under a tenant improvement loan from the lessor, which is payable in monthly installments through 2012, bears interest at 14.5% per annum and is secured by the
underlying leasehold improvements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
aggregate maturities of the note payable for each of the remaining five years are as follows: $0.1&nbsp;million in 2008, $0.1&nbsp;million in 2009, $0.1&nbsp;million in 2010,
$0.2&nbsp;million in 2011 and $42,000 in 2012. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;Operating Leases and Subleases  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases a 110,000 square foot facility and an adjacent 60,000 square foot facility in South San Francisco, California. Both of the leases expire in
2012 and have two renewal options of five years each. As security for performance of its future obligations under these leases, the Company has letters of credit for an aggregate $3.8&nbsp;million,
collateralized by an equal amount of restricted cash. If the Company's unrestricted cash and marketable securities balance is less than $50.0&nbsp;million during the terms of the leases, then the
letters of credit must be increased by an aggregate of $1.0&nbsp;million. The current annual rental expense under the combined leases for the Company's headquarters is approximately
$6.1&nbsp;million, subject to annual increases. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2007, the Company's future minimum commitments under noncancelable operating leases, net of sublease income, are as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Minimum Lease<BR>
Commitments</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Year ending December&nbsp;31:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,126</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,278</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,435</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,596</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,659</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27,094</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>67</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=67,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=153651,FOLIO='67',FILE='DISK106:[08ZAE1.08ZAE43901]FI43901B.;17',USER='GMEDINA',CD='26-FEB-2008;17:24' -->
<A NAME="page_fi43901_1_68"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;Operating Leases and Subleases (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses
and income associated with operating leases were as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Rent expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,958</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,756</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,781</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Sublease income, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(128</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(305</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(438</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>8.&nbsp;&nbsp;&nbsp;&nbsp;Commitments and Contingencies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Guarantees and Indemnifications  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company indemnifies its officers and directors for certain events or occurrences, subject to certain limits. The Company may be subject to contingencies that
may arise from matters such as product liability claims, legal proceedings, shareholder suits and tax matters, as such, the Company is unable to estimate the potential exposure related to these
indemnification agreements. The Company accrues for such contingencies in accordance with SFAS No.&nbsp;5, Accounting for Contingencies. The Company has not recognized any liabilities relating to
these agreements as of December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Purchase Obligations  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007, the Company had outstanding purchase obligations that are committed through 2008, under commercially reasonable terms, primarily for
services from contract research organizations and research laboratories, totaling $3.7&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Determining Fair Value of Stock-Based Compensation  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under SFAS&nbsp;123(R), the Company elected to continue to use the Black-Scholes valuation model for share-based payment awards granted. The Company's
determination of the fair value of share-based payment awards on the grant date using the Black-Scholes option valuation model requires the input of highly subjective assumptions, including the
expected stock price volatility and the expected life of the award. As the Company has been operating as a public company for a period of time that is shorter than its estimated expected option life,
the Company is unable to use actual price volatility or option life data as input assumptions within its Black-Scholes valuation model when determining the fair value of its stock options. As a
result, the Company is continuing to use the "simplified" method as described in Staff Accounting Bulletin No.107 relating to SFAS&nbsp;123(R) for expected option life and peer company price
volatility. Both of these assumptions have resulted in Black-Scholes inputs that are higher than actual results to date. The result of this is an increase in the value of estimated stock-based
compensation reflected in the Company's consolidated statements of operations. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>68</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=68,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=984022,FOLIO='68',FILE='DISK106:[08ZAE1.08ZAE43901]FI43901B.;17',USER='GMEDINA',CD='26-FEB-2008;17:24' -->
<A NAME="page_fi43901_1_69"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
weighted-average assumptions used to value employee stock-based compensation for stock options granted and employee stock purchase plan issuances were as follows: </FONT></P>

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<TABLE WIDTH="92%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2><B><I>Employee stock options</I></B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.48% - 5.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.56% - 5.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.54% - 4.43</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Expected life (in years)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5&nbsp;-&nbsp;6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5&nbsp;-&nbsp;6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2&nbsp;-&nbsp;4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Volatility</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.46&nbsp;-&nbsp;0.49</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.48&nbsp;-&nbsp;0.51</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Weighted average estimated fair value of stock options granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.47</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.65</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.84</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><BR><FONT SIZE=2><B><I>Employee stock purchase plan issuances</I></B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.23% - 4.98</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.70% - 5.08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.58% - 4.42</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Expected life (in years)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5&nbsp;-&nbsp;2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5&nbsp;-&nbsp;2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Volatility</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.26&nbsp;-&nbsp;0.41</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.24&nbsp;-&nbsp;0.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Weighted average estimated fair value of ESPP issuances</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.73</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.05</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
stock-based compensation expense recognized for the year ended December&nbsp;31, 2007 was $22.5&nbsp;million, which consisted of $21.8&nbsp;million related to employee stock
awards and employee stock purchases, $0.3&nbsp;million related to the value of options issued to non-employees for services rendered and $0.4&nbsp;million related to the value of
shares of restricted stock. As of December&nbsp;31, 2007, there was $42.1&nbsp;million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be
recognized over a weighted-average period of approximately 2.74&nbsp;years. Total stock-based compensation expense recognized for the year ended December&nbsp;31, 2006 was $21.8&nbsp;million,
which consisted of $19.5&nbsp;million related to employee stock options and employee stock purchases, $2.0&nbsp;million related to the value of options issued to non-employees for
services rendered and $0.3&nbsp;million related to the value of shares of restricted stock. The Company has not recognized, and does not expect to recognize in the near future, any tax benefit
related to employee stock-based compensation costs as a result of the full valuation allowance on the Company's net deferred tax assets including deferred tax assets related to its net operating loss
carryforwards. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the years ended December&nbsp;31, 2007 and 2006, the Company recognized $0.8&nbsp;million and $0.1&nbsp;million, respectively, of stock-based compensation expense related to
a modification agreement entered into in 2004 with a former executive, which included extended vesting and exercise periods for his option grants. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>69</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table discloses the allocation of stock-based compensation expense included in the consolidated statements of operations: </FONT></P>

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<TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="63%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="63%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,133</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,635</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,259</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>General and administrative</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,361</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,196</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,364</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Total stock-based compensation expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,494</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,831</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,623</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company does not currently pay dividends and does not intend to declare or pay cash dividends on its common stock in the foreseeable future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Equity Incentive Plan  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company issues stock options, restricted stock awards and restricted stock unit awards (RSU) under the 2004 Equity Incentive Plan (which includes shares
remaining available for issuance under the Company's 1997 Stock Option Plan and Long-Term Stock Option Plan), as amended December&nbsp;6, 2006 (the Plan). On April&nbsp;25, 2007, an
amendment to the Plan which, among other things, increased the number of shares authorized for issuance under the Plan from 3,700,000 to 7,200,000 shares, was approved by the Company's stockholders.
As of December&nbsp;31, 2007, total shares remaining available for issuance under the Plan were 593,150. The Plan provides for the granting of stock options, restricted stock awards, stock
appreciation rights and RSU awards to employees, officers, directors and consultants of the Company. Stock options may be granted with an exercise price not less than 100% of the fair market value of
the common stock on the date of grant. Stock options are generally granted with terms of up to ten years and vest over a period of four years. During the years ended December&nbsp;31, 2007, 2006 and
2005, the Company granted stock options to purchase 2,127,256, 1,645,699 and 1,715,534 shares, respectively, at average stock prices of $32.06, $28.74 and $18.67, respectively, under the Plan. During
the year ended December&nbsp;31, 2007, the Company granted 2,061,206 performance-contingent RSUs with a weighted-average fair value of $32.45 per share, under the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company previously allowed certain stock option holders to exercise their options by executing stock purchase agreements and full-recourse notes payable to the Company.
The stock purchase agreements provide the Company with the right to repurchase unvested shares. Certain full-recourse notes payable include forgiveness provisions whereby the Company
forgives the unpaid principal of the note on its maturity date if the optionee remains in continuous service until the maturity date on the notes (see Notes Receivable discussion in Note&nbsp;1). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>70</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=70,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=1032308,FOLIO='70',FILE='DISK106:[08ZAE1.08ZAE43901]FI43901B.;17',USER='GMEDINA',CD='26-FEB-2008;17:24' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fm43901_1_71"> </A>

