
<PAGE>

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998.
                             REGISTRATION NO. 333-____
                                          
                         SECURITIES AND EXCHANGE COMMISSION
                                          
                              WASHINGTON, D.C.  20549

                              -----------------------

                                      FORM S-3
                               REGISTRATION STATEMENT
                                       Under
                             THE SECURITIES ACT OF 1933

                              -----------------------

                          INHALE THERAPEUTIC SYSTEMS, INC.
               (Exact name of registrant as specified in its charter)
                                          
          DELAWARE                                             94-3134940
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                          Identification Number)
                                          
                                150 INDUSTRIAL ROAD
                            SAN CARLOS, CALIFORNIA 94070
                                   (650) 631-3100
    (Address, including zip code, and telephone number, including area code, of
                     registrant's principal executive offices)
                                          
                         ROBERT B. CHESS AND AJIT S. GILL
                            CO-CHIEF EXECUTIVE OFFICERS
                          INHALE THERAPEUTIC SYSTEMS, INC.
                                150 INDUSTRIAL ROAD
                            SAN CARLOS, CALIFORNIA 94070
                                   (650) 631-3100
      (Name, address, including zip code, and telephone number, including area
                            code, of agent for service)
                                          
                                     COPIES TO:
                                          
                               MARK P. TANOURY, ESQ.
                                 COOLEY GODWARD LLP
                                3000 SAND HILL ROAD
                               BUILDING 3, SUITE 230
                            MENLO PARK, CALIFORNIA 94025
                                   (650) 843-5000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  If the only 
securities being registered on this Form are being offered pursuant to 
dividend or interest reinvestment plans, please check the following box. / /  
If any of the securities being registered on this Form are to be offered on a 
delayed or continuous basis pursuant to Rule 415 under the Securities Act of 
1933, other than securities offered only in connection with dividend or 
interest reinvestment plans, check the following box. /X/  If this form is 
filed to register additional securities for an offering pursuant to Rule 
462(b) under the Securities Act, please check the following box and list the 
Securities Act registration statement number of the earlier effective 
registration statement for the same offering. / /  If this form is a 
post-effective amendment filed pursuant to Rule 462(c) under the Securities 
Act, check the following box and list the Securities Act registration 
statement number of the earlier effective registration statement for the same 
offering.  If delivery of the Prospectus is expected to be made pursuant to 
Rule 434, please check the following box. / /
                                          
<TABLE>
<CAPTION>
                          CALCULATION OF REGISTRATION FEE

TITLE OF EACH CLASS                          PROPOSED MAXIMUM     PROPOSED MAXIMUM         
  OF SECURITIES              AMOUNT TO BE        OFFERING           AGGREGATE            AMOUNT  OF
TO BE REGISTERED             REGISTERED(1)   PRICE PER SHARE(2)   OFFERING PRICE(2)   REGISTRATION FEE
-------------------          -------------   ------------------  ------------------   ----------------
<S>                          <C>             <C>                  <C>                 <C>
  Common Stock                 1,200,000           $31.69            $38,028,000          $10,572
                               ---------           ------            -----------          -------
</TABLE>

(1)  Pursuant to Rule 416 of the Securities Act, this Registration Statement 
     also covers such indeterminable additional shares as may become issuable 
     as a result of any future stock splits, stock dividends or similar 
     transaction.

(2)  Estimated in accordance with Rule 457(c) solely for the purpose of 
     computing the amount of the registration fee based on the average of the 
     high and low prices of the Company's Common Stock as reported on the 
     Nasdaq National Market on December 8, 1998. 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR 
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS 
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH 
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION 
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING 
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.  WE 
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE 
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.  THIS PROSPECTUS IS NOT AN 
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE 
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
                                          
                               SUBJECT TO COMPLETION
                                          
                         PROSPECTUS DATED DECEMBER 14, 1998
                                          
                           INHALE THERAPEUTIC SYSTEMS, INC.
                                          
                                  1,200,000 SHARES
                                          
                                  $.0001 PAR VALUE
                                          
                                    COMMON STOCK

The selling stockholders identified in this prospectus may sell up to 
1,200,000 shares of common stock of Inhale Therapeutic Systems, Inc.  The 
selling stockholders, directly or through agents, brokers, dealers or 
underwriters, may sell the shares of common stock described in this 
prospectus (1) on terms to be determined at the time of a sale, (2) in 
transactions on the Nasdaq National Market, (3) in privately negotiated 
transactions or (4) in a combination of these methods of sale.  If the 
selling stockholders sells shares to or through brokers or dealers, such 
brokers or dealers may receive compensation in the form of discounts, 
concessions or commissions from the selling stockholders.  We will not 
receive any proceeds from the sale of shares by the selling stockholders.

We will not be paying any underwriting commissions or discounts in the 
offering of these shares.  We will, however, be paying for the expenses 
incurred in the offering of the shares.  For their shares, the selling 
stockholders will receive the purchase price of the shares sold less any 
agents' commissions and underwriters' discounts and other related expenses.

The selling stockholders and any agents, broker, dealers or underwriters that 
participate in the sale of the shares may be considered "underwriters" as 
defined in the Securities Act of 1933, and any commission they receive and 
any profit on the resale of the shares they purchase may be considered 
underwriting discounts or commissions under the Securities Act.  We have 
agreed to indemnify the selling stockholders and certain other persons 
against certain liabilities, including liabilities under the Securities Act.

Please see "Where You Can Find More Information" on page 5 for additional 
information about us on file with the United States Securities and Exchange 
Commission.

We strongly urge you to read and consider this prospectus carefully and in 
its entirety, including the matters referred to under "Risk Factors" 
beginning at page 6.

Neither the Securities and Exchange Commission nor any state securities 
commission has approved or disapproved of these securities or passed upon the 
adequacy or accuracy of this prospectus.  Any representation to the contrary 
is a criminal offense.

<PAGE>

                                 TABLE OF CONTENTS

                                                                          PAGE
                                                                          ----
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .     1
WHERE YOU CAN FIND MORE INFORMATION.  . . . . . . . . . . . . . . . . .     5 
RISK FACTORS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     6 
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . .    12 
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . .    12 
SELLING STOCKHOLDERS  . . . . . . . . . . . . . . . . . . . . . . . . .    12 
PLAN OF DISTRIBUTION  . . . . . . . . . . . . . . . . . . . . . . . . .    13 
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13 
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    14


<PAGE>

                                    THE COMPANY

THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION 
INCLUDING "RISK FACTORS" APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE 
FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED IN THE COMPANY'S ANNUAL 
REPORT (FORM 10-K) FOR THE YEAR ENDED DECEMBER 31, 1997, INCORPORATED BY 
REFERENCE HEREIN (THE "ANNUAL REPORT").  EXCEPT FOR THE HISTORICAL 
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS 
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.  THE 
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. 
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE 
NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" BEGINNING AT PAGE 6 OF THIS 
PROSPECTUS AND THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" CONTAINED IN 
THE ANNUAL REPORT, AS WELL THOSE DISCUSSED ELSEWHERE IN THE PROSPECTUS, THE 
ANNUAL REPORT, AND ANY OTHER DOCUMENT INCORPORATED HEREIN PRIOR TO THE 
TERMINATION OF THE OFFERING.

We are developing a pulmonary drug delivery system applicable to a wide range 
of peptides, proteins and other molecules currently delivered by injection or 
by other routes including existing inhalation systems.  As an alternative to 
invasive delivery techniques, a pulmonary delivery system potentially could 
expand the market for pharmaceutical drug therapies by increasing patient 
acceptance and improving compliance, which in turn could decrease medical 
complications and the associated costs of disease management.  Pulmonary 
delivery also may enable new therapeutic uses of certain drugs.  We are 
focusing development efforts on applying our pulmonary delivery system 
primarily to drugs for systemic and local lung diseases that either have 
proven efficacy and are approved for delivery by injection or are in late 
stage human clinical trials. In addition, we are applying our delivery 
technology to selected other applications where our approach may have 
significant advantages.  Several of our projects are in clinical trials, 
including insulin (currently starting Phase III clinical trials) and numerous 
other projects are in various stages of research, feasibility, formulation 
and preclinical development.

Medical science, health care providers and consumers have been searching for 
alternatives to injection as a means of delivering drugs.  To date, oral, 
transdermal, and nasal routes of delivery have shown that they have low 
natural bioavailabilty (the amount of drug absorbed from the delivery site 
into the bloodstream) due to the large size of macromolecules, making these 
routes commercially unattractive alternatives for the natural delivery of 
most macromolecule drugs.