<!-- COMMAND=ADD_BASECOLOR,"Black" -->


<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->

 </FONT> <FONT SIZE=2><B>THERAVANCE,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
RSUs granted to date have dual triggers of vesting based upon the successful achievement of certain clinical development milestones during 2008 and 2009, as well as a requirement for
continued employment through 2009 and 2010. The issuance of shares underlying the RSUs would occur, if at all, during 2009 and 2010. Expense associated with RSUs will be recognized, if at all, during
2008 through 2009, depending on the probability of meeting the performance milestones. The maximum potential expense associated with the RSUs could be up to approximately $66.3&nbsp;million
(allocated as $38.3&nbsp;million
for research and development expense and $28.0&nbsp;million for general and administrative expense) if all of the milestones are successfully achieved on time. As of December&nbsp;31, 2007, the
Company had determined that none of the requisite performance milestones were probable and as a result, no compensation expense has been recognized. As vesting of the RSUs is dependent upon the
successful achievement of the performance conditions, the expense associated with the RSUs may vary significantly from period to period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes equity award activity under the Plan, and related information: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of&nbsp;Shares Available for Grant</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of&nbsp;Shares Subject to Outstanding Options and Other Awards</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted-Average Exercise Price of Outstanding Options and Fair Value of Other Awards per Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=6 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(In thousands, except per share amounts)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance at December&nbsp;31, 2004</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,711</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,435</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.86</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,716</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,716</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.67</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Restricted stock award granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(50</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options exercised</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(731</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.11</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options forfeited</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>324</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(324</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance at December&nbsp;31, 2005</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,269</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,096</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.82</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,646</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,646</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.74</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options exercised</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(910</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.71</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options forfeited</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>442</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(442</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.82</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Shares repurchased</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.10</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance at December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,070</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,390</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.92</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Additional shares authorized</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,127</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,127</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32.06</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>RSUs and restricted stock awards granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,132</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,061</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32.45</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options exercised</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(815</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.93</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Options and RSUs forfeited</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>282</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(282</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25.11</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance at December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>593</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,481</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.03</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
options were granted with exercise prices less than fair value of common stock on the date of grant during the years ended December&nbsp;31, 2007, 2006 and 2005. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>71</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=71,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=399327,FOLIO='71',FILE='DISK106:[08ZAE1.08ZAE43901]FM43901A.;11',USER='GMEDINA',CD='26-FEB-2008;00:52' -->
<A NAME="page_fm43901_1_72"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, all outstanding options to purchase common stock of the Company are summarized in the following table (in thousands, except years and per share data): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="18%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Options Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="18%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Range of Exercise Prices<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Remaining Contractual Life in Years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate Intrinsic Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Remaining Contractual Life in Years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate Intrinsic Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$1.32</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.32</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.32</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$3.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,212</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,212</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$8.53</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,647</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.53</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,647</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.53</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$9.69</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,858</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.69</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>893</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.69</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$12.40 - $18.25</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,217</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.27</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>781</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.08</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$18.26 - $21.70</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>918</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>601</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$21.71 - $29.65</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,842</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.93</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>682</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.66</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>$29.66 - $35.46</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,697</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33.59</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>299</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33.62</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,436</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.63</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72,645</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,160</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,697</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2006, the aggregate intrinsic value of the options outstanding and the options exercisable was $186.8&nbsp;million and $116.1&nbsp;million, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total intrinsic value of the options exercised during the years ended December&nbsp;31, 2007, 2006 and 2005 was $19.0&nbsp;million, $17.7&nbsp;million and $9.0&nbsp;million,
respectively, and the total fair value of options vested was $32.5&nbsp;million, $5.1&nbsp;million and $6.8&nbsp;million for the years ended December&nbsp;31, 2007, 2006 and 2005,
respectively. For the year ended December&nbsp;31, 2007, the fair value of options vested was significantly higher when compared to 2006 due to the number of options that vested at the expiration of
the put period in September 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Employee Stock Purchase Plan  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;27, 2004 the Company's board of directors adopted the 2004 Employee Stock Purchase Plan (ESPP) that became effective on the date of the Company's
initial public offering. Under the ESPP, the Company's non-officer employees may purchase common stock through payroll deductions at a price equal to 85&nbsp;percent of the lower of the
fair market value of the stock at the beginning of the offering period or at the end of each applicable purchase period. The ESPP provides for consecutive and overlapping offering periods of
24&nbsp;months in duration, with each offering period composed of four consecutive six-month purchase periods. The purchase periods end on either May&nbsp;15<SUP>th</SUP>&nbsp;or
November&nbsp;15<SUP>th</SUP>&nbsp;each purchase period. ESPP contributions are limited to a maximum of 15&nbsp;percent of an employee's eligible compensation. A total of 325,000 shares of
common stock were initially reserved for issuance under the ESPP. In June 2005, the Company's stockholders approved an amendment to the ESPP increasing the aggregate number of shares of common stock
authorized for issuance under the plan by 300,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
December&nbsp;31, 2007, the Company issued 444,071 shares under the ESPP at an average price of $16.09 per share. The total number of remaining shares available for issuance
under the plan at December&nbsp;31, 2007 was 180,929. The total stock-based compensation expense recognized related to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>72</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=72,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=192121,FOLIO='72',FILE='DISK106:[08ZAE1.08ZAE43901]FM43901A.;11',USER='GMEDINA',CD='26-FEB-2008;00:52' -->
<A NAME="page_fm43901_1_73"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>the
ESPP under SFAS&nbsp;123(R) for the years ended December&nbsp;31, 2007 and 2006 was $1.4&nbsp;million and $1.6&nbsp;million, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Reserved Shares  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has reserved shares of common stock for future issuance as follows (shares in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Subject to outstanding warrant</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock option plans:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Subject to outstanding options and RSUs</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,481</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,390</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Available for future grants</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>593</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,070</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Available for future ESPP grants</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>180</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>294</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,254</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,772</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><I>Stock Subject to Repurchase  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007, there were 96,924 shares of the Company's common stock subject to the Company's right to repurchase at the original purchase price.
These shares were issued upon the exercise of unvested stock options and the execution of certain stock purchase agreements. The Company's repurchase rights lapse generally over a
four-year period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Restricted Stock  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007, the Compensation Committee of the Company's board of directors approved restricted stock awards for 71,000 shares of restricted common stock to
certain members of the Company's senior management. These restricted shares of stock will vest based on continued service and with pre-determined vesting percentages and anniversary dates.
The Company valued the awards at $1.8&nbsp;million and will amortize that amount over the respective service periods. The aggregate value of the restricted common stock awards was based on the
closing market price of the Company's common stock on the date of the respective awards. Stock-based compensation expense related to these awards for 2007 was $141,000. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2005, the Company's board of directors approved the grant of 50,000 shares of restricted stock to a member of the Company's senior management. These restricted shares of stock
vest based on continued service, with 50% of the shares vesting on September&nbsp;13, 2007 and 25% of the shares vesting upon each of the next two anniversaries of such date. The value was based on
the closing market price of the Company's common stock of $17.91 on the date of award. The Company recognized stock-based compensation expense of $0.2&nbsp;million, $0.3&nbsp;million and
$0.2&nbsp;million related to this award for 2007, 2006 and 2005, respectively. In September 2007, upon the vesting of 25,000 common
shares, 16,063 common shares were issued to the officer and the remaining 8,937 common shares were withheld by the Company to satisfy the officer's tax withholding requirements of approximately
$250,000. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>73</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=73,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=17381,FOLIO='73',FILE='DISK106:[08ZAE1.08ZAE43901]FM43901A.;11',USER='GMEDINA',CD='26-FEB-2008;00:52' -->
<A NAME="page_fm43901_1_74"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Director Compensation Program  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2007, the Compensation Committee of the board of directors approved an amendment to the director compensation program for the Company's outside
directors. Pursuant to this program, each outside director receives an annual retainer plus a fee for attending each board and committee meeting. Also under this program, following the Company's
initial public offering in October 2004, each outside director was granted an option to purchase 25,806 shares of common stock. In 2007 this initial option grant was increased to 30,000 shares. In
addition, at each annual stockholder meeting beginning in 2005, each outside director was entitled to be granted an option to purchase 12,903 shares of common stock. In 2007 this annual grant was
increased to 15,000 shares. The exercise price of options granted under the program is the fair market value of the Company's common stock, subject to the option on the date of the option grant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the director compensation program, each of the Company's seven outside directors was granted an option to purchase 15,000 shares of common stock with an exercise price of
$33.25, which was the then fair market value of the Company's common stock. Also on April&nbsp;25, 2007, the Company's Chairman of the Board was granted 86,694 shares of common stock with an
exercise price of $33.25, which was the then fair market value of the Company's common stock. On July&nbsp;3, 2007, a new outside director was granted an initial option to purchase 30,000 shares of
common stock with an exercise price of $33.13, which was the then fair market value of the Company's common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Stock Options Exercised Early  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company generally allows employees to exercise options issued under the 1997 Stock Plan and the Long-Term Stock Option Plan prior to vesting. In
accordance with EITF&nbsp;00-23, "Issues Related to Accounting for Stock Compensation under APB Opinion No.&nbsp;25 and FASB Interpretation No.&nbsp;44," stock options granted or
modified after March&nbsp;21, 2002 that are subsequently exercised for cash prior to vesting are treated differently from prior grants and related exercises. The consideration received for an
exercise of an option granted after the effective date of this guidance is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The liability is
only reclassified into equity on a ratable basis as the option vests. The Company applied the guidance and recorded a liability of $3,000 and $22,000 in the consolidated
balance sheets relating to 924 and 7,195 options granted that were exercised and unvested at December&nbsp;31, 2007 and 2006, respectively. Furthermore, these shares are not presented as outstanding
on the consolidated balance sheets, but are disclosed as outstanding options. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Warrants  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no outstanding warrants at December&nbsp;31, 2007. The warrant outstanding at December&nbsp;31, 2006 was not exercised as of its expiration date of
October&nbsp;5, 2007 and therefore no stock was issued under the warrant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>10.&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to operating losses and the inability to recognize an income tax benefit, there is no provision for income taxes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>74</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=74,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=175664,FOLIO='74',FILE='DISK106:[08ZAE1.08ZAE43901]FM43901B.;4',USER='GMEDINA',CD='26-FEB-2008;00:52' -->
<A NAME="page_fm43901_1_75"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>10.&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Net operating loss carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>208,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>176,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Deferred revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Capitalized research and development expenditures</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Research and development tax credit carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(363,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(300,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net deferred tax assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realization
of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. Accordingly, the deferred tax assets have been fully
offset by a valuation allowance. The valuation allowance increased by $63.0&nbsp;million, $69.9&nbsp;million and $61.2&nbsp;million for the years ended December&nbsp;31, 2007, 2006 and 2005,
respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, the Company had federal net operating loss carryforwards of approximately $637.8&nbsp;million and federal research and development tax credit
carryforwards of approximately $30.7&nbsp;million, which will expire from 2011 through 2027. The Company also had state net operating loss carryforwards of approximately $37.2&nbsp;million
expiring in the years 2013 through 2017 and state research tax credits of approximately $32.5&nbsp;million, which carry forward indefinitely. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of SFAS&nbsp;123(R), the deferred tax asset balances at December&nbsp;31, 2007 and 2006 do not include excess tax benefits from stock option exercises. Equity will be
increased if and when such excess tax benefits are ultimately realized. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utilization
of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue
Code and similar state provisions. The annual limitation may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Uncertain Tax Positions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company adopted FIN&nbsp;48 effective January&nbsp;1, 2007. The adoption of FIN&nbsp;48 did not result in an adjustment to the beginning balance of the
Company's accumulated deficit. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>75</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=75,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=796601,FOLIO='75',FILE='DISK106:[08ZAE1.08ZAE43901]FM43901B.;4',USER='GMEDINA',CD='26-FEB-2008;00:52' -->
<A NAME="page_fm43901_1_76"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>10.&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Gross unrecognized tax benefits at January&nbsp;1, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,700</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Gross increase for tax positions for prior years</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Gross decrease for tax positions for prior years</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Gross increase in tax positions for current year</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,500</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Settlements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Reduction for lapse of statute of limitations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Unrecognized tax benefits at December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,200</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Company is eventually able to recognize these uncertain positions, $33.2&nbsp;million of the unrecognized benefit would reduce its effective tax rate. The Company currently has
a full valuation allowance against its deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain positions be favorably settled in the future.
The Company does not believe it is reasonably possible that its unrecognized tax benefits will significantly change within the next twelve months. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is subject to taxation in the U.S. and various state jurisdictions. The tax years 1996 and forward remain open to examination by the federal and most state tax authorities
due to net operating loss and overall credit carryforward positions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>11.&nbsp;&nbsp;&nbsp;&nbsp;Quarterly Consolidated Results of Operations (Unaudited)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents certain unaudited consolidated quarterly financial information for the eight quarters in the period ended December&nbsp;31, 2007.
This information has been prepared on the same basis as the audited Consolidated Financial Statements and includes all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the unaudited quarterly results of operations set forth herein. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>March&nbsp;31</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>September&nbsp;30</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands except per share data)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>2007:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,398</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,305</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,669</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,630</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Operating expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57,656</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(53,009</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40,426</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(39,476</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Loss from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(52,258</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(47,704</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(34,757</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,846</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(49,450</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(45,125</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32,364</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,058</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Net loss per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.82</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.75</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.53</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.54</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>2006:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,296</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,837</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,524</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,930</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Operating expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,982</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(49,650</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46,971</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46,154</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Loss from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(51,686</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(44,813</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(41,447</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(41,224</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(48,952</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(41,475</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(37,780</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(37,837</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Net loss per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.86</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.70</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>76</FONT></P>

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<A NAME="page_fm43901_1_77"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>12.&nbsp;&nbsp;&nbsp;&nbsp;Subsequent Events  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;23, 2008, the Company closed an underwritten public offering of $172.5&nbsp;million aggregate principal amount of unsecured 3% convertible
subordinated notes due 2015, which includes the full exercise of the underwriters' over-allotment option for $22.5&nbsp;million aggregate principal. The financing raised proceeds, net of
issuance costs, of approximately $166.7&nbsp;million. The notes are convertible into shares of the Company's common stock at an initial conversion rate of 38.6548 shares per $1,000 principal amount
of the notes, subject to adjustment in certain circumstances, which represents an initial conversion price of approximately $25.87 per share. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>77</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fo43901_report_of_independent___fo402293"> </A>
<A NAME="toc_fo43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
Board of Directors and Stockholders<BR>
Theravance,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of Theravance,&nbsp;Inc. (the "Company") as of December&nbsp;31, 2007 and 2006, and the related consolidated statements
of operations, stockholders' equity (net capital deficiency), and cash flows for each of the three years in the period ended December&nbsp;31, 2007. 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. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Theravance,&nbsp;Inc. at December&nbsp;31,
2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December&nbsp;31, 2007, in conformity with U.S. generally accepted
accounting principles. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
discussed in Note&nbsp;1 to the consolidated financial statements, on January&nbsp;1, 2006, the Company changed its method of accounting for share-based payments made to employees
and directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Theravance,&nbsp;Inc.'s internal control over financial
reporting as of December&nbsp;31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February&nbsp;25, 2008 expressed an unqualified opinion thereon. </FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/
</FONT><FONT SIZE=2>ERNST&nbsp;&amp; YOUNG&nbsp;LLP</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Palo
Alto, California<BR>
February&nbsp;25, 2008 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>78</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fq43901_item_9._changes_in_and_disagre__ite03576"> </A>
<A NAME="toc_fq43901_1"> </A>
ITEM 9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fq43901_item_9a._controls_and_procedures"> </A>
<A NAME="toc_fq43901_2"> </A>
ITEM 9A.&nbsp;&nbsp;&nbsp;&nbsp;CONTROLS AND PROCEDURES    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Evaluation of Disclosure Controls and Procedures.  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted an evaluation as of December&nbsp;31, 2007, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, which are defined under SEC rules as controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed,
summarized and reported within required time periods. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and
procedures were effective. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Management's Report on Internal Control over Financial Reporting  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule&nbsp;13a-15(f)
of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (1)&nbsp;pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets; (2)&nbsp;provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(3)&nbsp;provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial
statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on criteria established in the </FONT><FONT SIZE=2><I>Internal Control&#151;Integrated Framework</I></FONT><FONT SIZE=2> issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting
controls, process documentation, accounting policies, and our overall control environment. Based on this evaluation, our management concluded that our internal control over financial reporting was
effective as of December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
independent registered public accounting firm, Ernst&nbsp;&amp; Young&nbsp;LLP, has audited our internal control over financial reporting as of December&nbsp;31, 2007. The report
on the audit of internal control over financial reporting is included below. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Limitations on the Effectiveness of Controls  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
Theravance have been detected. Also, projections of any evaluation of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>79</FONT></P>

<HR NOSHADE>
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<A NAME="page_fq43901_1_80"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Changes in Internal Control over Financial Reporting  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There was no change in our internal control over financial reporting (as defined in Rule&nbsp;13a-15(f) of the Exchange Act) that occurred during
the fourth quarter of the year ended December&nbsp;31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>80</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fs43901_report_of_independent___fs402297"> </A>
<A NAME="toc_fs43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The Board of Directors and Stockholders of Theravance,&nbsp;Inc.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited Theravance,&nbsp;Inc.'s internal control over financial reporting as of December&nbsp;31, 2007, based on criteria established in Internal
Control&#151;Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Theravance,&nbsp;Inc.'s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1)&nbsp;pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)&nbsp;provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)&nbsp;provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, Theravance,&nbsp;Inc. maintained, in all material respects, effective internal control over financial reporting as of December&nbsp;31, 2007, based on the COSO
criteria. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Theravance,&nbsp;Inc. as of
December&nbsp;31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity (net capital deficiency), and cash flows for each of the three years in the period ended
December&nbsp;31, 2007 of Theravance,&nbsp;Inc. and our report dated February&nbsp;25, 2008 expressed an unqualified opinion thereon. </FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>/s/ </FONT> <FONT SIZE=2>ERNST&nbsp;&amp; YOUNG</FONT><FONT SIZE=2>&nbsp;LLP </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Palo
Alto, California<BR>
February&nbsp;25, 2008 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>81</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fu43901_item_9b._other_information"> </A>
<A NAME="toc_fu43901_1"> </A>
ITEM 9B.&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fu43901_part_iii"> </A>
<A NAME="toc_fu43901_2"> </A>
<BR></FONT><FONT SIZE=2><B>PART III    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fu43901_item_10._directors,_executive___ite02336"> </A>
<A NAME="toc_fu43901_3"> </A>
ITEM 10.&nbsp;&nbsp;&nbsp;&nbsp;DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the information required by this Item, see "Questions and Answers About this Proxy Material and Voting", "Nominees", "Executive Officers",
"Section&nbsp;16(a) Beneficial Ownership Reporting Compliance", "Nominating/Corporate Governance Committee", "Audit Committee" and "Code of Business Conduct" in the Proxy Statement to be filed with
the SEC, which sections are incorporated herein by reference. The Company's Code of Business Conduct and Stockholder-Director Communications Policy can be found on our website at </FONT> <FONT SIZE=2><I>www.theravance.com</I></FONT><FONT SIZE=2>.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fu43901_item_11._executive_compensation"> </A>
<A NAME="toc_fu43901_4"> </A>
ITEM 11.&nbsp;&nbsp;&nbsp;&nbsp;EXECUTIVE COMPENSATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the information required by this Item, see "Compensation of Executive Officers," "Report of the Compensation Committee" and "Compensation Committee Interlocks
and Insider Participation" in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fu43901_item_12._security_ownership_of__ite04004"> </A>
<A NAME="toc_fu43901_5"> </A>
ITEM 12.&nbsp;&nbsp;&nbsp;&nbsp;SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the information required by this Item, see "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement to be filed with the SEC,
which sections are incorporated herein by reference. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fu43901_item_13._certain_relationships__ite03067"> </A>
<A NAME="toc_fu43901_6"> </A>
ITEM 13.&nbsp;&nbsp;&nbsp;&nbsp;CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the information required by this Item, see "Independence of the Board of Directors", "Compensation Committee Interlocks and Insider Participation" and
"Related Person Transactions" in the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="fu43901_item_14._principal_accounting_fees_and_services"> </A>
<A NAME="toc_fu43901_7"> </A>
ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp;PRINCIPAL ACCOUNTING FEES AND SERVICES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the information required by this Item, see "Independent Registered Public Accounting Firm's Fees" and "Pre-Approval Policies and Procedures" in
the Proxy Statement to be filed with the SEC, which sections are incorporated herein by reference. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>82</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ja43901_part_iv"> </A>
<A NAME="toc_ja43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART IV    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="ja43901_item_15._exhibits_and_financial_statement_schedules"> </A>
<A NAME="toc_ja43901_2"> </A>
ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp;EXHIBITS AND FINANCIAL STATEMENT SCHEDULES    <BR>    </B></FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
following documents are filed as part of this Annual Report on Form&nbsp;10-K:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Financial
Statements: </FONT></DD></DL>
</DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
following financial statements and schedules of the Registrant are contained in Item&nbsp;8 of this Annual Report on Form&nbsp;10-K: </FONT></P>
</UL>
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<TR VALIGN="BOTTOM">
<TD WIDTH="93%" style="font-family:times;"><FONT SIZE=2>Consolidated Balance Sheets at December&nbsp;31, 2007 and 2006</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="93%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Operations for each of the three years in the period ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
51</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="93%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Stockholders' Equity (net capital deficiency) for each of the three years in the period ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
52</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="93%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows for each of the three years in the period ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
53</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="93%" style="font-family:times;"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
54</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="93%" style="font-family:times;"><FONT SIZE=2><BR>
Report of Independent Registered Public Accounting Firm</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
78</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Financial
Statement Schedules: </FONT></DD></DL>
</UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>All
schedules are omitted because they are either not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto. </FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exhibits
</FONT></DD></DL>
</UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
representations and warranties made by the parties to the agreements listed below were made solely for purposes of the agreements and to allocate risk between the parties. You should not rely on
the representations, warranties or covenants in these agreements. </FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exhibit Footnote<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exhibit Number</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="75%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Description</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Certificate of Incorporation</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Certificate of Amendment of Restated Certificate of Incorporation</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Bylaws (as amended by the board of directors April&nbsp;25, 2007)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Specimen certificate representing the common stock of the registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Rights Agreement between the registrant and The&nbsp;Bank of New York, as Rights Agent, dated as of June&nbsp;22, 2007</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>1997 Stock Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Long-Term Stock Option Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>2004 Equity Incentive Plan, as amended December&nbsp;6, 2006</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Employee Stock Purchase Plan, as amended April&nbsp;19, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Change in Control Severance Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Lease Agreement, 951 Gateway Boulevard, between the registrant and HMS Gateway Office&nbsp;L.P., dated January&nbsp;1, 2001</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Lease Agreement, 901 Gateway Boulevard, between the registrant and HMS Gateway Office&nbsp;L.P., dated January&nbsp;1, 2001</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.10</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Collaboration Agreement between the registrant and Glaxo Group Limited, dated as of November&nbsp;14, 2002</FONT></TD>
</TR>
</TABLE>

<!-- insert table folio -->
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>83</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=83,EFW="2182915",CP="THERAVANCE, INC.",DN="1",CHK=436660,FOLIO='83',FILE='DISK106:[08ZAE1.08ZAE43901]JA43901A.;14',USER='MVANGB',CD='26-FEB-2008;12:52' -->
<A NAME="page_ja43901_1_84"> </A>
<!-- end of table folio -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.11</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Indemnification Agreement for directors and officers of the registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.12</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Class&nbsp;A Common Stock Purchase Agreement between the registrant and SmithKline Beecham Corporation, dated as of March&nbsp;30, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Investors' Rights Agreement by and among the registrant and the parties listed therein, dated as of May&nbsp;11, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.14</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Governance Agreement by and among the registrant, SmithKline Beecham Corporation and GlaxoSmithKline dated as of June&nbsp;4, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.15</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Strategic Alliance Agreement between the registrant and Glaxo Group Limited, dated as of March&nbsp;30, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>License Agreement between the registrant and Janssen Pharmaceutica, dated as of May&nbsp;14, 2002</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.17</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Offer Letter with Rick E Winningham dated August&nbsp;23, 2001</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.18</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Class&nbsp;A Common Stock Purchase Agreement between the registrant and GSK</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.19</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Offer Letter with Michael W. Aguiar dated as of January&nbsp;31, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.20</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Grant and Stock Option Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.21</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Restricted Stock Award and Restricted Stock Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(14</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.22</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Description of Cash Bonus Program, as amended</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.23</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>License, Development and Commercialization Agreement between the registrant and Astellas Pharma&nbsp;Inc. dated November&nbsp;7, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.24</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Stock Option Grant and Stock Option Agreement between the Company and P. Roy Vagelos</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.25</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>TD-6424 Active Pharmaceutical Ingredient Supply Agreement among the Company, ScinoPharm Taiwan,&nbsp;Ltd. and Biddle Sawyer Pharma&nbsp;LLC dated as of May&nbsp;10, 2002</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(18</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.26</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amendment No.&nbsp;4 to TD-6424 Supply Agreement among the Company, ScinoPharm Taiwan,&nbsp;Ltd. and Biddle Sawyer Pharma&nbsp;LLC dated as of May&nbsp;11, 2006</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(19</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.27</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Amendment to License, Development and Commercialization Agreement between the Company and Astellas Pharma&nbsp;Inc. dated as of July&nbsp;18, 2006</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.28</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Stock Option Grant and Stock Option Agreement under 2004 Equity Incentive Plan (form in effect from 2007)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.29</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Non-Employee Director Notice of Stock Option Grant and Stock Option Agreement under 2004 Equity Incentive Plan (form in effect through 2006)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(22</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.30</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Non-Employee Director Notice of Stock Option Grant and Stock Option Agreement under 2004 Equity Incentive Plan (form in effect from 2007)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(23</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.31</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Performance-Contingent Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>84</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.32</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Offer letter with Leonard Blum dated July&nbsp;27, 2007</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(25</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.33</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Addendum to the Terms&nbsp;&amp; Conditions Dated February&nbsp;17, 2004 between the Company and Ben Venue Laboratories,&nbsp;Inc. dated September&nbsp;21, 2007</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>+</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.34</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Time-Based Vesting Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>+</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.35</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>2008 New Employee Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>+</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.36</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Grant and Stock Option Agreement under 2008 New Employee Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>List of Subsidiaries</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Consent of Independent Registered Public Accounting Firm</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Power of Attorney (see signature page to this Annual Report on Form&nbsp;10-K)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Certification of Chief Executive Officer Pursuant to Rule&nbsp;13a-14 under the Securities Exchange Act of 1934</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Certification of Chief Financial Officer Pursuant to Rule&nbsp;13a-14 under the Securities Exchange Act of 1934</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Certifications Pursuant to 18 U.S.C. Section&nbsp;1350</FONT></TD>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on July&nbsp;26, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384) filed
with the SEC on June&nbsp;10, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.38 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2005.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on September&nbsp;29, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on September&nbsp;30, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.28 in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on September&nbsp;29, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.29 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.30 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(13)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.31 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>85</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(14)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.32 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(15)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit number&nbsp;10.1 in the Company's Registration Statement on Form&nbsp;S-3 (No.&nbsp;333-131359) filed
with the SEC on January&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(16)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit to the Company's Current Report on Form&nbsp;8-K filed on May&nbsp;2, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(17)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.35 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(18)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.36 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(19)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.37 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(20)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.39 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(21)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.40 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(22)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.41 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(23)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.42 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(24)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.43 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(25)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.44 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(26)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2005.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>+</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Management
contract or compensatory plan or arrangement required to be filed pursuant to Item&nbsp;15(b) of Form&nbsp;10-K.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Confidential
treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange Commission pursuant to Theravance&nbsp;Inc.'s application for confidential treatment. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>86</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_jc43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. </FONT></P>