We approach pulmonary drug delivery with the objective of maximizing overall 
system efficiency while addressing commercial requirements for 
reproducibility, formulations stability, safety and convenience.  We are 
designing our delivery system to integrate 

     -    customized formulations;
     -    proprietary fine dry powder processing; 
     -    packaging technology; and
     -    our proprietary inhalation device

for efficient, reproducible lung delivery of macromolecule powders.  To 
achieve this goal, we are combining an understanding of lung biology, aerosol 
science, chemical engineering, mechanical engineering, and protein 
formulations in our system development efforts.  We intend to take bulk drugs 
supplied by collaborative pharmaceutical and biotechnology partners, 
formulate and process these drugs into fine powders and fill and package the 
powders into individual dosing units (blisters).  We have designed the 
blisters to load into our device, which patients then activate to inhale the 
aerosolized drugs.

Our strategy is to work with collaborative partners to develop and 
commercialize drugs for systemic and local lung modification using our 
pulmonary delivery system.  We are engaged in early stage feasibility, 
research or development collaborations with Pfizer Inc., Baxter Healthcare 
Corporation (a subsidiary of Baxter International), Centeon (a company of 
Hoechst AG and Rohne-Poulenc SA, soon to be renamed Aventis Biologicals), Eli 
Lilly and Company, Immunex Corporation and Genzyme Corporation as well as 
other major international pharmaceutical and biotechnology companies.  We 
describe the most recent of these collaborations in greater detail below.  In 
addition to our collaborations, we have initiated projects with several drugs 
(calcitonin, heparin, Interferon-Alpha, Interferon-Beta and follicle 
stimulating hormone). We anticipate that any product that might be developed 
would be commercialized through a collaborative partner and believe our 
partnering strategy will enable us to reduce our cash requirements while 
developing a large and diversified potential product portfolio.

                        RECENT DEVELOPMENTS

During the past 12 months, we advanced our insulin program with Pfizer, 
entered into an additional collaborative agreement with Lilly, restructured 
our agreement with Baxter, expanded our management team, and received 
additional patents covering our pulmonary delivery technology.

CLINICAL PROGRAMS

On November 10, 1998, we reported that Pfizer announced the beginning of 
Phase III clinical trials to test the systemic delivery of insulin through 
the lungs using our pulmonary delivery system.  We kicked off Phase III 
trials with an investigators meeting held from November 7-9, and we will 
follow it with recruitment, enrollment and dosing of patients.  We have 
projected the trials to include Type 1 and Type 2 diabetics at 117 sites.

On September 9, 1998, we announced preliminary results from a Phase IIb trial 
showing that individuals with type 2 diabetes can markedly improve their 
glycemic control without insulin injections by combining our pulmonary 
insulin with oral diabetes agents. Pfizer collected the new results from 56 
of 69 outpatients in an on-going three-month Phase II multi-center clinical 
trial conducted by Pfizer.  Patients who were failing to control their 
diabetes with oral agents alone achieved control using pulmonary insulin in 
combination with oral therapy without the need for insulin injections.

                                 1
<PAGE>

On June 16, 1998, we announced the results of three-month clinical trials 
with 121 outpatients conducted by our collaborator, Pfizer, which 
demonstrated that the pulmonary delivery of insulin resulted in blood glucose 
control and dose-to-dose reproducibility comparable to injection for the 
treatment of diabetes.  In these Phase IIb trials, patients also favored 
inhaling over injecting insulin.

On November 4, 1998, we reported that Pfizer and Hoechst Marion Roussel AG 
announced that they had entered into worldwide agreements to manufacture 
insulin, and co-develop and co-promote inhaled insulin.  Under the terms of 
the agreement, Pfizer and Hoechst Marion Roussel will construct a jointly 
owned manufacturing plant in Frankfurt, Germany.  Until its completion, 
Hoechst Marion Roussel will provide biosynthetic recombinant insulin from its 
existing plant to us for powder processing.  We will continue to have 
responsibility for manufacturing powders and supplying devices and will 
receive a royalty on any inhaled insulin products marketed jointly by Pfizer 
and Hoechst.

On April 1, 1998, we successfully completed an initial Phase II human 
clinical trial for one drug and a Phase I human clinical trial for a second 
drug resulting from our collaboration with Baxter.  Both trials indicated 
that our pulmonary delivery system could provide significant advantages 
compared to current delivery alternatives for these molecules.

COLLABORATIVE PARTNERS

On January 6, 1998, we entered into a collaborative agreement with Lilly to 
develop pulmonary delivery for an unspecified protein product based on our 
deep-lung delivery system for macromolecules.  This is the second 
collaborative agreement between us and Lilly.  Under the terms of the 
agreement, we may receive funding of up to $20 million in research, 
development, and milestone payments.  Lilly will receive global 
commercialization rights for the pulmonary delivery of any products and we 
will receive royalties on any marketed products.  We will manufacture 
packaged powders for and supply inhalation devices to Lilly.

In April, 1998, we completed a review with Baxter of our two-year old 
collaboration.  The two companies agreed to focus their efforts on the one 
compound that the parties believe has the largest commercial potential.  Two 
additional compounds remain in the collaboration and we may develop them 
further in the future.  We will receive all rights to work done on a fourth 
compound from the collaboration, currently in pre-clinical development, and 
will be free to develop further or partner the compound independently of 
Baxter.  On October 15, 1998, we reached agreement with Baxter to amend our 
collaborative agreement.  The purpose of the amendment was to facilitate 
signing a new corporate partner to fund further development and 
commercialization of the undisclosed compound that has been Baxter's focus 
since April, 1998.  Baxter will continue to provide development funding for 
this compound in preparation for Phase II trials while the two companies are 
seeking the new partner.

                                      2
<PAGE>

Each of the foregoing collaborative arrangements are terminable by the 
partner.  Therefore, there can be no assurance that we will receive 
additional payments as described or that any marketable products will result 
from the collaborations.  See "Risk Factors - Dependence Upon Collaborative 
Partners."

MANAGEMENT TEAM

In September, 1998, we adopted a co-Chief Executive Officer (CEO) structure.  
The two co-CEOs of Inhale are Ajit Gill, former Chief Operating Officer, and 
Robert Chess, former Chief Executive Officer and President.  The position of 
President will no longer exist.  In addition, to help manage our growth, we 
created the positions of Vice President of Human Resources and General 
Counsel.  Our new Vice President of Human Resources is Don Campodonico and 
our General Counsel is Stephen Hurst. 

Ajit S. Gill has served as our Chief Financial Officer and Vice President of 
Technical Operations as well as Chief Operating Officer.  Before joining 
Inhale in 1992, Mr. Gill was Vice President and General Manager of Kodak's 
Interactive Systems division.  Mr. Gill was Chief Financial Officer for 
TRW-Fujitsu, Director of Business Development for Visicorp, and has served as 
President for three early-stage high technology companies.  

Robert B. Chess has served as Inhale's President since 1991 and CEO since 
1992.  Mr. Chess was co-founder and president of Penederm, Inc., a 
dermatology pharmaceutical company focused on improved drug topical delivery, 
and previously held management positions at Intel Corporation and Metaphor 
Computer Systems (now part of IBM).  Immediately before joining Inhale, he 
served as a member of President Bush's White House staff. 

Prior to joining Inhale, Mr. Campodonico, the new Vice President of Human 
Resources, served as Vice President of the Octel Messaging Division of Lucent 
Technologies.  He also served as Vice President of Octel University, where he 
was responsible for product, sales, and management training.  Prior to his 
service at Octel, Mr. Campodonico held a variety of management positions at 
ROLM Corporation, including Vice President of Manufacturing of ROLM MilSpec 
Computers.  

We have also appointed Stephen Hurst, previous Inhale Vice President of 
Intellectual Property and Licensing, as General Counsel.  Mr. Hurst has been 
with Inhale since 1994.  Prior to joining Inhale, he served as an 
intellectual property consultant for COR Therapeutics, Inc. Mr. Hurst was the 
campus Patent and Licensing Coordinator at the University of California, San 
Francisco prior to his consulting at COR.  He also worked as an Associate 
Counsel at the intellectual property law firm of Townsend & Townsend.  

NEW PATENTS

The United States Patent and Trademark Office granted us five new patents in 
1998.  In July, we announced that the PTO granted two additional patents 
covering our device technology for reproducibly delivering aerosolized doses 
of drugs to the deep lung.  

                                    3
<PAGE>

In October, we were issued a patent containing 50 claims directed to methods 
and means for aerosolizing dry powders through use of a high pressure gas 
stream to draw dry powder from a receptacle such as a blister.  In addition, 
we announced a patent covering methods and means for pulmonary delivery of 
dry powder alpha-1 antitrypsin for administration to a patient.  A third 
patent announced in October extends our coverage of pulmonary delivery of 
active fragments of parathyroid hormone (PTH), a macromolecule being 
developed by pharmaceutical companies to treat osteoporosis. 

In April, 1998, we signed an agreement with Initiatech Inc. under which we 
will license technology, intellectual property, and patents for protecting 
biologically active compounds in the dry state.  We plan to use this 
technology to expand our current technology base in stabilizing dry powder 
aerosol formulations for peptides, proteins, and other macromolecules at room 
temperature.