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<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>THERAVANCE,&nbsp;INC.</FONT></TD>
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<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
Date: February&nbsp;26, 2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="46%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>RICK E WINNINGHAM</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Rick E Winningham</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="46%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>Chief Executive Officer<BR> </I></FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<BR></FONT><FONT SIZE=2><B>POWER OF ATTORNEY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rick E Winningham and Michael W. Aguiar, each of whom
may act without joinder of the other, as their true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for such person and in his
or her name, place and stead, in any and all capacities, to sign any and all amendments to the annual report on Form&nbsp;10-K, and to file the same, with all exhibits thereto and other
documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated. </FONT></P>

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<TH WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Signature</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="22%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="36%" ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>P. ROY VAGELOS, M.D</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> P. Roy Vagelos, M.D</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Chairman of the Board and Directors</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>February&nbsp;26, 2008</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>RICK E WINNINGHAM</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Rick E Winningham</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Chief Executive Officer and Director<BR>
(Principal Executive Officer)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>MICHAEL W. AGUIAR</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Michael W. Aguiar</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>JEFFREY M. DRAZAN</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Jeffrey M. Drazan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ROBERT V. GUNDERSON, JR.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Robert V. Gunderson, Jr.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
</TR>
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<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ARNOLD J. LEVINE, PH.D</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Arnold J. Levine, Ph.D</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>87</FONT></P>

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<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BURTON G. MALKIEL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Burton G. Malkiel</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
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<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>WILLIAM H. WALTRIP</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> William H. Waltrip</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
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<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>GEORGE M. WHITESIDES, PH.D</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> George M. Whitesides, Ph.D</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
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<TD WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>WILLIAM D. YOUNG</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> William D. Young</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
February&nbsp;26, 2008</FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>88</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ka43901_exhibits"> </A>
<A NAME="toc_ka43901_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibits    <BR>    </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Exhibit Footnote<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exhibit Number</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="76%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Description</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Certificate of Incorporation</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Certificate of Amendment of Restated Certificate of Incorporation</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Bylaws (as amended by the board of directors April&nbsp;25, 2007)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Specimen certificate representing the common stock of the registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Rights Agreement between the registrant and The Bank of New York, as Rights Agent, dated as of June&nbsp;22, 2007</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>1997 Stock Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Long-Term Stock Option Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>2004 Equity Incentive Plan, as amended December&nbsp;6, 2006</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Employee Stock Purchase Plan, as amended April&nbsp;19, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Change in Control Severance Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Lease Agreement, 951 Gateway Boulevard, between the registrant and HMS Gateway Office&nbsp;L.P., dated January&nbsp;1, 2001</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Lease Agreement, 901 Gateway Boulevard, between the registrant and HMS Gateway Office&nbsp;L.P., dated January&nbsp;1, 2001</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Collaboration Agreement between the registrant and Glaxo Group Limited, dated as of November&nbsp;14, 2002</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Indemnification Agreement for directors and officers of the registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Class&nbsp;A Common Stock Purchase Agreement between the registrant and SmithKline Beecham Corporation, dated as of March&nbsp;30, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Investors' Rights Agreement by and among the registrant and the parties listed therein, dated as of May&nbsp;11, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amended and Restated Governance Agreement by and among the registrant, SmithKline Beecham Corporation and GlaxoSmithKline dated as of June&nbsp;4, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Strategic Alliance Agreement between the registrant and Glaxo Group Limited, dated as of March&nbsp;30, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>License Agreement between the registrant and Janssen Pharmaceutica, dated as of May&nbsp;14, 2002</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Offer Letter with Rick E Winningham dated August&nbsp;23, 2001</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Class&nbsp;A Common Stock Purchase Agreement between the registrant and GSK</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Offer Letter with Michael W. Aguiar dated as of January&nbsp;31, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Grant and Stock Option Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.21</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Restricted Stock Award and Restricted Stock Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Description of Cash Bonus Program, as amended</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>License, Development and Commercialization Agreement between the registrant and Astellas Pharma&nbsp;Inc. dated November&nbsp;7, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Stock Option Grant and Stock Option Agreement between the Company and P. Roy Vagelos</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.25</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>TD-6424 Active Pharmaceutical Ingredient Supply Agreement among the Company, ScinoPharm Taiwan,&nbsp;Ltd. and Biddle Sawyer Pharma&nbsp;LLC dated as of May&nbsp;10, 2002</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.26</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amendment No.&nbsp;4 to TD-6424 Supply Agreement among the Company, ScinoPharm Taiwan,&nbsp;Ltd. and Biddle Sawyer Pharma&nbsp;LLC dated as of May&nbsp;11, 2006</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.27</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Amendment to License, Development and Commercialization Agreement between the Company and Astellas Pharma&nbsp;Inc. dated as of July&nbsp;18, 2006</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Stock Option Grant and Stock Option Agreement under 2004 Equity Incentive Plan (form in effect from 2007)</FONT></TD>
</TR>
</TABLE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Non-Employee Director Notice of Stock Option Grant and Stock Option Agreement under 2004 Equity Incentive Plan (form in effect through 2006)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.30</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Non-Employee Director Notice of Stock Option Grant and Stock Option Agreement under 2004 Equity Incentive Plan (form in effect from 2007)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.31</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Performance-Contingent Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)+</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.32</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Offer letter with Leonard Blum dated July&nbsp;27, 2007</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(25</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)*</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.33</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>First Addendum to the Terms&nbsp;&amp; Conditions Dated February&nbsp;17, 2004 between the Company and Ben Venue Laboratories,&nbsp;Inc. dated September&nbsp;21, 2007</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>+</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.34</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Time-Based Vesting Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2004 Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>+</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>2008 New Employee Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>+</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.36</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Form of Notice of Grant and Stock Option Agreement under 2008 New Employee Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>List of Subsidiaries</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Consent of Independent Registered Public Accounting Firm</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Power of Attorney (see signature page to this Annual Report on Form&nbsp;10-K)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Certification of Chief Executive Officer Pursuant to Rule&nbsp;13a-14 under the Securities Exchange Act of 1934</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Certification of Chief Financial Officer Pursuant to Rule&nbsp;13a-14 under the Securities Exchange Act of 1934</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Certifications Pursuant to 18 U.S.C. Section&nbsp;1350</FONT></TD>
</TR>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on July&nbsp;26, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384) filed
with the SEC on June&nbsp;10, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.38 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2005.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on September&nbsp;29, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on September&nbsp;30, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.28 in the Company's amended Registration Statement on Form&nbsp;S-1 (No.&nbsp;333-116384)
filed with the SEC on September&nbsp;29, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.29 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2004.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.30 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2004. </FONT></DD></DL>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(13)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.31 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(14)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.32 in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(15)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit number&nbsp;10.1 in the Company's Registration Statement on Form&nbsp;S-3 (No.&nbsp;333-131359) filed
with the SEC on January&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(16)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit to the Company's Current Report on Form&nbsp;8-K filed on May&nbsp;2, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(17)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.35 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(18)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.36 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(19)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit&nbsp;10.37 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(20)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.39 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(21)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.40 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(22)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.41 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(23)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.42 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(24)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.43 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(25)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to exhibit number&nbsp;10.44 in the Company's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(26)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Incorporated
herein by reference to the exhibit of the same number in the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2005.
<BR>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>+</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Management
contract or compensatory plan or arrangement required to be filed pursuant to Item&nbsp;15(b) of Form&nbsp;10-K.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Confidential
treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange Commission pursuant to Theravance&nbsp;Inc.'s application for confidential treatment. </FONT></DD></DL>
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<BR>
<P><br><A NAME="08ZAE43901_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bg43901_1">Table of Contents</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_da43901_1">Special Note regarding Forward-Looking Statements</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_da43901_2">PART I</A></FONT><BR>
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_da43901_3">ITEM 1. BUSINESS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dc43901_1">ITEM 1A. RISK FACTORS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dg43901_1">ITEM 1B. UNRESOLVED STAFF COMMENTS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dg43901_2">ITEM 2. PROPERTIES</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dg43901_3">ITEM 3. LEGAL PROCEEDINGS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dg43901_4">ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_di43901_1">PART II</A></FONT><BR>
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_di43901_2">ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dk43901_1">ITEM 6. SELECTED FINANCIAL DATA</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dm43901_1">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_do43901_1">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fa43901_1">ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</A></FONT><BR>
</UL>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fc43901_1">THERAVANCE, INC. Consolidated Balance Sheets (in thousands, except per share amounts)</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fc43901_2">THERAVANCE, INC. Consolidated Statements of Operations (in thousands, except per share amounts)</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fe43901_1">THERAVANCE, INC. Consolidated Statements of Stockholders' Equity (net capital deficiency) (in thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ff43901_1">THERAVANCE, INC. Consolidated Statements of Cash Flows (in thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fo43901_1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fq43901_1">ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fq43901_2">ITEM 9A. CONTROLS AND PROCEDURES</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fs43901_1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_1">ITEM 9B. OTHER INFORMATION</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_2">PART III</A></FONT><BR>
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_3">ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_4">ITEM 11. EXECUTIVE COMPENSATION</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_5">ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_6">ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fu43901_7">ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ja43901_1">PART IV</A></FONT><BR>
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ja43901_2">ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_jc43901_1">SIGNATURES</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_jc43901_2">POWER OF ATTORNEY</A></FONT><BR>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ka43901_1">Exhibits</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-10.34
<SEQUENCE>2
<FILENAME>a2182915zex-10_34.htm
<DESCRIPTION>EXHIBIT 10.34
<TEXT>
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<FONT SIZE=3 ><A HREF="#08ZAE43901_2">QuickLinks</A></FONT>
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NAME="la43902_exhibit_10.34"> </A>
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<BR></FONT><FONT SIZE=2><B>Exhibit 10.34    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="la43902_theravance,_inc._2004_equity_i__the02963"> </A>
<A NAME="toc_la43902_2"> </A></FONT> <FONT SIZE=2><B>THERAVANCE,&nbsp;INC. 2004 EQUITY INCENTIVE PLAN    <BR>    <BR>    NOTICE OF RESTRICTED STOCK UNIT AWARD</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
have been granted the number of restricted stock units indicated below by Theravance,&nbsp;Inc. (the "</FONT><FONT SIZE=2><B>Company</B></FONT><FONT SIZE=2>") on the following
terms: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Name:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&laquo;Name&raquo; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Restricted Stock Unit Award Details:  </B></FONT></P>

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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Date of Grant:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&laquo;DateGrant&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Restricted Stock Units:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&laquo;TotalShares&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Vesting&nbsp;Commencement&nbsp;Date:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&laquo;VestComDate&raquo;</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
restricted stock unit (the "</FONT><FONT SIZE=2><B>Restricted Stock Unit</B></FONT><FONT SIZE=2>") represents the right to receive one share of the Company's Common Stock subject
to the terms and conditions contained in the Restricted Stock Unit Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Vesting Schedule:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vesting is dependent upon continuous service as an employee of the Company, a Parent, a Subsidiary or an Affiliate
("</FONT><FONT SIZE=2><B>Service</B></FONT><FONT SIZE=2>") throughout the vesting period. The units will vest as follows: 25% on &lt;&lt;InitialVestDate&gt;&gt;; 6.25% on
&lt;&lt;SecondVestDate&gt;&gt;; and an additional 6.25% on the final day of each 3-month period thereafter through &lt;&lt;FinalVestDate&gt;&gt;, provided that you
remain in continuous service through such date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
and the Company agree that your right to receive the units is granted under and governed by the terms and conditions of the Plan and of the Restricted Stock Unit Agreement that is
attached to and made a part of this document. Capitalized terms not defined herein have the meaning ascribed to such terms in the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
further agree that the Company may deliver by email all documents relating to the Plan or this award (including, without limitation, prospectuses required by the Securities and
Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). You also agree that
the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a web site,
it will notify you by email. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
agree to cover the applicable withholding taxes as set forth more fully herein. </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THERAVANCE,&nbsp;INC. 2004 EQUITY INCENTIVE PLAN:  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> RESTRICTED STOCK UNIT AGREEMENT</B></FONT></P>

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<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><B>Payment for Shares</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>No payment is required for the restricted stock units you are receiving.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Nature of Units</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
Your units are bookkeeping entries. They represent only the Company's unfunded and unsecured promise to issue shares of Common Stock on a future date. As a holder of units, you have no rights other than the rights of a general creditor of the
Company.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Settlement of Units</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
Each of your units will be settled when it vests (unless you and the Company have agreed to a later settlement date pursuant to procedures that the Company may prescribe at its discretion).</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
At the time of settlement, you will receive one share of the Company's Common Stock for each vested unit.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Vesting</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
The restricted stock units that you are receiving will vest as shown in the Notice of Restricted Stock Unit Award.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
No additional units vest after your Service has terminated for any reason, except as set forth on the Notice of Restricted Stock Unit Award. It is intended that vesting in the restricted stock units is commensurate with a full-time work schedule. For
possible adjustments that may be made by the Company, see the Section below entitled "Leaves of Absence and Part-Time Work."</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
The restricted stock units will vest in full if not assumed or substituted with a new award as set forth in Section&nbsp;11.3 of the Plan.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Forfeiture</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
If your Service terminates for any reason then your restricted stock units that have not vested before the termination date and do not vest as a result of the termination pursuant to this Agreement or as set forth on the Notice of Restricted Stock
Unit Award, will be forfeited immediately. This means that the restricted stock units will immediately revert to the Company. You receive no payment for restricted stock units that are forfeited. The Company determines when your Service terminates
for this purpose.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Leaves of Absence and Part-Time Work</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
For purposes of this award, your Service does not terminate when you go on a military leave, a sick leave or another </FONT><FONT SIZE=2><I>bona fide</I></FONT><FONT SIZE=2> leave of absence, if the leave was approved by the Company in writing. If
your leave of absence lasts for more than 6&nbsp;months, then vesting will be suspended on the day that is 6&nbsp;months and 1&nbsp;day after the leave of absence began. Vesting will resume effective as of the second vesting date after you return
from leave of absence provided you have worked at least one day during that vesting period.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
In the case of all leaves, your Service terminates when the approved leave ends, unless you immediately return to active work.</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
If you and the Company agree to a reduction in your scheduled work hours, then the Company reserves the right to modify the rate at which the restricted stock units vest, so that the rate of vesting is commensurate with your reduced work schedule.
Any such adjustment shall be consistent with the Company's policies for part-time or reduced work schedules or shall be pursuant to the terms of an agreement between you and the Company pertaining to your reduced work schedule.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
The Company shall not be required to adjust any vesting schedule pursuant to this subsection.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Stock Certificates</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
No shares of Common Stock shall be issued to you prior to the date on which the restricted stock units vest. After any restricted stock units vest pursuant to this Agreement, the Company shall promptly cause to be issued in book-entry form,
registered in your name or in the name of your legal representatives, beneficiaries or heirs, as the case may be, the number of shares of Common Stock representing your vested restricted stock units. No fractional shares shall be issued.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Stockholder Rights</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
The restricted stock units do not entitle you to any of the rights of a stockholder of Common Stock. Upon settlement of the restricted stock units into shares of Common Stock, you will obtain full voting and other rights as a stockholder of the
Company.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Units Restricted</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
You may not sell, transfer, pledge or otherwise dispose of any restricted stock units or rights under this Agreement other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, you may designate a beneficiary or
beneficiaries to receive any property distributable with respect to the restricted stock units upon your death.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Withholding Taxes</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
No shares will be distributed to you unless you have made arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the settlement of this award. Prior to the relevant taxable event, you shall pay or make
adequate arrangements satisfactory to the Company to satisfy all withholding obligations for applicable taxes. You authorize the Company to instruct the broker whom it has selected for this purpose to sell a number of shares of Common Stock to be
issued upon the vesting of your restricted stock units to meet the withholding obligations. Such sales shall be effected at the prevailing market price following the date that the restricted stock units vest.</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
You acknowledge that the proceeds of any such sale may not be sufficient to satisfy your withholding obligations. To the extent the proceeds from such sale are insufficient to cover the taxes due, the Company may in its discretion (a)&nbsp;withhold
the balance of all applicable taxes legally payable by you from your wages or other cash compensation paid to you by the Company and/or (b)&nbsp;withhold in shares of Common Stock, provided that the Company only withholds an amount of shares not in
excess of the amount necessary to satisfy the minimum withholding amount. The fair market value of withheld shares, determined as of the date taxes otherwise would have been withheld in cash, will be applied against the withholding taxes. If the
Company satisfies the obligation for taxes by withholding a number of shares of Common Stock as described above, you are deemed to have been issued the full number of shares subject to the award of restricted stock units.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Restrictions on Issuance</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
The Company will not issue shares to you if the issuance of shares at that time would violate any law or regulation.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Restrictions on Resale</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
You agree not to sell any shares of Common Stock you receive under this Agreement at a time when applicable laws, regulations, Company trading policies (including the Company's Insider Trading Policy, a copy of which can be found on the Company's
intranet) or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may
specify.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>No Retention Rights</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
Your award or this Agreement does not give you the right to be employed or retained by the Company (or a Parent or Subsidiary) in any capacity. The Company and its Parent and its Subsidiaries reserve the right to terminate your Service at any time,
with or without cause.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Adjustments</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
In the event of a stock split, a stock dividend or a similar change in Common Stock, the number of restricted stock units that will vest in any future installments will be adjusted accordingly.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Applicable Law</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
This Agreement will be interpreted and enforced with respect to issues of contract law under the laws of the State of Delaware.</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></P>

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<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>The Plan and Other Agreements</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
The text of the Plan is incorporated in this Agreement by reference. A copy of the Plan is available on the Company's intranet or by request to the Finance Department.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2><BR>
This Agreement, the Notice of Restricted Stock Unit Award, and the Plan constitute the entire understanding between you and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This
Agreement may be amended only by another written agreement between the parties.</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>BY ACCEPTING THIS RESTRICTED STOCK UNIT AWARD, YOU AGREE TO  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P><br><A NAME="08ZAE43901_2">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_la43902_1">Exhibit 10.34</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_la43902_2">THERAVANCE, INC. 2004 EQUITY INCENTIVE PLAN NOTICE OF RESTRICTED STOCK UNIT AWARD</A></FONT><BR>

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<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>3
<FILENAME>a2182915zex-10_35.htm
<DESCRIPTION>EXHIBIT 10.35
<TEXT>
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<FONT SIZE=3 ><A HREF="#08ZAE43901_3">QuickLinks</A></FONT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="lc43902_exhibit_10.35"> </A>
<A NAME="toc_lc43902_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit 10.35    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="lc43902_theravance,_inc._2008_new_empl__the03007"> </A>
<A NAME="toc_lc43902_2"> </A></FONT> <FONT SIZE=2><B>THERAVANCE,&nbsp;INC.    <BR>    <BR>    2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN    <BR>    <BR>    (AS ADOPTED EFFECTIVE JANUARY 29, 2008)    <BR>    </B></FONT></P>

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<A NAME="toc_lc43902_3"> </A>
<BR></FONT><FONT SIZE=2><B>TABLE OF CONTENTS    <BR>    </B></FONT></P>