                                       4
<PAGE>

                        WHERE YOU CAN FIND MORE INFORMATION

Our principal executive offices are located at 150 Industrial Road, San 
Carlos, CA 94070.  Our telephone number is (650) 631-3100.  We maintain an 
Internet home page at www.Inhale.com. The contents of our web page are not 
incorporated herein and are not a part of this prospectus.

We have filed with the SEC a registration statement on Form S-3 to register 
the common stock offered by this prospectus.  However, this prospectus does 
not contain all of the information contained in the registration statement 
and the exhibits and schedules to the registration statement.  We strongly 
encourage you to carefully read the registration statement and the exhibits 
and schedules to the registration statement.  We also file annual, quarterly 
and special reports, proxy statements and other information with the SEC.

You may inspect and copy such material at the public reference facilities 
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 
20549, as well as at the SEC's regional offices at 500 West Madison Street, 
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New 
York, New York 10048.  You may also obtain copies of such material from the 
SEC at prescribed rates by wiring to the Public Reference Section of the SEC, 
450 Fifth Street, N.W., Washington, D.C. 20549.

Please call the SEC at 1-800-SEC-0330 for further information on the public 
reference rooms.  Our SEC filings are also available to the public from the 
SEC's Website at www.sec.gov.

The SEC allows us to "incorporate by reference" the information contained in 
documents that we file with them, which means that we can disclose important 
information to you by referring you to those documents.  The information 
incorporated by reference is considered to be part of this prospectus. 
Information in this prospectus supersedes information incorporated by 
reference which we filed with the SEC prior to the date of this prospectus, 
while information that we file later with the SEC will automatically update 
and supersede this information.  We incorporate by reference the documents 
listed below and any future filings we will make with the SEC under Sections 
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934;

1.   Our Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
     filed on March 23, 1998 and an amendment thereto filed April 30, 1998,
     including all material incorporated by reference therein;

2.   Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
     1998, filed on May 14, 1998, including all material incorporated by
     reference therein;

3.   Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
     1998, filed on August 13, 1998, including all material incorporated by
     reference therein;

4.   Our Quarterly Report on Form 10-Q for the fiscal quarter ended September
     30, 1998, filed on November 12, 1998, including all material incorporated
     by reference therein;

5.   Our Current Report on Form 8-K, filed on April 7, 1998, including all
     material incorporated by reference therein; and

6.   The description of the common stock contained in our Registration Statement
     on Form 8-A as filed on May 2, 1994.

You may request a copy of these filings, at no cost to you, by writing or 
telephoning us at:

               Inhale Therapeutic Systems, Inc.
               Attention:  Investor Relations
               150 Industrial Road
               San Carlos, CA  94070
               Telephone: (650) 631-3100

Our common stock is quoted on the Nasdaq National Market under the symbol 
"INHL".  The last reported sales price of the common stock on the Nasdaq 
National Market ("Nasdaq") on December 11, 1998 was $30.06 per share.  You 
may inspect reports and other information concerning us at the offices of the 
National Association of Securities Dealers, Inc., 1735 K Street, N.W., 
Washington, D.C.  20006.

You should rely only on the information incorporated by reference or provided 
in this prospectus.  We have authorized no one to provide you with different 
information.  You should not assume that the information in this prospectus 
is accurate as of any date other than the date on the front of the document.

                                       5

<PAGE>

                                    RISK FACTORS

YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING ANY INVESTMENT 
IN INHALE.  YOUR UNDERSTANDING OF THESE RISK FACTORS IS IMPORTANT IN 
EVALUATING INHALE AND OUR BUSINESS.  INVESTMENT IN OUR COMMON STOCK INVOLVES 
CONSIDERABLE RISK TO YOU AND MAY RESULT IN THE LOSS OF ALL OR PART OF YOUR 
INVESTMENT.  THE FOLLOWING AREAS OF RISK ARE DISCUSSED IN MORE DETAIL BELOW:

     -    Early Stage Company
     -    Uncertainties Related to Technology and Product Development
     -    Uncertainties Related to Clinical Trials
     -    History of Operating Losses; Uncertainty of Future Profitability
     -    Dependence Upon Collaborative Partners
     -    Limited Manufacturing Experience; Risk of Scale-Up
     -    Uncertainty of Market Acceptance
     -    Future Capital Needs; Uncertainty of Additional Funding
     -    Dependence Upon Proprietary Technology; Uncertainty of Obtaining
          Licenses or Developing Technology
     -    Dependence Upon and Need to Attract Key Personnel
     -    Government Regulation; Uncertainty of Obtaining Regulatory Approval
     -    Uncertainty Related to the Health Care Industry and Third-Party
          Reimbursement
     -    Highly Competitive Industry; Risk of Technological Obsolescence
     -    Product Liability; Availability of Insurance
     -    Hazardous Materials
     -    Anti-Takeover Provisions
     -    Potential Volatility of Stock Price

EARLY STAGE COMPANY.  We are in an early stage of development.  There is a 
risk that our pulmonary delivery technology will not be technically feasible. 
 Even if our pulmonary delivery technology is technically feasible, it may 
not be commercially accepted across a range of macromolecules and small 
molecule drugs. We have tested six of our thirteen pulmonary delivery 
formulations in human clinical trials.  The pulmonary formulations tested in 
humans are insulin, interleukin-1 receptor, salmon calcitonin, an 
osteoporosis drug and two small molecules.  

Many of the underlying drug compounds contained in our pulmonary formulations 
have been tested in humans by other companies using alternative delivery 
routes. Our potential products require extensive research, development and 
pre-clinical and clinical testing.   Our potential products also may involve 
lengthy regulatory review before they can be sold.  We do not know if and 
cannot assure that any of our potential products will prove to be safe and 
effective or meet regulatory standards.  There is a risk that any of our 
potential products will not be able to be produced in commercial quantities 
at acceptable cost or marketed successfully.  Our failure to achieve 
technical feasibility, demonstrate safety, achieve clinical efficacy, obtain 
regulatory approval or, together with partners, successfully market products 
will seriously impact the amount of our revenue and our results of 
operations. 

UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT.  The success of 
our pulmonary drug delivery system for any drugs will depend upon our 
achieving the following:

     -    sufficient system efficiency;
     -    formulation stability;
     -    safety; and
     -    dosage reproducibility. 

System efficiency is the product of the pulmonary bioavailability of a potential
product and the percentage of each drug dose lost at various stages of the
manufacturing and pulmonary delivery process.  Pulmonary bioavailability is the
percentage of a drug that is absorbed into the bloodstream when that drug is
delivered directly to the lungs.  This is the initial screen for whether
pulmonary delivery of any systemic drug is feasible.  The stages of the
manufacturing and pulmonary delivery process are:

     -    drug formulation;
     -    dry powder processing;
     -    packaging; and
     -    moving the drug from a delivery device into the lungs.

We would not consider a drug as a good candidate for development and 
commercialization if its dose loss is excessive at any one stage or 
cumulatively in the manufacturing and delivery process or if its pulmonary 
bioavailability is too low.

Formulation stability is the physical and chemical stability of the drug over 
time and under various storage conditions.  Formulation stability will vary 
with each pulmonary formulation and the type and amount of excipients that 
are used in the formulation.  

The safety of our pulmonary formulations will vary with each drug and the 
excipients used in its formulation.  

Reproducible dosing is the ability to deliver a consistent and predictable 
amount of drug into the bloodstream over time both for a single patient and 
across patient groups.  Reproducible dosing requires the development of:

     -    an inhalation device that consistently delivers predictable amounts of
          dry powder formulations to the deep lung;
     -    accurate unit dose packaging of dry powder formulations; and
     -    moisture resistant packaging.

There is a risk that we will not develop reproducible dosing of any potential 
product.  The failure to do so means that we would not consider it a good 
candidate for development and commercialization.

Our integrated approach to systems development relies upon several different 
but related technologies:

     -    dry powder formulations;
     -    dry powder processing technology;
     -    dry powder packaging technology; and
     -    pulmonary delivery devices.

At the same time we must:

     -    establish collaborations with partners;
     -    perform laboratory and clinical testing of potential products; and
     -    scale-up our manufacturing processes.

We must accomplish all of these steps without delaying any aspect of 
technology development.  Any delay in one component of product or business 
development could delay our ability to develop, obtain 


                                       6

<PAGE>

approval of or market therapeutic products using our pulmonary delivery 
technology.  

Before we can sell any potential product, we must:

     -    further refine our device prototype;
     -    complete scale-up of our powder processing system; and
     -    complete scale-up of our automated packaging system.

There is a risk that we will not:

     -    be able to demonstrate pulmonary bioavailability for the drug
          candidates we have identified or may identify;
     -    be able to achieve commercial viability of our pulmonary delivery
          system;
     -    achieve the total system efficiency needed to be competitive with
          alternative routes of delivery;
     -    prove potential products to be safe or provide reproducible dosages of
          stable formulations sufficient to achieve clinical efficacy;
     -    gain regulatory approval or market acceptance; or
     -    advance the numerous aspects of product and business development
          needed to prevent delays in overall product development.

The failure to demonstrate pulmonary bioavailability, achieve total system 
efficiency, provide safe, reproducible dosages of stable formulations or 
advance on a timely basis the numerous aspects of product and business 
development will seriously impact the amounts of our revenues and our results 
of operations.

UNCERTAINTIES RELATED TO CLINICAL TRIALS.  We have limited experience in 
conducting clinical trials and intend to rely primarily on our collaborative 
partners for such trials, including Pfizer and Eli Lilly & Company.  We are, 
however, responsible for managing the clinical trials in our collaboration 
with Baxter Healthcare Corporation.  Before seeking regulatory approvals for 
the commercial sale of products under development, we must demonstrate 
through pre-clinical studies and clinical trials that such products are safe 
and effective for use in the target indications.  The results from 
pre-clinical studies and early clinical trials may not reflect the results 
that will be obtained in large-scale testing.  Accordingly, therefore, we 
cannot be certain that clinical trials will demonstrate the levels of safety 
and effectiveness needed to obtain regulatory approvals or will result in 
marketable products.

We might also conduct clinical trials with patients having advanced stages of 
disease.  During the course of treatment, these patients can die or suffer 
other adverse medical effects for reasons that may not be related to the drug 
being tested but that can nevertheless affect clinical trial results.  A 
number of companies in the pharmaceutical industry have suffered significant 
setbacks in advanced clinical trials, even after good results in earlier 
trials.  Clinical trials for products being developed by us and our partners 
may be delayed by many factors, including enrolling a sufficient number of 
patients fitting the trial profile.  If we fail to demonstrate safety and 
efficacy of any of our products in clinical trials, the resulting delays in 
developing other compounds and conducting pre-clinical testing and clinical 
trials will impact the amount of our revenue and our results of operations. 

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY.  We have 
never been profitable and, through September 30, 1998, have incurred a 
cumulative deficit of approximately $49.7 million.  We expect to continue to 
incur substantial and increasing losses over at least the next several years 
as we expand our research and development efforts, testing activities and 
manufacturing operations, and as we complete our late stage clinical and 
early commercial production facility.  All of our potential products are in 
research or in the early stages of development except for our insulin 
collaboration.  We have generated no revenues from approved product sales.  
Our revenues to date have consisted primarily of payments under short-term 
research and feasibility agreements and development contracts.  To achieve 
and sustain profitable operations, we must, alone or with others, 
successfully develop, obtain regulatory approval for, manufacture, introduce, 
market and sell products using our pulmonary drug delivery system.  There is 
a risk that we will not generate sufficient product or contract research 
revenue to become profitable or to sustain profitability. 

DEPENDENCE UPON COLLABORATIVE PARTNERS.  We currently do not have the 
resources necessary to develop, obtain regulatory approvals, or commercialize 
any of our potential therapeutic products.  Our ability to apply our 
pulmonary delivery system to a broad range of drugs depends upon our 
establishing and maintaining collaborative arrangements with other companies, 
especially for drugs currently approved for sale or in clinical testing that 
are covered by third-party patents.  We have entered into collaborative 
arrangements with certain partners to fund clinical trials, assist in 
obtaining regulatory approvals, supply drugs for formulation and market and 
distribute products.  

We have also entered into agreements with partners to test the feasibility of 
our pulmonary delivery system with certain of their proprietary molecules. 
There is a risk that we will not be able to enter into additional 
collaborations or that our feasibility agreements will lead to 
collaborations.  In addition, we may not be able to maintain or succeed with 
any of these collaborative arrangements or feasibility agreements, and our 
failure to enter into or maintain them will seriously impact the amounts of 
our revenue and our results of operations.  Moreover, we cannot work with any 
patented drug unless the owner of the drug agrees to collaborate with us.  
The inability of any partner to supply drugs for formulation will seriously 
impact the amount of our revenue and our results of operations.

Our existing partners may pursue development of other drug delivery systems 
that may compete with our drug delivery system.  They also have the right to 
terminate their agreements with us at any time without significant penalty to 
them.  We expect future partners to have similar rights.  Generally, we plan 
to formulate and manufacture powders for our partners and to supply the 
inhalation devices for such powders.  Some of our partners, however, may 
choose to formulate or manufacture their own powders, or to develop or supply 
their own device.  If they choose to do so, then one or more potential 
sources of revenue for us may be eliminated or reduced.  We anticipate that 
we may be precluded from entering into new arrangements with companies whose 
products compete with those of our existing partners.  In addition, we have 
limited or no control over the resources that any partner devotes to our 
potential products, or over their development efforts, including the clinical 
trials, and the marketing and pricing of products. 

The pharmaceutical and biotechnology industries are consolidating.  We may 
not be able to continue or initiate collaborations if our existing or 
potential partners are acquired or acquire other companies.  There is a risk 
that our partners will not perform their obligations as expected, devote 
sufficient resources to developing, testing or marketing our potential 
products or will terminate or change their agreements.  Our revenues and our 
results of operations will be seriously impacted if:

     -    a partner develops an alternate drug delivery systems;
     -    a partner develops, rather than us, components of the delivery system;


                                       7

<PAGE>

     -    we are precluded from entering into competitive arrangements;
     -    we fail to obtain timely regulatory approvals;
     -    an agreement is prematurely terminated;
     -    an agreement is renegotiated; or 
     -    a partner fails to devote sufficient resources to developing and
          commercializing our potential products. 

LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP.  We must scale-up our 
current powder processing and filling facilities and comply with the good 
manufacturing practice standards prescribed by the United States Food and 
Drug Administration and other standards prescribed by other regulatory 
agencies to achieve drug production levels that are adequate to support late 
stage human clinical trials and early commercial sales.

We have no experience manufacturing products for large scale clinical testing 
or commercial purposes.  We have only performed powder processing on the 
small scale needed for testing formulations and for early stage and larger 
clinical trials.  We may encounter manufacturing and control problems as we 
attempt to scale-up powder processing facilities.  We may not be able to 
achieve such scale-up in a timely manner or at a commercially reasonable 
cost, if at all. Our failure to solve any of these problems could delay or 
prevent late stage clinical testing and commercialization of our products and 
could seriously impact the amount of our revenues and our results of 
operations.  

To date, we have relied on one particular method of powder processing.  There 
is a risk that this technology will not work with all drugs or that the drug 
losses will prohibit the commercial viability of certain drugs.  
Additionally, there is a risk that any alternative powder processing methods 
we may pursue will not be commercially practical for aerosol drugs or that we 
will not have or be able to acquire the rights to use such alternative 
methods. 

Our fine particle powders and small quantity packaging require special 
handling. We have designed and qualified small scale automated filling 
equipment for small quantity packaging of fine powders.  We face significant 
technical challenges in scaling-up an automated filling system that can 
handle the small dose and particle sizes of our powders in commercial 
quantities.  There is a risk that we will not be able to scale-up our 
automated filling equipment in a timely manner or at commercially reasonable 
costs.  Any failure or delay in such scale-up would delay product development 
or bar commercialization of our products and will impact the level of our 
revenues and results of operations. 

We face many technical challenges in further developing our inhalation device 
to work with a broad range of drugs, to produce such a device in sufficient 
quantities and to adapt the device to different powder formulations.  There 
is a risk that we will not successfully achieve any of these things.  Our 
failure to overcome any of these challenges will impact our revenues and 
results of operations. 

For late stage clinical trials and initial commercial production, we intend 
to use one or more contract manufacturers to produce our device.  There is a 
risk that we will not be able to enter into or maintain arrangements with any 
potential contract manufacturers, and that the failure to do so will impact 
our revenues and results of operations. 

UNCERTAINTY OF MARKET ACCEPTANCE.  The commercial success of our potential 
products depends upon market acceptance by health care providers, third-party 
payors, like health insurance companies and Medicare, and patients.  Our 
products under development use a new method of drug delivery and there is a 
risk that our potential products will not be accepted by the market.  Market 
acceptance will depend on many factors, including 

     -    the safety and efficacy results of our clinical trials;
     -    favorable regulatory approval and product labeling;
     -    the frequency of product use;
     -    the availability of third-party reimbursement;
     -    the availability of alternative technologies; and 
     -    the price of our products relative to alternative technologies. 

There is a risk that health care providers, patients or third-party payors 
will not accept our pulmonary drug delivery system.  If the market does not 
accept our potential products, our revenues and results of operations will be 
seriously impacted if our potential products are not accepted by the market.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING.  Our operations to 
date have consumed substantial and increasing amounts of cash.  We expect 
that the negative cash flow from operations will continue and accelerate.  
The development of our technology and potential products will require a 
commitment of substantial funds so that we can:

     -    conduct costly and time-consuming research, preclinical and clinical
          testing;
     -    establish an early commercial production facility; and
     -    bring any such potential products to market.