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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="77%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>ARTICLE 1.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>INTRODUCTION</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 2.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
ADMINISTRATION</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
1</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>2.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Committee Composition</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>2.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Committee Responsibilities</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>2.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Committee for Non-Officer Grants</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 3.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
SHARES AVAILABLE FOR GRANTS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
1</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Basic Limitation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Shares Returned to Reserve</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Dividend Equivalents</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 4.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
ELIGIBILITY</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
2</FONT></TD>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 5.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
OPTIONS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
2</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Stock Option Agreement</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Number of Shares</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>5.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Exercise Price</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Exercisability and Term</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>5.5</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Modification or Assumption of Options</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>5.6</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Buyout Provisions</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
</TR>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 6.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
PAYMENT FOR OPTION SHARES</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
3</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>6.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>General Rule</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Surrender of Stock</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>6.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Net Exercise</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Exercise/Sale</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>6.5</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Other Forms of Payment</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 7.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
RESTRICTED SHARES</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>7.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Restricted Stock Agreement</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>7.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Payment for Awards</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>7.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Vesting Conditions</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Voting and Dividend Rights</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 8.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
STOCK UNITS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
4</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Stock Unit Agreement</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Payment for Awards</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Vesting Conditions</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
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<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.4</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Voting and Dividend Rights</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.5</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Form and Time of Settlement of Stock Units</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Death of Recipient</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>8.7</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Creditors' Rights</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 9.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
CHANGE IN CONTROL</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
4</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>9.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Effect of Change in Control</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>9.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Acceleration</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 10.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
PROTECTION AGAINST DILUTION</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Adjustments</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>10.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Dissolution or Liquidation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Reorganizations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>i</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 11.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
AWARDS UNDER OTHER PLANS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 12.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
LIMITATION ON RIGHTS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
6</FONT></TD>
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<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>12.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Retention Rights</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>12.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Stockholders' Rights</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>12.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Regulatory Requirements</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 13.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
WITHHOLDING TAXES</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>13.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>General</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>13.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Share Withholding</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 14.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
LIMITATION ON PAYMENTS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>14.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Scope of Limitation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>14.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Basic Rule</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>14.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Reduction of Payments</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>14.4</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Overpayments and Underpayments</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>14.5</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Related Corporations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 15.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
FUTURE OF THE PLAN</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>15.1</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Term of the Plan</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>15.2</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Amendment or Termination</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>15.3</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Stockholder Approval</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
ARTICLE 16.</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
DEFINITIONS</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
8</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="le43902_theravance,_inc._2008___le401989"> </A>
<A NAME="toc_le43902_1"> </A>
<BR></FONT><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.<BR>  2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 1.&nbsp;&nbsp;&nbsp;&nbsp;INTRODUCTION.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan was adopted by the Board effective January&nbsp;29, 2008. The purpose of the Plan is to promote the long-term success of the Corporation
and the creation of stockholder value by (a)&nbsp;encouraging Employees to focus on critical long-range objectives, (b)&nbsp;encouraging the attraction and retention of Employees with
exceptional qualifications and (c)&nbsp;linking Employees directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the
form of Restricted Shares, Stock Units, or Options (which shall be NSOs). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Plan is designed to attract new employees and is intended to satisfy the requirements of Nasdaq Marketplace Rule&nbsp;4350. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except their choice-of-law provisions). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 2.&nbsp;&nbsp;&nbsp;&nbsp;ADMINISTRATION.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Committee Composition.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall administer the
Plan. The Committee shall consist exclusively of two or more directors of the Corporation, who shall be appointed by the Board. In addition, each member of the Committee shall meet the following
requirements: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;Any
listing standards prescribed by the principal securities market on which the Corporation's equity securities are traded; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Such
requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under
Rule&nbsp;16b-3 (or its successor) under the Exchange Act; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;Any
other requirements imposed by applicable law, regulations or rules. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Committee Responsibilities</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall
(a)&nbsp;select the Employees who are to receive Awards under the Plan, (b)&nbsp;determine the type, number, vesting requirements and other features and conditions of such Awards,
(c)&nbsp;interpret the Plan, (d)&nbsp;make all other decisions relating to the operation of the Plan and (e)&nbsp;carry out any other duties delegated to it by the Board. The Committee may adopt
such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Committee for Non-Officer Grants</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The Board may
also appoint a secondary committee of the Board, which shall be composed of one or more directors of the Corporation who need not satisfy the requirements of Section&nbsp;2.1. Such secondary
committee may administer the Plan with respect to Employees who are not considered executive officers of the Corporation under section&nbsp;16 of the Exchange Act, may grant Awards under the Plan to
such Employees and may determine all features and conditions of such Awards. Within the limitations of this Section&nbsp;2.3, any reference in the Plan to the Committee shall include such secondary
committee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 3.&nbsp;&nbsp;&nbsp;&nbsp;SHARES AVAILABLE FOR GRANTS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Basic Limitation</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Common Shares issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number of Common Shares issued under the Plan shall not exceed (a)&nbsp;500,000 plus (b)&nbsp;the additional Common Shares
described in Section&nbsp;3.2. The number of Common Shares that are subject to Awards outstanding at any time under the Plan shall not exceed the number of Common Shares that then remain available
for issuance under the Plan. The limitations of this Section&nbsp;3.1 shall be subject to adjustment pursuant to Article&nbsp;10. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Shares Returned to Reserve</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;If Options or Stock Units are
forfeited or terminate for any other reason before being exercised or settled, then the Common Shares subject to such Options or Stock Units shall again become available for issuance under the Plan.
If Stock Units are settled, then </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>only
the number of Common Shares (if any) actually issued in settlement of such Stock Units shall reduce the number available under Section&nbsp;3.1 and the balance shall again become available for
issuance under the Plan. If Restricted Shares or Common Shares issued upon the exercise of Options are reacquired by the Corporation pursuant to a forfeiture provision or for any other reason, then
such Common Shares shall again become available for issuance under the Plan. Shares not issued or delivered as a result of the net exercise of an Option shall again become available for issuance under
the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Dividend Equivalents</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Common Shares that may be issued under the Plan, whether or not such dividend equivalents are converted into Stock Units. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 4.&nbsp;&nbsp;&nbsp;&nbsp;ELIGIBILITY.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only Employees shall be eligible for the grant of Restricted Shares, Stock Units, or NSOs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 5.&nbsp;&nbsp;&nbsp;&nbsp;OPTIONS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Stock Option Agreement</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Corporation. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms
that are not inconsistent with the Plan. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction
in the Optionee's other compensation. A Stock Option Agreement may provide that a new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise
Price in the form described in Section&nbsp;6.2. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Number of Shares</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article&nbsp;10. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Exercise Price</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each Stock Option Agreement shall specify
the Exercise Price; provided that the Exercise Price shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.4</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Exercisability and Term</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option. A Stock Option Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's Service. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.5</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Modification or Assumption of Options</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding options. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter
or impair his or her rights or obligations under such Option. Notwithstanding anything in this Plan to the contrary, and except for the adjustments provided in Articles&nbsp;9 and&nbsp;10, neither
the Committee nor any other person may decrease the exercise price for any outstanding Option after the date of grant nor cancel or allow an optionee to surrender an outstanding Option to the
Corporation as consideration for the grant of a new Option with a lower exercise price or the grant of another type of Award the effect of which is to reduce the exercise price of any outstanding
Option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.6</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Buyout Provisions</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The Committee may at any time
(a)&nbsp;offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b)&nbsp;authorize an Optionee to elect to cash out an Option previously granted, in either case
at such time and based upon such terms and conditions as the Committee shall establish. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 6.&nbsp;&nbsp;&nbsp;&nbsp;PAYMENT FOR OPTION SHARES.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;General Rule</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased, except that the Committee at its sole discretion may accept payment of
the Exercise Price in any other form(s) described in this Article&nbsp;6. However, if the Optionee is an executive officer of the Corporation, he or she may pay the Exercise Price in a form other
than cash or cash equivalents only to the extent permitted by section&nbsp;13(k) of the Exchange Act. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Surrender of Stock</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;With the Committee's consent, all or any
part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market
Value on the date when the new Common Shares are purchased under the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Net Exercise</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;With the Committee's consent, all or any part
of the Exercise Price may be paid by requesting that the Corporation withhold Common Shares that otherwise would be issued in connection with the Option exercise. Such Common Shares shall be valued at
their Fair Market Value on the date when the Option is exercised. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.4</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Exercise/Sale</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;With the Committee's consent, all or any part
of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Corporation) an irrevocable direction to a securities broker approved by the Corporation to sell
all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Corporation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.5</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Other Forms of Payment</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;With the Committee's consent, all or
any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 7.&nbsp;&nbsp;&nbsp;&nbsp;RESTRICTED SHARES.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Restricted Stock Agreement</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each grant of Restricted Shares
under the Plan shall be evidenced by a Restricted Stock Agreement between the recipient and the Corporation. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Stock Agreements entered into under the Plan need not be identical. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Payment for Awards</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Restricted Shares may be sold or awarded
under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents,
property, full-recourse promissory notes, past services and future services. If the Participant is an executive officer of the Corporation, he or she may pay for Restricted Shares with a
promissory note only to the extent permitted by section&nbsp;13(k) of the Exchange Act. Within the limitations of the Plan, the Committee may accept the cancellation of outstanding options in return
for the grant of Restricted Shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Vesting Conditions</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each Award of Restricted Shares may or
may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement. A Restricted Stock Agreement may
provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.4</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Voting and Dividend Rights</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as the Corporation's other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted
Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which
the dividends were paid. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 8.&nbsp;&nbsp;&nbsp;&nbsp;STOCK UNITS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Stock Unit Agreement</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each grant of Stock Units under the
Plan shall be evidenced by a Stock Unit Agreement between the recipient and the Corporation. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms
that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Payment for Awards</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;To the extent that an Award is granted
in the form of Stock Units, no cash consideration shall be required of the Award recipients. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Vesting Conditions</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Each Award of Stock Units may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit
Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.4</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Voting and Dividend Rights</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The holders of Stock Units shall
have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles
the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both. Prior to distribution, any dividend equivalents that are not paid shall
be subject to the same conditions and restrictions as the Stock Units to which they attach. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.5</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Form and Time of Settlement of Stock Units</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Settlement of
vested Stock Units may be made in the form of (a)&nbsp;cash, (b)&nbsp;Common Shares or (c)&nbsp;any combination of both, as determined by the Committee. The actual number of Stock Units eligible
for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without
limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may
occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be
increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article&nbsp;10. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.6</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Death of Recipient</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries
for this purpose by filing the prescribed form with the Corporation. A beneficiary designation may be changed by filing the prescribed form with the Corporation at any time before the Award
recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award that becomes payable after the recipient's death shall be
distributed to the recipient's estate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.7</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Creditors' Rights</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;A holder of Stock Units shall have no
rights other than those of a general creditor of the Corporation. Stock Units represent an unfunded and unsecured obligation of the Corporation, subject to the terms and conditions of the applicable
Stock Unit Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 9.&nbsp;&nbsp;&nbsp;&nbsp;CHANGE IN CONTROL  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>9.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Effect of Change in Control</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;In the event of any Change in
Control, each outstanding Award shall automatically accelerate so that each such Award shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the
Common Shares at the time </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>subject
to such Award and may be exercised for any or all of those shares as fully-vested Common Shares. However, an outstanding Award shall </FONT><FONT SIZE=2><B>not</B></FONT><FONT SIZE=2> so
accelerate if and to the extent such Award is, in connection with the Change in Control, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable Award
for shares of the capital stock of the successor corporation (or parent thereof). The determination of Award comparability shall be made by the Committee, and its determination shall be final, binding
and conclusive. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>9.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Acceleration</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall have the discretion,
exercisable either at the time the Award is granted or at any time while the Award remains outstanding, to provide for the automatic acceleration of vesting upon the occurrence of a Change in Control,
whether or not the Award is to be assumed or replaced in the Change in Control. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 10.&nbsp;&nbsp;&nbsp;&nbsp;PROTECTION AGAINST DILUTION.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>10.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Adjustments.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common Shares or a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, corresponding adjustments shall automatically be made in each of the following: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;The
number of Options, Restricted Shares and Stock Units available for future Awards under Article&nbsp;3; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
number of Common Shares covered by each outstanding Option; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;The
Exercise Price under each outstanding Option; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;The
number of Stock Units included in any prior Award that has not yet been settled. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>In
the event of a declaration of an extraordinary dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a recapitalization, a
spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of the foregoing. Except as provided in this
Article&nbsp;10, a Participant shall have no rights by reason of any issuance by the Corporation of stock of any class or securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>10.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Dissolution or Liquidation</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;To the extent not previously
exercised or settled, Options, and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>10.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Reorganizations</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;In the event that the Corporation is a
party to a merger or consolidation, all outstanding Awards shall be subject to the agreement of merger or consolidation. Such agreement shall provide for one or more of the following: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;The
continuation of such outstanding Awards by the Corporation (if the Corporation is the surviving corporation). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
assumption of such outstanding Awards by the surviving corporation or its parent (in a manner that complies with section&nbsp;424(a) of the Code with respect to
Options). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;The
substitution by the surviving corporation or its parent of new awards for such outstanding Awards (in a manner that complies with section&nbsp;424(a) of the Code
with respect to Options). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;Full
exercisability of such outstanding Awards and full vesting of the Common Shares subject to such Awards, followed by the cancellation of such Awards. The full
exercisability of such Awards and full vesting of the Common Shares subject to such Awards may be contingent on the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></P>