Our future capital requirements will depend on many factors, including:

     -    continued progress in the research and development of our technology
          and drug delivery system;
     -    our ability to establish and maintain collaborative arrangements with
          others and the terms of those arrangements;
     -    payments received from partners under research and development
          agreements;
     -    progress with preclinical and clinical trials;
     -    the time and costs involved in obtaining regulatory approvals;
     -    the cost of development and the rate of scale-up of our powder
          processing and packaging technologies;
     -    the timing and costs of our late stage clinical and early commercial
          production facility;
     -    the cost involved in preparing, filing, prosecuting, maintaining and
          enforcing patent claims; and 
     -    the need to acquire licenses to new technology and the status of
          competitive products.

We expect that our existing capital resources, revenues from collaborations 
and the interest thereon, will enable us to maintain our current and planned 
operations at least through 2000.  Thereafter, we will need to raise 
substantial additional capital to fund our operations.  We intend to seek 
such additional funding through new collaborative arrangements, by extending 
existing arrangements, or through public or private equity or debt 
financings.  There is a risk that additional financing will not be available 
on acceptable terms or at all.  If additional funds are raised by issuing 
equity securities, further dilution to stockholders will result.  If adequate 
funds are not available, we may be required to delay, reduce the scope of, or 
eliminate one or more of our research or development programs or obtain funds 
through relinquishing rights to some of our technologies, product candidates 
or products that we would otherwise develop or commercialize. 

DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF OBTAINING 


                                       8

<PAGE>

LICENSES OR DEVELOPING TECHNOLOGY.  We must protect our proprietary 
technology from infringement, misappropriation, duplication and discovery to 
be successful.  We rely principally on a combination of patent, trademark and 
copyright law, trade secrets and contract law to protect our technology 
worldwide.  We have filed patent applications covering certain aspects of our 
device, powder processing technology, and powder formulations and pulmonary 
route of delivery for certain molecules, and plan to file additional patent 
applications.  Currently we have 27 issued U.S. and foreign patents that 
cover certain aspects of our technology and we have a number of patent 
applications pending.  There is a risk that any of the patents applied for 
will not issue, or that any patents that issue or have issued will not be 
valid and enforceable.  Enforcing our patent rights would be time consuming 
and costly. 

Our patent positions and the patent positions of pharmaceutical, 
biotechnology and drug delivery companies are uncertain and involve complex 
legal and factual issues.  Additionally, the coverage claimed in a patent 
application can be significantly reduced before the patent is issued.  
Therefore, we do not know whether any of our patent applications will result 
in the issuance of patents or, if any patents issue, whether they will 
provide significant proprietary protection or will be circumvented or 
invalidated.  Since patent applications in the United States are maintained 
in secrecy until patents issue, and since publication of discoveries in the 
scientific or patent literature often lag behind actual discoveries, we 
cannot be certain that we were the first inventor of inventions covered by 
our pending patent applications or issued patents or that we were the first 
to file patent applications for such inventions.  We may have to participate 
in interference proceedings declared by the Patent and Trademark Office to 
determine ownership of a given invention, which could be costly to us, even 
if the eventual outcome is favorable to us.  An adverse outcome could subject 
us to significant liabilities to third parties, require disputed rights to be 
licensed from or to third-parties or require us to cease using the technology 
in dispute. 

We are aware of numerous pending and issued U.S. and foreign patent rights 
and other proprietary rights owned by third-parties that relate to aerosol 
devices and delivery, pharmaceutical formulations, dry powder processing 
technology and the pulmonary route of delivery for certain macromolecules.  
There is a risk that any of our patents or patent applications will not be 
considered relevant to our technology by authorities in the various 
jurisdictions where such rights exist, or that these rights will be asserted 
against us by such third-parties. 

We are aware of an alternate dry powder processing technology that we are not 
using for our current products under development but may desire to use for 
certain products in the future.  The ownership of this powder processing 
technology is unclear.  We are aware that multiple parties, including Inhale, 
claim patent, trade secret and other rights in the technology.  If we 
determine that this alternate powder processing technology is relevant to the 
development of future products and further determine that a license to this 
alternate powder processing technology is needed, we cannot be certain that 
we can obtain a license from the relevant party or parties on commercially 
reasonable terms, if at all.  

There is a risk that we will not obtain any license to any technology that we 
determine we need, on reasonable terms, or that we will not develop or 
otherwise obtain alternate technology.  Our failure to obtain licenses, if 
needed, will impact the level of our revenues and results of operations. 

In June 1997, we acquired the intellectual property portfolio of the 
BioPreservation Division of Pafra Limited of Basildon, England.  This 
portfolio includes issued U.S. and foreign patents and pending applications 
relating to the stabilization of macromolecule drugs in dry formulations.  A 
granted European patent included in this portfolio is currently the subject 
of an opposition proceeding before the European Patent Office.  The 
opposition proceeding allows third-parties to present evidence to the 
European Patent Office in a attempt to have the allowed patent declared 
invalid.  Opposition to this patent was initiated prior to the acquisition 
and we are continuing the defense of this patent.  There is a risk that we 
will not be successful in the defense of this opposition proceeding.  In 
addition, there is a risk that any of the Pafra patent applications will not 
issue, or that any of the Pafra patents will not be valid and enforceable.  
The loss of the opposition proceeding or the inability to obtain or defend 
the Pafra patents could impact the level of our revenues and results of 
operations. 

In the past, third-parties have asserted and in the future may assert that we 
are employing technology that is based on issued patents, trade secrets or 
know-how of others.  In addition, future patents may not issue to 
third-parties that our technology may infringe.  We could incur substantial 
costs in defending ourselves and our partners against any such claims.  
Parties making such claims may be able to obtain injunctive or other 
equitable relief that could effectively block our ability to further develop 
or commercialize some or all of our products in the United States and abroad, 
and could result in the award of substantial damages.  A claim of 
infringement may require our partners and us to obtain one or more licenses 
from third-parties.  There is a risk that we or our partners would not be 
able to obtain such licenses at a reasonable cost, if at all.  Defense of any 
lawsuit or failure to obtain any such license could impact the level of our 
revenues and results of operations. 

Our access or our partners' access to the drugs to be formulated will affect 
our ability to develop and commercialize our technology.  Many drugs, 
including powder formulations of certain drugs that are presently under 
development by us, are subject to issued and pending United States and 
foreign patents that may be owned by our competitors.  We know that there are 
issued patents and pending patent applications relating to the pulmonary 
delivery of macromolecule drugs, including several for which we are 
developing pulmonary delivery formulations. This situation is highly complex, 
and the ability of any one company, including Inhale, to commercialize a 
particular biopharmaceutical drug is, therefore, highly unpredictable.  

We intend generally to rely on the ability of our partners to provide access 
to the drugs that are to be formulated for pulmonary delivery.  There is a 
risk that our partners will not be able to provide access to such drug 
candidates. Even if such access is provided, there is a risk that our 
partners or we will be accused of, or determined to be, infringing a 
third-party's rights and will be prohibited from working with the drug or be 
found liable for damages that may not be subject to indemnification.  Any 
such restriction on access or liability for damages would impact the level of 
our revenues and results of operations. 

We also rely on trade secrets and contract law to protect certain of our 
proprietary technology.  There is a risk that any such contract will be 
breached, and that if breached, that we will not have adequate remedies.  
There is a risk that any of our trade secrets will become known or 
independently discovered by third-parties, thereby eliminating its value as a 
trade secret. 

In 1995 the Patent and Trademark Office adopted changes to the United States 
patent law that changed the term of issued patents, subject to certain 
transition periods, to 20 years from the date of filing rather than 17 years 
from date of issuance.  Beginning in June 1995, the patent term became 20 
years from the earliest effective filing date of the underlying patent 
application. Such change may reduce the 


                                       9

<PAGE>

effective term of protection for patents that are pending for more than three 
years in the Patent and Trademark Office.  In addition, as of January 1996, 
all inventors who work outside of the United States are able to establish a 
date of invention on the same basis as those working in the United States.  
Such change could adversely affect our ability to prevail in a priority of 
invention dispute with a third party located or doing work outside of the 
United States.  While we cannot predict the effect that such changes will 
have on our business, such changes could affect our ability to protect our 
ownership of our technology and sustain the commercial viability of our 
products.  The possibility of extensive delays in such process could 
effectively reduce the term during which a marketed product is protected by 
patents. 

DEPENDENCE UPON AND NEED TO ATTRACT KEY PERSONNEL.  We depend on the 
principal members of our scientific and management staff.  We do not have 
employment contracts with our key employees, nor do we have key man insurance 
policies on them.  We also rely on consultants and advisors to assist us in 
formulating research and development strategy.  To pursue our product 
development and commercialization plans, we will need to hire additional 
qualified scientific personnel to perform research and development, as well 
as personnel with expertise in clinical testing, government regulation and 
manufacturing.  We also expect to expand product development and 
manufacturing which will require additional management personnel and the 
development of additional expertise by existing management personnel.  
Retaining and attracting qualified personnel, consultants and advisors will 
be critical to our success.  We face competition for qualified individuals 
from numerous pharmaceutical, biotechnology and drug delivery companies, 
universities and other research institutions.  There is a risk that we will 
not be able to retain our current key employees or attract and retain 
qualified additional personnel and management when needed.  Our failure to do 
so would impact our ability to develop and sell our products. 

GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL.  
Numerous governmental authorities in the United States and other countries 
regulate the production and marketing of our products and our ongoing 
research and development activities.  Prior to marketing a new dosage form of 
any drug, including one developed for use with our pulmonary drug delivery 
system, the product must undergo rigorous preclinical and clinical testing 
and an extensive review process mandated by the FDA and equivalent foreign 
authorities.  This is true whether or not such drug was already approved for 
marketing in another dosage form.  These processes generally take a number of 
years and require the expenditure of substantial resources.  We have not 
submitted any products to the FDA for marketing approval.  We have no 
experience obtaining such regulatory approval, nor do we have the expertise 
or other resources to do so.  We intend to rely on our partners to fund 
clinical testing and to obtain product approvals. 

The time required for completing such testing and obtaining such approvals is 
uncertain.  We need to further refine our device prototype, further scale-up 
the powder processing system and automated powder filling and packaging 
system before our partners or we initiate later stage clinical trials or 
market our products.  Any delay in any of these components of product 
development may delay testing.  In addition, we may encounter delays or 
rejections based upon changes in the United States Food and Drug 
Administration policy, including policy relating to good manufacturing 
practice compliance, during the period of product development.  We may 
encounter similar delays in other countries.  

Even if regulatory approval of a product is granted, the approval may limit 
the indicated uses for which the product may be marketed.  In addition, the 
marketed product, its manufacturer, and its manufacturing facilities are 
subject to continual review and periodic inspections.  Later discovery of 
previously unknown problems with a product, manufacturer or facility may 
result in restrictions on such product or manufacturer, including withdrawal 
of the product from the market.  There is a risk that we will not obtain 
regulatory approval for any products on a timely basis, or at all. The 
failure to obtain timely regulatory approval of our products, any product 
marketing limitations or a product withdrawal would impact the level of our 
revenue and results of operations. 

UNCERTAINTY RELATED TO THE HEALTH CARE INDUSTRY AND THIRD-PARTY 
REIMBURSEMENT. Political, economic and regulatory influences are subjecting 
the health care industry in the United States to fundamental change.  Recent 
initiatives to reduce the federal deficit and to reform health care delivery 
are increasing cost-containment efforts.  We anticipate that Congress, state 
legislatures and the private sector will continue to review and assess

     -    alternative benefits;
     -    controls on health care spending through limitations on the growth of
          private health insurance premiums and Medicare and Medicaid spending;
     -    the creation of large insurance purchasing groups;
     -    price controls on pharmaceuticals; and 
     -    other fundamental changes to the health care delivery system. 

Any such proposed or actual changes could cause us or our collaborative 
partners to limit or eliminate spending on development projects.  We expect 
legislative debate to continue in the future.  We also expect that market 
forces will demand reduced healthcare costs.  We cannot predict what effect 
the adoption of any federal or state health care reform measures or future 
private sector reforms may have on our business. 

In both domestic and foreign markets, sales of our products under development 
will depend in part upon the availability of reimbursement from third-party 
payors, such as government health administration authorities, managed care 
providers, private health insurers and other organizations.  In addition, 
other third-party payors are increasingly challenging the price and cost 
effectiveness of medical products and services.  Significant uncertainty 
exists as to the reimbursement status of newly approved health care products. 
There is a risk that our proposed products will not be considered cost 
effective and that adequate third-party reimbursement will not be available 
to allow us to maintain competitive price levels.  Legislation and 
regulations affecting the pricing of pharmaceuticals may change before our 
proposed products are approved for marketing.  Adoption of such legislation 
could further limit reimbursement for medical products.  If the governments 
and third party payors do not provide adequate coverage and reimbursements, 
the market acceptance of these products would be limited, which would impact 
the level of our revenues and results of operations. 

HIGHLY COMPETITIVE INDUSTRY; RISK OF TECHNOLOGICAL OBSOLESCENCE.  The 
biotechnology and pharmaceutical industries are highly competitive.  We 
expect rapidly evolving and significant developments to continue at a rapid 
pace.  Our success depends upon maintaining a competitive position in the 
development of products and technologies for pulmonary delivery of 
pharmaceutical drugs.  Our business would be adversely impacted if a 
competing company were to develop, or acquire rights to:

     -    a better dry powder pulmonary delivery device or fine powder
          processing technology;
     -    a better system for efficiently and reproducibly delivering drugs to
          the deep lung;


                                       10

<PAGE>

     -    a non-invasive drug delivery system which is more attractive for the
          delivery of drugs than pulmonary delivery; or 
     -    an invasive delivery system which overcomes some of the drawbacks of
          current invasive systems for chronic or subchronic indications (such
          as a sustained release system).

We compete with pharmaceutical, biotechnology and drug delivery companies, 
hospitals, research organizations, individual scientists and nonprofit 
organizations engaged in developing alternative drug delivery systems or new 
drug research and testing.  We also compete with entities producing and 
developing injectable drugs.  We are aware of a number of companies 
developing new products and non-invasive alternatives to injectable drug 
delivery, including oral delivery systems, intranasal delivery systems, 
transdermal systems and colonic absorption systems.  Several of these 
companies may have developed or be developing dry powder devices that could 
be used for pulmonary delivery.

We are also aware of other companies engaged in developing and 
commercializing pulmonary drug delivery systems and enhanced injectable drug 
delivery systems. Many of these companies have greater research and 
development capabilities, experience, manufacturing, marketing, financial and 
managerial resources than we do and represent significant competition for us. 
Acquisitions of competing drug delivery companies by large pharmaceutical 
companies could enhance our competitors' financial, marketing and other 
resources.  Accordingly, our competitors may succeed in developing competing 
technologies, obtaining United States Food and Drug Administration approval 
for products or gain market acceptance before us.  We cannot assure that 
developments by others will not make our products or technologies 
uncompetitive or obsolete. 

PRODUCT LIABILITY; AVAILABILITY OF INSURANCE.  The design, development and 
manufacture of our products involve an inherent risk of product liability 
claims and associated adverse publicity.  Although we currently maintain 
general liability insurance, there is a risk that the coverage limits of our 
insurance policies will not be adequate.  We obtained clinical trial product 
liability insurance of $3.0 million per event for certain clinical trials and 
intend to obtain insurance for future clinical trials of insulin and other 
products under development.  There is a risk, however, that we will not be 
able to obtain or maintain insurance for any future clinical trials.  Such 
insurance is expensive, difficult to obtain and may not be available in the 
future on acceptable terms, or at all.  A successful claim brought against us 
in excess of our insurance coverage would impact the level of our revenue and 
results of operations. 

HAZARDOUS MATERIALS.  Our research and development includes the controlled 
use of hazardous materials, chemicals and various radioactive compounds.  
Although we believe that our safety procedures for handling and disposing of 
such materials comply with the standards prescribed by state and federal 
regulations, the risk of accidental contamination or injury from these 
materials cannot be completely eliminated.  In the event of such an accident, 
we could be held liable for any damages that result and any such liability 
could exceed the our resources.  We may incur substantial costs to comply 
with environmental regulations. 

ANTI-TAKEOVER PROVISIONS.  Certain provisions of our Certificate of 
Incorporation and the Delaware General Corporation Law could discourage a 
third party from attempting to acquire, or make it more difficult for a third 
party to acquire, control of Inhale without approval of our Board of 
Directors.  Such provisions could also limit the price that certain investors 
might be willing to pay in the future for shares of Common Stock. Certain of 
the provisions allow the Board of Directors to authorize the issuance of 
Preferred Stock with rights superior to those of the Common Stock. 

POTENTIAL VOLATILITY OF STOCK PRICE.  The market prices for securities of 
early stage biotechnology companies have historically been highly volatile 
and the market from time to time has experienced significant price and volume 
fluctuations that are unrelated to the operating performance of particular 
companies.  A variety of factors may have a significant effect on the market 
price of the Common Stock, including: 

     -    fluctuations in our operating results;
     -    announcements of technological innovations or new therapeutic
          products;
     -    announcement or termination of collaborative relationships by Inhale
          or our competitors;
     -    governmental regulation;
     -    clinical trial results;
     -    developments in patent or other proprietary rights;
     -    public concern as to the safety of drug formulations developed by
          Inhale or others; and 
     -    general market conditions.