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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>closing
of such merger or consolidation. The Participants shall be able to exercise such Awards during a period of not less than five full business days preceding the closing date of such merger or
consolidation, unless (i)&nbsp;a shorter period is required to permit a timely closing of such merger or consolidation and (ii)&nbsp;such shorter period still offers the Participants a reasonable
opportunity to exercise such Awards. Any exercise of such Awards during such period may be contingent on the closing of such merger or consolidation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;The
cancellation of such outstanding Awards and a payment to the Participants equal to the excess of (i)&nbsp;the Fair Market Value of the Common Shares subject to
such Awards (whether or not such Awards are then exercisable or such Common Shares are then vested) as of the closing date of such merger or consolidation over (ii)&nbsp;their Exercise Price. Such
payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount. Such payment may be made in
installments and may be deferred until the date or dates when such Awards would have become exercisable or such Common Shares would have vested. Such payment may be subject to vesting based on the
Participant's continuing service, provided that the vesting schedule shall not be less favorable to the Participant than the schedule under which such Award would have become exercisable or such
Common Shares would have vested. If the Exercise Price of the Common Shares subject to such Awards exceeds the Fair Market Value of such Common Shares, then such Awards may be cancelled without making
a payment to the Participants. For purposes of this Subsection&nbsp;(e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such
security. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 11.&nbsp;&nbsp;&nbsp;&nbsp;AWARDS UNDER OTHER PLANS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares
shall be treated for all purposes under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Article&nbsp;3. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 12.&nbsp;&nbsp;&nbsp;&nbsp;LIMITATION ON RIGHTS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Retention Rights</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain an Employee. The Corporation and its Parents, Subsidiaries and Affiliates reserve the right to terminate the Service of any
Employee at any time, with or without cause, subject to applicable laws and a written employment agreement (if any). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Rights</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, if
applicable, the time when he or she becomes entitled to receive such Common Shares by filing any required notice of exercise and paying any required Exercise Price. No adjustment shall be made for
cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Regulatory Requirements</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may
be required. The Corporation reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to
the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>6</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 13.&nbsp;&nbsp;&nbsp;&nbsp;WITHHOLDING TAXES.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>13.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;General</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Corporation for the satisfaction of any withholding tax obligations that arise in
connection with the Plan. The Corporation shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>13.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Share Withholding</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;To the extent that applicable law
subjects a Participant to tax withholding obligations, the Committee may permit such Participant to satisfy all or part of such obligations by having the Corporation withhold all or a portion of any
Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair
Market Value on the date when they are withheld or surrendered. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 14.&nbsp;&nbsp;&nbsp;&nbsp;LIMITATION ON PAYMENTS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>14.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Scope of Limitation</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;This Article&nbsp;14 shall apply to
an Award only if: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;The
independent auditors selected for this purpose by the Committee (the "Auditors") determine that the after-tax value of such Award to the Participant,
taking into account the effect
of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise tax under section&nbsp;4999 of the Code), will be greater after
the application of this Article&nbsp;14 than it was before the application of this Article&nbsp;13; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such Award shall be subject to this Article&nbsp;14
(regardless of the after-tax value of such Award to the Participant). </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>If
this Article&nbsp;14 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>14.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Basic Rule</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;In the event that the Auditors determine that
any payment or transfer by the Corporation under the Plan to or for the benefit of a Participant (a "Payment") would be nondeductible by the Corporation for federal income tax purposes because of the
provisions concerning "excess parachute payments" in section&nbsp;280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article&nbsp;14, the "Reduced Amount" shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to
be nondeductible by the Corporation because of section&nbsp;280G of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>14.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Reduction of Payments</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;If the Auditors determine that any
Payment would be nondeductible by the Corporation because of section&nbsp;280G of the Code, then the Corporation shall promptly give the Participant notice to that effect and a copy of the detailed
calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after
such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Corporation in writing of his or her election within 10&nbsp;days of receipt of notice. If
no such election is made by the Participant within such 10-day period, then the Corporation may elect which and how much of the Payments shall be eliminated or reduced (as long as after
such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article&nbsp;16, present value
shall be determined in accordance with section&nbsp;280G(d)(4) of the Code. All determinations made by the Auditors under this Article&nbsp;14 shall be binding upon the Corporation and the
Participant and shall be made within 60&nbsp;days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>7</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>hereunder,
the Corporation shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the
benefit of the Participant in the future such amounts as become due to him or her under the Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>14.4</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Overpayments and Underpayments</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;As a result of uncertainty
in the application of section&nbsp;280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments
will have been made by the Corporation which should not have been made (an "Overpayment") or that additional Payments which will not have been made by the Corporation could have been made (an
"Underpayment"), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service
against the Corporation or the Participant that the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes
as a loan to the Participant that he or she shall repay to the Corporation, together with interest at the applicable federal rate provided in section&nbsp;7872(f)(2) of the Code; provided, however,
that no amount shall be payable by the Participant to the Corporation if and to the extent that such payment would not reduce the amount that is subject to taxation under section&nbsp;4999 of the
Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Corporation to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in section&nbsp;7872(f)(2) of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>14.5</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Related Corporations</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this
Article&nbsp;14, the term "Corporation" shall include affiliated corporations to the extent determined by the Auditors in accordance with section&nbsp;280G(d)(5) of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 15.&nbsp;&nbsp;&nbsp;&nbsp;FUTURE OF THE PLAN.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>15.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Term of the Plan</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The Plan, as set forth herein, shall
become effective on the date of adoption. The Plan shall remain in effect until the earlier of (a)&nbsp;the date the Plan is terminated under Section&nbsp;15.2 or (b)&nbsp;the
10<SUP>th</SUP>&nbsp;anniversary of the date the Board adopted the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>15.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Amendment or Termination</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;The Board may, at any time and
for any reason, amend or terminate the Plan. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>15.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;Stockholder Approval</B></FONT><FONT SIZE=2>.&nbsp;&nbsp;&nbsp;&nbsp;Approval of the Corporation's
stockholders shall be required only to the extent required by applicable laws, regulations or rules. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>ARTICLE 16.&nbsp;&nbsp;&nbsp;&nbsp;DEFINITIONS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.1</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Affiliate</B></FONT><FONT SIZE=2>" means any entity other than a Subsidiary, if
the Corporation and/or one or more Subsidiaries own not less than 50% of such entity. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.2</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Award</B></FONT><FONT SIZE=2>" means any award of an Option, a Restricted Share
or a Stock Unit under the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.3</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Board</B></FONT><FONT SIZE=2>" means the Corporation's Board of Directors, as
constituted from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.4</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Change in Control</B></FONT><FONT SIZE=2>" shall mean: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;The
consummation of a merger or consolidation of the Corporation with or into another entity or any other corporate reorganization, if persons who were not stockholders
of the Corporation immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (i)&nbsp;the continuing or surviving entity and (ii)&nbsp;any direct or indirect parent corporation of such continuing or surviving entity; </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_le43902_1_9"> </A>
<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
sale, transfer or other disposition of all or substantially all of the Corporation's assets; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;A
change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;Had
been directors of the Corporation on the date 24&nbsp;months prior to the date of such change in the composition of the Board (the "Original Directors") or </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;Were
appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a majority of the aggregate of (A)&nbsp;the Original
Directors who were in office at the time of their appointment or nomination and (B)&nbsp;the directors whose appointment or nomination was previously approved in a manner consistent with this
Paragraph&nbsp;(ii); or </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;Any
transaction as a result of which any person is the "beneficial owner" (as defined in Rule&nbsp;13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing at least 50% of the total voting power represented by the Corporation's then outstanding voting securities. For purposes of this Paragraph&nbsp;(d), the
term "person" shall have the same meaning as when used in sections&nbsp;13(d) and 14(d) of the Exchange Act but shall exclude (i)&nbsp;a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a Parent or Subsidiary and (ii)&nbsp;a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of the common stock of the Corporation. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>Except
with respect to a GSK Change In Control (defined below), (i)&nbsp;any stock purchase by SmithKline Beecham Corporation, a Pennsylvania corporation ("GSK"), pursuant to the Class&nbsp;A
Common Stock Purchase Agreement dated as of March&nbsp;30, 2004 or (ii)&nbsp;the exercise by GSK of any of its rights under the Amended and Restated Governance Agreement dated as of June&nbsp;4,
2004 among the Corporation, GSK, GlaxoSmithKline&nbsp;plc and Glaxo Group Limited (the "Governance Agreement") to representation on the Board (and its committees) or (iii)&nbsp;any acquisition by
GSK of securities of the Corporation (whether by merger, tender offer, private or market purchases or otherwise) not prohibited by the Governance Agreement shall not constitute a Change in Control. A
transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Corporation's incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Corporation's securities immediately before such transaction. A "GSK Change In Control" shall mean the acquisition by GSK of the Corporation's Voting
Stock (as defined in the Governance Agreement) that would bring GSK's Percentage Interest (as defined in the Governance Agreement) to 100% in compliance with the provisions of the Governance
Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.5</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Code</B></FONT><FONT SIZE=2>" means the Internal Revenue Code of 1986, as
amended. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.6</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Committee</B></FONT><FONT SIZE=2>" means a committee of the Board, as described
in Article&nbsp;2. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.7</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Common Share</B></FONT><FONT SIZE=2>" means one share of the common stock of the
Corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.8</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Corporation</B></FONT><FONT SIZE=2>" means Theravance,&nbsp;Inc., a Delaware
corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.9</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Consultant</B></FONT><FONT SIZE=2>" means a consultant or adviser who provides
bona fide services to the Corporation, a Parent, a Subsidiary or an Affiliate as an independent contractor. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.10</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Employee</B></FONT><FONT SIZE=2>" means a common-law employee of the Corporation,
a Parent, a Subsidiary or an Affiliate who is newly hired as a employee by the Corporation, or who is rehired following a bona fide period of interruption of employment, including persons who become
new employees of the Corporation, a Parent, a Subsidiary or an Affiliate in connection with a merger or acquisition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.11</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Exchange Act</B></FONT><FONT SIZE=2>" means the Securities Exchange Act of 1934, as amended. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_le43902_1_10"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.12</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Exercise Price</B></FONT><FONT SIZE=2>," in the case of an Option, means the amount for which
one Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.13</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Fair Market Value</B></FONT><FONT SIZE=2>" means the closing selling price of one Common Share
as reported on Nasdaq, and if not available, then it shall be determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value
by the Committee shall be based on the prices reported in </FONT><FONT SIZE=2><I>The Wall Street Journal</I></FONT><FONT SIZE=2>. Such determination shall be conclusive and binding on all persons. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.14</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>NSO</B></FONT><FONT SIZE=2>" means a stock option not described in sections&nbsp;422 or 423
of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.15</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Option</B></FONT><FONT SIZE=2>" means an NSO granted under the Plan and entitling the holder
to purchase Common Shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.16</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Optionee</B></FONT><FONT SIZE=2>" means an individual or estate who holds an Option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.17</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Parent</B></FONT><FONT SIZE=2>" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the corporations other than the Corporation owns stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such
date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.18</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Participant</B></FONT><FONT SIZE=2>" means an individual or estate who holds an Award. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.19</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Plan</B></FONT><FONT SIZE=2>" means this Theravance,&nbsp;Inc. 2008 New Employee Equity
Incentive Plan, as amended from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.20</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Restricted Share</B></FONT><FONT SIZE=2>" means a Common Share awarded under the Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.21</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Restricted Stock Agreement</B></FONT><FONT SIZE=2>" means the agreement between the
Corporation and the recipient of a Restricted Share that contains the terms, conditions and restrictions pertaining to such Restricted Share. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.22</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Service</B></FONT><FONT SIZE=2>" means service as an Employee or Consultant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.23</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Stock Option Agreement</B></FONT><FONT SIZE=2>" means the agreement between the Corporation
and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.24</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Stock Unit</B></FONT><FONT SIZE=2>" means a bookkeeping entry representing the equivalent of
one Common Share, as awarded under the Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.25</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Stock Unit Agreement</B></FONT><FONT SIZE=2>" means the agreement between the Corporation and
the recipient of a Stock Unit that contains the terms, conditions and restrictions pertaining to such Stock Unit. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>16.26</B></FONT><FONT SIZE=2>&nbsp;&nbsp;"</FONT><FONT SIZE=2><B>Subsidiary</B></FONT><FONT SIZE=2>" means any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered
a Subsidiary commencing as of such date. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>10</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P><br><A NAME="08ZAE43901_3">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lc43902_1">Exhibit 10.35</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lc43902_2">THERAVANCE, INC. 2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN (AS ADOPTED EFFECTIVE JANUARY 29, 2008)</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lc43902_3">TABLE OF CONTENTS</A></FONT><BR>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_le43902_1">THERAVANCE, INC. 2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN</A></FONT><BR>