Our securities are subject to a high degree of risk and volatility.  In the 
past, following periods of volatility in the market price of a company's 
securities, class action securities litigation have often been instituted 
against such a company.  Any such litigation instigated against us could 
result in substantial costs and a diversion of management's attention and 
resources, which could have a serious impact on our revenues and results of 
operations. 


                                       11

<PAGE>

                                  USE OF PROCEEDS

We will not receive any proceeds from the sale of Common Stock by the selling 
stockholders in the offering. 
                                          
                                  DIVIDEND POLICY

We have never paid cash dividends.  We currently intend to retain any 
earnings for use in our business and do not anticipate paying any cash 
dividends in the foreseeable future. 
                                          
                                SELLING STOCKHOLDERS

The selling stockholders acquired the shares of common stock covered by this 
Prospectus from the Company pursuant to a stock purchase agreement, dated 
December 8, 1998, between Inhale Therapeutic Systems, Inc. and Capital 
Research and Management Company for an aggregate purchase price of 
$37,200,000.00 ($31.00 per share).  The offer and sale by us of the common 
stock to the selling stockholders pursuant to the stock purchase agreement 
was made pursuant to an exemption from the registration requirements of the 
Securities Act provided by Section 4(2) thereof.  The stock purchase 
agreement contains representations and warranties as to the selling 
stockholders' status as "accredited investors" as such term is defined in 
Rule 501 promulgated under the Securities Act. 

Pursuant to the stock purchase agreement, the selling stockholders have 
represented that they acquired the shares for investment and with no present 
intention of distributing the shares.  We agreed, in the stock purchase 
agreement to prepare and file a registration statement as soon as practicable 
and to bear all expenses other than fees and expenses of counsel for the 
selling stockholders and underwriting discounts and commissions and brokerage 
commissions and fees. In addition, and in recognition of the fact that the 
selling stockholders, even though purchasing the shares without a view to 
distribution, may wish to be legally permitted to sell the shares when they 
deem appropriate, we filed with the Commission a Registration Statement on 
Form S-3, of which this Prospectus forms a part, with respect to, among other 
things, the resale of the shares from time to time at prevailing prices in 
the over-the-counter market or in privately-negotiated transactions and have 
agreed to prepare and file such amendments and supplements to the 
Registration Statement as may be necessary to keep the Registration Statement 
effective until such shares are no longer, by reason of Rule 144(k) under the 
Securities Act or any other rule of similar effect, required to be registered 
for the sale thereof by the selling stockholders. 

The following table sets forth the name of the selling stockholders, the 
number of shares of common stock owned beneficially by the selling 
stockholders as of December 10, 1998 and the number of shares that may be 
offered pursuant to this Prospectus.  This information is based upon 
information provided to us by the selling stockholders. There are currently 
no agreements, arrangements or understandings with respect to the sale of any 
of the shares.  The shares are being registered to permit public secondary 
trading of the shares, and the selling stockholders may offer the shares for 
resale from time to time. 

<TABLE>
<CAPTION>
                                                                    
                                                                    
                                   SHARES BENEFICIALLY            MAXIMUM NUMBER OF                SHARES BENEFICIALLY
          NAME                 OWNED PRIOR TO THE OFFERING       SHARES BEING OFFERED            OWNED AFTER THE OFFERING
---------------------------    ---------------------------       --------------------            -------------------------
                                NUMBER          PERCENT(1)                                        NUMBER        PERCENT(1)
                               ---------        ----------                                       ---------      ----------
<S>                            <C>              <C>              <C>                             <C>            <C>
Capital Research and           1,000,000            5.91%             1,000,000                    0              0
Management Company on 
behalf of SMALLCAP World 
Fund, Inc.

Capital Research and             200,000            1.18%               200,000                    0              0
Management Company on 
behalf of American 
Variable Insurance 
Series-Growth Fund 

TOTAL                          1,200,000            7.09%             1,200,000                    0              0
                               ---------                              ---------                  
                               ---------                                                         
</TABLE>


(1)  Applicable percentage of ownership is based on 16,914,620 shares of common
     stock outstanding on December 10, 1998, and includes the sale and issuance
     of 1,200,000 shares of common stock to the selling stockholders pursuant 
     to the stock purchase agreement.
                                          

                                       12
<PAGE>

                              PLAN OF DISTRIBUTION

The shares offered hereunder may be sold from time to time by the selling 
stockholders, or by pledgees, donees, transferees or other successors in 
interest. Such sales may be made on the Nasdaq National Market or in the 
over-the-counter market or otherwise, at prices and on terms then prevailing 
or related to the then-current market price, or in negotiated transactions. 
The shares may be sold to or through one or more broker-dealers, acting as 
agent or principal, in underwritten offerings, block trades, agency 
placements, exchange distributions, brokerage transactions or otherwise, or 
in any combination of transactions. 

Under applicable rules and regulations under the Exchange Act, any person 
engaged in the distribution of the shares may not simultaneously engage in 
market making activities with respect to our common stock for a period of two 
business days prior to the commencement of such distribution.  In addition 
and without limiting the foregoing, the selling stockholders will be subject 
to applicable provisions of the Exchange Act and the rules and regulations 
thereunder, including, without limitation, Rules 10b-6 and 10b-7, which 
provisions may limit the timing of purchases and sales of shares of common 
stock by the selling stockholders. 

At the time a particular offer of shares is made, to the extent required, a 
supplemental prospectus will be distributed that will set forth the number of 
shares being offered and the terms of the offering including the name or 
names of any underwriters, dealers or agents, the purchase price paid by any 
underwriter for the shares purchased from the selling stockholders and any 
discounts, concessions or commissions allowed or reallowed or paid to 
dealers. 

In connection with any transaction involving the shares, broker-dealers or 
others may receive from the selling stockholders, and/or the purchasers of 
the shares for whom such broker-dealers act as agents or to whom they may 
sell as principals or both, compensation in the form of discounts, 
concessions or commissions in amounts to be negotiated at the time (which 
compensation as to a particular broker-dealer might be in excess of customary 
commissions).  Broker-dealers and any other persons participating in a 
distribution of the shares may be deemed to be "underwriters" within the 
meaning of the Act in connection with such distribution, and any such 
discounts, concessions or commissions may be deemed to be underwriting 
discounts or commissions under the Act. 

Any or all of the sales or other transactions involving the shares described 
above, whether effected by the selling stockholders, any broker-dealer or 
others, may be made pursuant to this Prospectus.  In addition, any shares 
that qualify for sale pursuant to Rule 144 under the Act may be sold under 
Rule 144 rather than pursuant to this Prospectus. 

In order to comply with the securities laws of certain states, if applicable, 
the shares may be sold in such jurisdictions only through registered or 
licensed brokers or dealers.  In addition, in certain states the shares may 
not be sold unless the shares have been registered or qualified for sale or 
an exemption from registration or qualification requirements is available and 
is complied with. 

All costs associated with this offering, other than fees and expenses of 
counsel for the selling stockholders and underwriting discounts and 
commissions and brokerage commissions and fees, will be paid by us.  We have 
agreed to indemnify the selling stockholders against certain liabilities in 
connection with any offering of the shares pursuant to this Prospectus, 
including liabilities arising under the Act. 
                                          
                                   LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the 
Company by Cooley Godward LLP, Menlo Park, California, ("Cooley Godward").


                                       13

<PAGE>

                                     EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial 
statements included in our Annual Report on Form 10-K for the year ended 
December 31, 1997, as set forth in their report, which is incorporated in 
this prospectus by reference.  Our financial statements are incorporated by 
reference in reliance on their report, given on their authority as experts in 
accounting and auditing.

                                       14

<PAGE>

WE HAVE AUTHORIZED NO ONE TO GIVE ANY INFORMATION OR TO MAKE ANY 
REPRESENTATIONS THAT ARE NOT CONTAINED IN THIS PROSPECTUS.  YOU SHOULD RELY 
ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS 
PROSPECTUS.  YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.

THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SHARES IN ANY JURISDICTION 
WHERE IT IS UNLAWFUL.  YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS 
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE 
DOCUMENT.
                                          
                                 TABLE OF CONTENTS

                                                                         PAGE
                                                                         ----
THE COMPANY..........................................................      1
RECENT DEVELOPMENTS .................................................      1
WHERE YOU CAN FIND MORE INFORMATION..................................      5
RISK FACTORS.........................................................      6
USE OF PROCEEDS......................................................     12
DIVIDEND POLICY......................................................     12
SELLING STOCKHOLDERS.................................................     12
PLAN OF DISTRIBUTION.................................................     13
LEGAL MATTERS........................................................     13
EXPERTS .............................................................     14


                                          
                                  1,200,000 SHARES
                                          
                                    COMMON STOCK
                                          
                                 INHALE THERAPEUTIC
                                 SYSTEMS, INC. LOGO
                                          
                                     PROSPECTUS
                                          
                                 DECEMBER 14, 1998
                                          
                                          

<PAGE>

                                          
                                       PART II
                                          
                       INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 

The following table sets forth all expenses payable by Inhale Therapeutic 
Systems, Inc., hereinafter referred to as the "Registrant" or the "Company" 
in connection with the sale of the Shares being registered.  All the amounts 
shown are estimates except for the registration fee.  None of these expenses 
will be paid by the selling stockholders. 

<TABLE>
<S>                                                                   <C>
Registration fee................................................      $10,572
Printing and engraving expenses.................................      $ 3,000
Legal fees and expenses.........................................      $30,000
Accounting fees and expenses....................................      $10,000
Miscellaneous...................................................      $ 2,000

Total...........................................................      $55,572
                                                                      --------
</TABLE>

ITEM 15.  INDEMNIFICATION OF OFFICERS AND DIRECTORS. 

Under Section 145 of the Delaware General Corporation Law, the Registrant 
has broad powers to indemnify its directors and officers against liabilities 
they may incur in such capacities, including liabilities under the Securities 
Act of 1933, as amended (the "Securities Act").

The Registrant's Certificate of Incorporation provides for the elimination of 
liability for monetary damages for breach of the directors' fiduciary duty of 
care to the Registrant and its stockholders.  These provisions do not 
eliminate the directors' duty of care and, in appropriate circumstances, 
equitable remedies such an injunctive or other forms of non-monetary relief 
will remain available under Delaware law.  In addition, each director will 
continue to be subject to liability for breach of the director's duty of 
loyalty to the Registrant, for acts or omissions not in good faith or 
involving intentional misconduct, for knowing violations of law, for any 
transaction from which the director derived an improper personal benefit, and 
for payment of dividends or approval of stock repurchases or redemptions that 
are unlawful under Delaware law.  The provision does not affect a director's 
responsibilities under any other laws, such as the federal securities laws or 
state or federal environmental laws.


                                     II-1

<PAGE>

ITEM 16.  EXHIBITS

EXHIBIT NUMBER      DESCRIPTION OF DOCUMENT
--------------      -----------------------
       4.1          Stock Purchase Agreement between the Registrant and 
                    Capital Research and Management Company, dated December 
                    8, 1998.

       5.1          Opinion of Cooley Godward LLP.

      23.1          Consent of Ernst and Young LLP, Independent Auditors.

      23.2          Consent of Cooley Godward LLP.  Reference is made to 
                    Exhibit 5.1.

      24.1          Power of Attorney (included on signature pages).


ITEM 17.  UNDERTAKINGS.

     The undersigned registrant hereby undertakes:

     (1)  To file, during any period during which offers or sales are being
          made, a post-effective amendment to this registration statement;

          (i)    To include any prospectus required by Section 10(a)(3) of the
                 Securities Act of 1933;

          (ii)   To reflect in the prospectus any facts or events arising after
                 the effective date of the registration statement (or the most
                 recent post-effective amendment thereof) which, individually
                 or in the aggregate, represent a fundamental change in the
                 information set forth in the registration statement.
                 Notwithstanding the foregoing, any increase or any decrease in
                 volume of securities offered (if the total dollar value of
                 securities offered would not exceed that which was registered)
                 and any deviation from the low end or high end of the
                 estimated maximum offering range may be reflected in the form
                 of prospectus filed with the Commission pursuant to Rule
                 424(b) if, in the aggregate, the changes in volume and price
                 represent no more than 20% change in the maximum aggregate
                 offering price set forth in the "Calculation of Registration
                 Fee" table in the effective registration statement. 

          (iii)  To include any material information with respect to the plan
                 of distribution not previously disclosed in the registration
                 statement or any material change to such information in the
                 registration statement. 

PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if 
the information required to be included in a post-effective amendment by 
those paragraphs is contained in periodic reports filed with or furnished to 
the Commission by the registrant pursuant to Section 13 or 15(d) of the 
Securities Exchange Act of 1934 that are incorporated by reference in the 
registration statement. 

     (2)  That, for purposes of determining liability under the Securities Act
          of 1933, each such post-effective amendment shall be deemed to be a
          new registration statement relating to the securities to be offered
          therein, and the offering of such securities at that time shall be
          deemed to be an initial BONA FIDE offering thereof. 

     (3)  To remove from registration by means of a post-effective amendment any
          of the securities being registered which shall remain unsold at the
          termination of the offering. 

The undersigned registrant hereby undertakes that, for purposes of 
determining any liability under the Securities Act of 1933, each filing of 
the registrant's annual report pursuant to Section 13(a) or 15(d) of the 
Securities Exchange Act of 1934 (and, where applicable, each filing of an 
employee benefit plan's annual report pursuant to Section 15(d) of the 
Securities Exchange Act of 1934) that is incorporated by reference in the 
registration statement shall be deemed to be a new registration statement 
relating to the securities offered therein, and the offering of such 
securities at that time shall be deemed to be the initial BONA FIDE offering 
thereof. 


                                       II-2

<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act 
may be permitted to directors, officers and controlling persons of the 
registrant pursuant to provisions described in Item 15, or otherwise, the 
registrant has been advised that in the opinion of the Securities and 
Exchange Commission such indemnification is against public policy as 
expressed in the Securities Act and is, therefore, unenforceable.  In the 
event that a claim for indemnification against such liabilities (other than 
the payment by the registrant of expenses incurred or paid by a director, 
officer or controlling person of the registrant in the successful defense of 
any action, suit or proceeding) is asserted by such director, officer or 
controlling person in connection with the securities being registered, the 
registrant will, unless in the opinion of its counsel the matter has been 
settled by controlling precedent, submit to a court of appropriate 
jurisdiction the question whether such indemnification by it is against 
public policy as expressed in the Securities Act and will be governed by the 
final adjudication of such issue. 



                                       II-3

<PAGE>

                                    SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the 
Registrant certifies that it has reasonable grounds to believe that it meets 
all of the requirements for filing on Form S-3 and has duly caused this 
Registration Statement Form S-3 to be signed on its behalf by the 
undersigned, thereunto duly authorized, in the City of San Carlos, County of 
San Mateo, State of California, on the 11th day of December, 1998.
                                          
                                   INHALE THERAPEUTIC SYSTEMS

                                   By:  /s/ Robert B. Chess
                                        ----------------------------
                                        Robert B. Chess
                                        Co-Chief Executive Officer and Director

                                   By:  /s/ Ajit S. Gill 
                                        ----------------------------
                                        Ajit S. Gill
                                        Co-Chief Executive Officer and Director
     
                                          
                                 POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Robert B. 
Chess and Ajit S. Gill his true and lawful attorneys-in-fact and agents, each 
acting alone, with full power of substitution and resubstitution, for him and 
in his name, place and stead, in any and all capacities, to sign any or all 
amendments (including post-effective amendments) to the Registration 
Statement on Form S-3, and to file the same, with all exhibits thereto, and 
all 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 full to all intents and 
purposes as he might or could do in person, hereby ratifying and confirming 
all that said attorneys-in-fact and agents, each acting alone, or his 
substitute or substitutes, may lawfully do or cause to be done by virtue 
hereof. 

                                       II-4

<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this Registration 
Statement has been signed by the following persons in the capacities and on 
the dates indicated. 

<TABLE>
<CAPTION>
 SIGNATURE                     TITLE                                       DATE
<S>                           <C>                                          <C>
/s/ Robert B. Chess           Co-Chief Executive Officer
---------------------------   and Director                                December 11, 1998
Robert B. Chess               (Co-Principal Executive Officer)            

/s/ Ajit S. Gill              Co-Chief Executive Officer 
---------------------------   and Director                                December 11, 1998
Ajit S. Gill                  (Co-Principal Executive Officer)            

/s/ Christian O. Henry        Controller 
---------------------------   (Principal Financial and Accounting         December 11, 1998
Christian O. Henry            Officer)

/s/ Terry L. Ondendyk    
---------------------------   Chairman of the Board                       December 11, 1998
Terry L. Ondendyk

/s/ Mark J. Gabrielson   
---------------------------   Director                                    December 11, 1998
Mark J. Gabrielson

/s/ James B. Galvin 
---------------------------   Director                                    December 11, 1998
James B. Galvin

/s/ John S. Patton  
---------------------------   Vice President and Director                 December 11, 1998
John S. Patton

/s/ Melvin Perelman 
---------------------------   Director                                    December 11, 1998
Melvin Perelman
</TABLE>



                                      II-5

<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT NUMBER      DESCRIPTION OF DOCUMENT
--------------      -----------------------
     4.1            Stock Purchase Agreement between the Registrant and 
                    Capital Research and Management Company, dated December 
                    8, 1998.

     5.1            Opinion of Cooley Godward LLP.

    23.1            Consent of Ernst and Young LLP, Independent Auditors.

    23.2            Consent of Cooley Godward LLP.  Reference is made to 
                    Exhibit 5.1.

    24.1            Power of Attorney (included on signature pages).







                                       II-6