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<TYPE>EX-10.36
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<FILENAME>a2182915zex-10_36.htm
<DESCRIPTION>EXHIBIT 10.36
<TEXT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="lg43902_exhibit_10.36"> </A>
<A NAME="toc_lg43902_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit 10.36    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="lg43902_theravance,_inc._2008_new_empl__the03145"> </A>
<A NAME="toc_lg43902_2"> </A></FONT> <FONT SIZE=2><B>THERAVANCE,&nbsp;INC.<BR>  2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN    <BR>    <BR>    NOTICE OF STOCK OPTION GRANT</B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You have been granted the following option to purchase shares of the Common Stock of Theravance,&nbsp;Inc. (the "Company"): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>Name of Optionee:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>&laquo;Name&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
ID Number:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
&laquo;ID&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Total&nbsp;Number&nbsp;of&nbsp;Shares&nbsp;Granted:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
&laquo;Shares&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Type of Option:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
Nonstatutory Stock Option</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Grant Number:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
&laquo;Number&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Exercise Price Per Share:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
$&laquo;Price&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Date of Grant:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
&laquo;DateGrant&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Vesting Commencement Date:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
&laquo;VestDay&raquo;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Vesting Schedule:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
This option becomes exercisable with respect to the first 25% of the Shares subject to this option when you complete 12&nbsp;months of continuous Service from the Vesting Commencement Date and with respect to an additional 2.0833% of the Shares
subject to this option when you complete each month of continuous Service thereafter.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Expiration Date:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><BR>
&laquo;ExpDate&raquo;. This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
and the Company agree that this option is granted under and governed by the terms and conditions of the Stock Option Agreement, which is attached to and made a part of this document,
and the Company's 2008 New Employee Equity Incentive Plan (the "Plan"). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
further agree that the Company may deliver by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and
Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). You also agree that
the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a web site,
it will notify you by email. </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="lg43902_theravance,_inc._2008_new_empl__the02902"> </A>
<A NAME="toc_lg43902_3"> </A>
<BR></FONT><FONT SIZE=2><B>THERAVANCE,&nbsp;INC.<BR>  2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN    <BR>    <BR>    STOCK OPTION AGREEMENT    <BR>    </B></FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><B>Grant of Option</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>You have been granted an option as of the Grant Date to purchase up to the number of Shares of Company Common Stock specified in the Notice of Stock Option Grant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Tax Treatment</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
This option is a nonstatutory stock option.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Vesting</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
This option becomes exercisable in installments, as shown in the Notice of Stock Option Grant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
This option shall become exercisable in full if not assumed or a new option substituted pursuant to Section&nbsp;11.3 of the Plan. In addition, this option becomes exercisable in full if the Company is subject to a "</FONT><FONT SIZE=2><B>Change in
Control</B></FONT><FONT SIZE=2>" (as defined in the Plan) before your Service (as defined in the Plan) terminates, and you are subject to an Involuntary Termination (as defined below) within three months prior or 24&nbsp;months after the Change in
Control.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
For purposes of this Agreement, </FONT><FONT SIZE=2><B>"Cause"</B></FONT><FONT SIZE=2> shall mean (i)&nbsp;the unauthorized use or disclosure of the confidential information or trade secrets of the Company, which use causes material harm to the
Company, (ii)&nbsp;conviction of a felony under the laws of the United States or any state thereof, (iii)&nbsp;gross negligence or (iv)&nbsp;repeated failure to perform lawful assigned duties for thirty days after receiving written notification from
the Board of Directors.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
For purposes of this Agreement, "</FONT><FONT SIZE=2><B>Involuntary Termination</B></FONT><FONT SIZE=2>" means the termination of your Service by reason of:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(a)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><BR>
an involuntary dismissal or discharge by the Company for reasons other than for Cause; or</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(b)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><BR>
your voluntary resignation following (i)&nbsp;a change in your position with the Company (or Parent or Subsidiary employing you) which materially reduces your level of responsibility, (ii)&nbsp;a reduction in your level of compensation (including
base salary, fringe benefits and participation in corporate-performance based bonus or incentive programs) or (iii)&nbsp;a relocation of your workplace more than fifty miles away from the workplace designated by the Company on your initial date of
service, provided and only if such change, reduction or relocation is effected by the Company without your consent.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
No additional shares will vest after your Service has terminated for any reason, except to the extent set forth above if you are subject to an Involuntary Termination within three months prior to a Change in Control.</FONT></TD>
</TR>
</TABLE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Term</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
This option expires in any event at the close of business at Company headquarters on the day before the 10<SUP>th</SUP>&nbsp;anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. (It will expire earlier if your Service
terminates, as described below.) You may exercise this option at any time before its expiration under the preceding sentence, but only to the extent that this option had become exercisable before your Service terminated.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Regular Termination</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
If your Service terminates for any reason except death or total and permanent disability, then this option will expire at the close of business at Company headquarters on the date three months after your termination date. The Company determines when
your Service terminates for this purpose.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Death</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date that is 12&nbsp;months after the date of death.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Disability</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12&nbsp;months after your termination date.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
For all purposes under this Agreement, "total and permanent disability" means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period of not less than one year.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Leaves of Absence and Part-Time Work</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another </FONT><FONT SIZE=2><I>bona fide</I></FONT><FONT SIZE=2> leave of absence, if the leave was approved by the Company in writing. But
your Service terminates when the approved leave ends, unless you immediately return to active work.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company's leave of absence policy or the terms of your leave. If you commence working on a part-time basis,
 then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company's part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time
schedule.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Restrictions on Exercise</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Notice of Exercise</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
When you wish to exercise this option, you must notify the Company by filing the proper "Notice of Exercise" form at the address given on the form. Your notice must specify how many shares you wish to purchase. Your notice must also specify how your
shares should be registered. The notice will be effective when the Company receives it.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Form of Payment</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
When you submit your notice of exercise, you must include payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the
following forms:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><BR>
Your personal check, a cashier's check or a money order.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><BR>
Certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option
exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to you. However, you may
not surrender, or attest to the ownership of, shares of Company stock in payment of the exercise price if your action would cause the Company to recognize additional compensation expense with respect to this option for financial reporting
purposes.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><BR>
Irrevocable directions to a securities broker approved by the Company to sell all or part of your option shares and to deliver to the Company from the sale proceeds an amount sufficient to pay the option exercise price and any withholding taxes. (The
balance of the sale proceeds, if any, will be delivered to you.) The directions must be given by signing a special "Notice of Exercise" form provided by the Company.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2><BR>
Irrevocable directions to a securities broker or lender approved by the Company to pledge option shares as security for a loan and to deliver to the Company from the loan proceeds an amount sufficient to pay the option exercise price and any
withholding taxes. The directions must be given by signing a special "Notice of Exercise" form provided by the Company.</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Withholding Taxes and Stock Withholding</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise. With the Company's consent, these arrangements may include
withholding shares of Company stock that otherwise would be issued to you when you exercise this option. The value of these shares, determined as of the effective date of the option exercise, will be applied to the withholding taxes.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Restrictions on Resale</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of
time after the termination of your Service as the Company may specify.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Transfer of Option</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately
become invalid. You may, however, dispose of this option in your will or a beneficiary designation.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse's interest in your option in any other
way.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Retention Rights</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without
cause.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Stockholder Rights</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company and paying the exercise price. No adjustments are made for dividends or other rights if the
applicable record date occurs before you exercise this option, except as described in the Plan.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Adjustments</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
In the event of a stock split, a stock dividend or a similar change in Common Stock, the number of shares covered by this option and the exercise price per share shall be adjusted as provided in the Plan.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>Applicable Law</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to their choice-of-law provisions).</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>

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<TD WIDTH="37%" style="font-family:times;"><BR><FONT SIZE=2><B>The Plan and Other Agreements</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
The text of the Plan is incorporated in this Agreement by reference. A copy of the Plan is available on the Company's intranet or by request to the Company's Finance Department.</FONT></TD>
</TR>
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<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another
written agreement between the parties.</FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>BY ACCEPTING THIS STOCK OPTION GRANT, YOU AGREE TO ALL OF THE TERMS AND<BR>
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></P>

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<BR>
<P><br><A NAME="08ZAE43901_4">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lg43902_1">Exhibit 10.36</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lg43902_2">THERAVANCE, INC. 2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN NOTICE OF STOCK OPTION GRANT</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lg43902_3">THERAVANCE, INC. 2008 NEW EMPLOYEE EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>a2182915zex-23_1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<HTML>
<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#08ZAE43901_5">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>

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 </FONT></P>

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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ma43902_exhibit_23.1"> </A>
<A NAME="toc_ma43902_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 23.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ma43902_consent_of_independent__ma402316"> </A>
<A NAME="toc_ma43902_2"> </A></FONT> <FONT SIZE=2><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consent to the incorporation by reference in the Registration Statements on Form&nbsp;S-8 (No.&nbsp;333-119559,
No.&nbsp;333-123716, No.&nbsp;333-129669 and No.&nbsp;333-142707) and Form&nbsp;S-3 (No.&nbsp;333-148677) of our reports dated February&nbsp;25, 2008, with respect
to the consolidated financial statements of Theravance,&nbsp;Inc. and the effectiveness of internal control over financial reporting of Theravance,&nbsp;Inc., included in this Annual Report
(Form&nbsp;10-K) for the year ended December&nbsp;31, 2007. </FONT></P>

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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>/s/ Ernst&nbsp;&amp; Young&nbsp;LLP</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>Palo
Alto, California<BR>
February&nbsp;25, 2008 </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ma43902_1">EXHIBIT 23.1</A></FONT><BR>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ma43902_2">CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

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<TYPE>EX-31.1
<SEQUENCE>6
<FILENAME>a2182915zex-31_1.htm
<DESCRIPTION>EXHIBIT 31.1
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<BR></FONT><FONT SIZE=2><B>EXHIBIT 31.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="na43902_certification_of_chief_executi__cer03515"> </A>
<A NAME="toc_na43902_2"> </A></FONT> <FONT SIZE=2><B>Certification of Chief Executive Officer<BR>  Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>I,
Rick E Winningham, certify that: </FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>I
have reviewed this Annual Report on Form&nbsp;10-K of Theravance,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f))
for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>d)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></DD></DL>
</DD></DL>
<BR>

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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>February&nbsp;26, 2008</FONT><HR NOSHADE><FONT SIZE=2> (Date)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>RICK E WINNINGHAM</FONT><HR NOSHADE><FONT SIZE=2><B>Rick E Winningham<BR> </B></FONT><FONT SIZE=2><B><I>Chief Executive Officer<BR>
(Principal Executive Officer)</I></B></FONT></TD>
</TR>
</TABLE>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_na43902_2">Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</A></FONT><BR>

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<TYPE>EX-31.2
<SEQUENCE>7
<FILENAME>a2182915zex-31_2.htm
<DESCRIPTION>EXHIBIT 31.2
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NAME="nc43902_exhibit_31.2"> </A>
<A NAME="toc_nc43902_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 31.2    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="nc43902_certification_of_chief_financi__cer03470"> </A>
<A NAME="toc_nc43902_2"> </A></FONT> <FONT SIZE=2><B>Certification of Chief Financial Officer<BR>  Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>I,
Michael W. Aguiar, certify that: </FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>I
have reviewed this Annual Report on Form&nbsp;10-K of Theravance, Inc:
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f))
for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>d)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>all
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></DD></DL>
</DD></DL>
<BR>

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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>February&nbsp;26, 2008</FONT><HR NOSHADE><FONT SIZE=2> (Date)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>MICHAEL W. AGUIAR</FONT><HR NOSHADE><FONT SIZE=2><B>Michael W. Aguiar<BR> </B></FONT><FONT SIZE=2><B><I>Senior Vice President, Finance and<BR>
Chief Financial Officer<BR>
(Principal Financial Officer)</I></B></FONT></TD>
</TR>
</TABLE>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_nc43902_2">Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</A></FONT><BR>

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<TYPE>EX-32.1
<SEQUENCE>8
<FILENAME>a2182915zex-32_1.htm
<DESCRIPTION>EXHIBIT 32.1
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NAME="ne43902_exhibit_32"> </A>
<A NAME="toc_ne43902_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 32    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ne43902_certification_of_chief_executi__cer04880"> </A>
<A NAME="toc_ne43902_2"> </A></FONT> <FONT SIZE=2><B>CERTIFICATION OF CHIEF EXECUTIVE OFFICER<BR>  PURSUANT TO<BR>  18 U.S.C. SECTION&nbsp;1350,<BR>  AS ADOPTED PURSUANT TO<BR>  SECTION&nbsp;906 OF THE SARBANES-OXLEY ACT OF&nbsp;2002    <BR>
</B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Rick E Winningham, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Theravance,&nbsp;Inc. on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2007 fully complies with the requirements of Section&nbsp;13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended and that information contained in such Annual Report on Form&nbsp;10-K fairly presents in all material respects the financial condition and
results of operations of Theravance,&nbsp;Inc. for the periods covered by the annual report. </FONT></P>

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<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>February&nbsp;26, 2008</FONT><HR NOSHADE><FONT SIZE=2> Dated</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>By:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>RICK E WINNINGHAM</FONT><HR NOSHADE><FONT SIZE=2><B>Name: Rick E Winningham<BR>
Title: </B></FONT><FONT SIZE=2><B><I>Chief Executive Officer</I></B></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ne43902_certification_of_chief_financi__cer04835"> </A>
<A NAME="toc_ne43902_3"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION OF CHIEF FINANCIAL OFFICER<BR>  PURSUANT TO<BR>  18 U.S.C. SECTION&nbsp;1350,<BR>  AS ADOPTED PURSUANT TO<BR>  SECTION&nbsp;906 OF THE SARBANES-OXLEY ACT OF&nbsp;2002    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Michael W. Aguiar, certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Theravance,&nbsp;Inc. on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2007 fully complies with the requirements of Section&nbsp;13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended and that information contained in such Annual Report on Form&nbsp;10-K fairly presents in all material respects the financial condition and
results of operations of Theravance,&nbsp;Inc. for the periods covered by the annual report. </FONT></P>

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<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>February&nbsp;26, 2008</FONT><HR NOSHADE><FONT SIZE=2> Dated</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>By:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>MICHAEL W. AGUIAR</FONT><HR NOSHADE><FONT SIZE=2><B>Name: Michael W. Aguiar<BR>
Title: </B></FONT><FONT SIZE=2><B><I>Senior Vice President, Finance and<BR>
Chief Financial Officer</I></B></FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ne43902_1">EXHIBIT 32</A></FONT><BR>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ne43902_2">CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ne43902_3">CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</A></FONT><BR>
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end
</TEXT>
</DOCUMENT>
</SUBMISSION>
